THE WALL STREET JOURNAL
March 1, 2000

Law

Ex-Executive Is Suing
Bank of New York

By ANDREW HIGGINS and ANN DAVIS
Staff Reporters of THE WALL STREET JOURNAL

Natasha Gurfinkel Kagalovsky, a former senior vice president of the Bank of New York Co., said Tuesday she has sued her former employer and three of the bank's senior executives in a Moscow court, accusing them of wrongly suspending her in connection with an international money-laundering investigation.

Ms. Kagalovsky said at a Moscow news conference that bank executives knew she had "no connection whatsoever" to suspect accounts at the retail branch located at Bank of New York's One Wall Street headquarters in New York. Ms. Kagalovsky, 45 years old, ran a separate group at the bank's main offices, the Eastern European Division, a leader in so-called correspondent-banking services that allowed Western-style Russian banks to open U.S. accounts to transfer dollars abroad.

A spokesman for the Bank of New York called the civil lawsuit "a nuisance and entirely without foundation" and declined further comment. It also declined comment on behalf of the three executives sued: Thomas A. Renyi, the bank's chairman; Alan R. Griffith, vice chairman for international operations; and Charles E. Rappold II, chief administrative officer.

Ms. Kagalovsky's U.S. lawyer, Stanley S. Arkin of New York, said she is considering filing additional suits in the U.S. and Britain, where she has been living. Late last year, people familiar with the situation say, the bank offered to allow her to exercise millions of dollars in stock options that were granted before she resigned, but talks broke down.

Ms. Kagalovsky enjoyed a meteoric rise until she was put on paid administrative leave Aug. 18 from her job that pays as much as $900,000-a-year, pending the outcome of a probe into transfers of more than $7 billion out of Russia through accounts at the bank held by Benex International Co. and two related companies. In October, Ms. Kagalovsky resigned, complaining that the bank had refused to defend her and had effectively destroyed her career. Ms. Kagalovsky hasn't been accused of any wrongdoing. Mr. Arkin said Tuesday that in the days leading up to her resignation, he repeatedly called upon bank executives to defend her. People familiar with the matter say the bank is reluctant to publicly absolve her before it knows all the facts.

Ms. Kagalovsky supervised Russian emigre Lucy Edwards, whose husband, businessman Peter Berlin, controlled several of the suspect accounts. Ms. Edwards and Mr. Berlin pleaded guilty last month in New York to a wide-ranging conspiracy to help a group of young Moscow bankers move money in an underground pipeline through the old-line bank to evade Russian taxes and customs. An assistant who worked in the bank's Eastern European Division also has been indicted for lying to federal agents in connection with the case and has pleaded not guilty.

At the press conference, Ms. Kagalovsky said the bank had unfairly singled her out because of her Russian origins to distract attention from "serious problems in other parts of the bank." Her suit seeks $270 million in damages against the bank and the executives. Filed in the Savelovsky District court in Moscow, it accuses the Bank of New York of targeting her "to protect the employees of American origin who were really connected with the accounts under investigation." Ms. Kagalovsky is married to Konstantin Kagalovsky, a prominent Russian businessman.

Her suit, called a statement of claim, also named a Russian newspaper, Komsomolskaya Pravda, and its New York correspondent as defendants but does not seek monetary damages against them. The suit says Bank of New York mistakenly told the newspaper that Ms. Kagalovsky was suspended because she supervised the accounts under scrutiny. An employee at the newspaper said no one was available to comment, and the paper's New York correspondent couldn't be reached. A person familiar with the bank's position said it hadn't made any comment about Ms. Kagalovsky to that newspaper.

Ms. Kagalovsky's Russian lawyer, Genri Reznik, said she had standing to sue in Russia because the bank has substantial assets there, some of which could be seized if the bank declined to comply with any court judgment. Her U.S. attorney, Mr. Arkin, added that the suit was filed in Russia because her reputation was severely damaged there. Russian courts regularly award damages to politicians and other public figures for violations of their "honor and dignity" but the sums awarded are generally small. Moscow mayor Yuri Luzhkov recently won a case against a television journalist over unsubstantiated allegations of offshore bank accounts and secret payments from a Swiss construction company. Mr. Luzhkov sued for 450 million rubles ($15.7 million) and was awarded 100,000 rubles ($3,500). Most courts award even less.

Write to Andrew Higgins at andrew.higgins@wsj.com2 and Ann Davis at ann.davis@wsj.com3


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