Kazakh Bank Suit Tied to Trump Soho May Turn on Emails
(Bloomberg) -- The son of a former Kazakh politician accused of embezzling state assets used hundreds of accounts for encrypted emails to hide talks about real-estate dealings in the U.S. while facing a money-laundering suit involving a purchase of condos in the luxury Trump Soho tower, according to a bank seeking to recover billions of dollars it claims were stolen.
Ilyas Khrapunov, who’s living in Switzerland to avoid arrest in Kazakhstan, also ignored U.S. court rules requiring the preservation of evidence when litigation is looming by deleting accounts and failing to produce documents about his real-estate deals, Kazakhstan’s BTA Bank JSC told the Manhattan federal court on Tuesday. The bank also claims he hid the location of a key witness in the case, who was eventually located in California and deposed.
It’s the latest twist in a years long dispute rooted in claims that Khrapunov’s father, Viktor, stole $300 million from the City of Almaty while he was mayor and that a close associate, former BTA Bank Chairman Mukhtar Ablyazov, embezzled $4 billion from the company. The bank accuses the trio of using real-estate projects in Europe and the U.S., including three units at the Trump Soho, to launder $440 million as authorities were probing the alleged thefts.
“Ilyas was living under a constant threat of litigation, on many fronts, from at least 2010 into 2014,” BTA Bank said in a court filing outlining its claim. “Nevertheless, even when faced with actual litigation by the Kazakh entities, he ignored his preservation obligations and instead destroyed the many records” controlled by him and by the investment company he founded for the real-estate investments, Triadou SPV SA, the bank said.
BTA Bank was Kazakhstan’s biggest lender before it defaulted on $12 billion of debt in 2009. It accused Ablyazov of embezzling billions of dollars’ worth of mines, hotels, shopping centers and other assets in the former Soviet bloc country between 2005 and 2009. Ablyazov, who claims the allegations against him are politically motivated, fled the country before he could be arrested.
Even as the lender sought to recover those holdings, Ablyazov enlisted Ilyas Khrapunov, who is married to his daughter, to conceal the assets, according to sworn statements from former associates. Those efforts included the 2013 purchases of three units in the 46-story luxury development in lower Manhattan bearing President Donald Trump’s name, BTA Bank says. The building was developed with the help of Felix Sater, a former Trump adviser and business partner who also pleaded guilty to a felony in the 1990s.
In 2013, Sater told Ilyas that the city of Almaty would sue the Khrapunovs, according to the bank’s filing. That suit was filed first in Los Angeles in 2014. Almaty, Kazakhstan’s biggest city, is also a plaintiff in the New York case.
The younger Khrapunov has previously said he managed his own family’s investments legally and denied that SDG Capital SA, the parent of Triadou, was a front for his father-in-law or that he had laundered any ill-gotten gains. The Trump Organization hasn’t been accused of any wrongdoing in connection with the litigation.
Andrew Solomon, a lawyer for the Khrapunovs, denied that his clients had done anything wrong and said Ilyas Khrapunov was within his right to use encrypted messages to discuss business.
Solomon said many of BTA Bank’s claims have already been dismissed. He also said BTA Bank may have violated the law by making payments to witnesses who’d struck cooperation agreements with the company.
“We have recently uncovered evidence of potentially illegal payments by BTA to fact witnesses, as observed by the court,” Solomon said in a statement. “BTA is now desperately retaliating with a motion based on unfounded speculation concerning matters that are no longer relevant to the narrow issues remaining in the case.”
Matthew L. Schwartz, the bank’s lawyer, said on Wednesday that the lender hadn’t engaged in any wrongdoing with the payment agreements. He said the email purges are evidence that the three defendants can’t be trusted.
"The court has on multiple occasions found that the defendants are not credible, and has already imposed sanctions once, recognizing that Ilyas Khrapunov is playing games," Schwartz said in a statement.
U.S. Magistrate Judge Katherine Parker said in a Nov. 26 order that the defense was premature in asking that BTA Bank’s agreements with witnesses be referred to the Justice Department.
“It is of course tremendously concerning to this court that plaintiffs may have offered an inducement to a fact witness to testify in such a way as to maximize plaintiffs’ recovery in this matter,” Parker said in the ruling. She ordered additional evidence be produced, which hasn’t yet been resolved.
Ilyas Khrapunov is subject to a court order attaching $70 million of his U.S. assets to the case and therefore has the most at stake in the U.S. suit. Ablyazov sought asylum in France after being held in criminal contempt in a related U.K. case, and already has multibillion-dollar judgments against him.
BTA Bank says the purged email accounts likely contained messages about one of the central issues in the case -- why the defendants sold their interest in the Chetrit Group’s Flatotel project in Midtown Manhattan at a below-market price. The sale, arranged by Ilyas Khrapunov and Nicolas Bourg, a former director of Triadou, was previously found by U.S. District Judge Alison Nathan to have been motivated by the threat of litigation.
Memoir From Amazon
BTA Bank also claims Ablyazov and Viktor Khrapunov have avoided handing over relevant documents in the case, dragging the dispute out for years.
“Viktor Khrapunov and Mukhtar Ablyazov have, between them, produced precisely zero documents -- aside from a copy of Viktor’s memoir, which his counsel had shipped directly from Amazon to the plaintiffs’ counsel,” the bank said in Tuesday’s filing.
The bank said Viktor Khrapunov in September told the court that he’d complied with BTA Bank’s email-search request, but he carried out the search himself instead of using third parties and used search terms that were too narrow to produce results.
BTA Bank also accused the defendants of hiding the whereabouts of a key witness, Gennady Petelin. The defense has long argued that the disputed money invested in the U.S. belonged to Petelin, whose son is married to Ilyas Khrapunov’s sister, according to the filing. The bank said that claim made Petelin a “critical witness” in the case, but the defendants listed his locations as “unknown.”
“The Khrapunovs have known all along that Petelin was living in California,” the bank said.
The case is City of Almaty v. Ablyazov, 1:15-cv-05345, U.S. District Court, Southern District of New York (Manhattan).
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