More than two and a half years after the arrest of Michael Calvey – the founder of the Russian-focused private equity fund Baring Vostok – one of the most symbolic legal cases for the investment climate in Russia has finally come to an end . A judge found Calvey guilty on Friday, giving him a suspended five-and-a-half-year sentence.
- It took the judge two full days to read the verdict in the Baring Vostok case – and it didn’t finish until 10:40 p.m. on Friday. In the end, Calvey was found guilty of embezzling 2.5 billion rubles from the Vostochny Bank and given a suspended five-and-a-half-year sentence. The other defendants from Baring Vostok were also given suspended sentences.
- Throughout the proceedings, Calvey maintained his innocence. “In the context of most of these cases, getting a conditional sentence is almost a victory,” he said on Friday in comments referring to Russia’s high conviction rate. “But on the other hand, it is outrageous to be convicted of a crime that never happened. The accusation of embezzlement is deeply offensive to me as a professional investor who has earned a reputation for honesty over 25 years of work. I consider this verdict to be deeply unjust and regrettable.
- Mediator in the conflict between Calvey and Artyom Avetisyan, Baring Vostok’s ex-partner at Vostochny Bank said the outcome was agreed when Calvey repaired the “damage” he was believed to have caused. “To the best of my knowledge, the applicant [Avetisyan] also hopes for a reprieve. At the very least, he said he had no more complaints and considered the conflict to be settled, ”the source said. Avvetisyan’s only public comments on the Baring Vostok case date back to 2019.
- Financial compensation for the 2.5 billion rubles allegedly embezzled by Calvey and his colleagues was agreed as part of a deal between Baring Vostok and Avetisyan’s Finvision company last October.
How the affair unfolded
- Calvey and his co-defendants were arrested on February 15, 2019. Calvey spent nearly two months in detention before being placed under house arrest. During the following year, the other defendants were also placed under house arrest.
- Many business figures quickly spoke publicly about Calvey’s good reputation and the negative impact of the Baring Vostok affair on the investment climate in Russia. Among others, calls for Calvey’s release came from Sberbank chief German Gref; Anatoly Chubais, the mastermind of the privatization of the 90s; and the director of the Russian Direct Investment Fund, Kirill Dmitriev, who also stood surety in court on behalf of Calvey.
- The case arose out of a 2016 dispute over Vostochny Bank, Russia’s 39th largest bank, following the merger of Baring Vostok’s Vostochny Express bank and Avetisyan’s Uniastrum bank. The deal gave Baring a 52 percent stake in the merged entity, while Avetisyan and partners held 40 percent with an option for an additional 9.9 percent.
- When this option was due, Baring refused to honor it. In court, Calvey said there was evidence Uniastrum had dismembered assets before the merger.
- The crux of the matter was a transaction in which Vostochny Bank accepted shares on its balance sheet of Luxembourg-based IFTG. These actions were the repayment of a loan issued by the First Collection Bureau, which is part of Baring Vostok. According to Baring Vostok, the market value of the shares was 4.5 billion rubles; the plaintiffs insisted that the shares were worth only 600,000 rubles.
- After Calvey’s arrest, Baring Vostok lost a separate Russian court case over the Vostochny bank and was forced to relinquish control. Earlier this year, the bank was sold to Sergei Khotimsky’s Sovcombank.
Why the world should care: There are several reasons for the deplorable state of the investment climate in Russia, and it is difficult to assess the exact impact of the lawsuits against Calvey, a prominent investor who funneled billions of dollars into Russia and got off to a start. to giants like Yandex and the Ozon online marketplace. . But the threat of jail time resulting from a business dispute will likely deter investors for many years.