Bourke plans extensive defense in oil scam | AspenTimes.com

Bourke plans extensive defense in oil scam

Chad Abraham

A part-time Aspen resident accused in a $450 million scam to control Azerbaijan’s oil industry apparently went to great lengths to record the misdeeds of his alleged co-conspirators – and to document his innocence.Frederic Bourke Jr., owner of the luxury handbag brand Dooney & Bourke, kept a detailed record of the alleged wrongdoings of co-investor Victor Kozeny, Bourke’s attorney Robert Cleary wrote in a recent court motion. Bourke, who lost at least $8 million in the venture, also claims he endangered his own safety to warn the president of Azerbaijan – an ex-KGB general who ran the former Soviet republic as a dictatorship – in person about the scam.The evidence of Kozeny’s wrongdoing and Bourke’s innocence is compiled in what Bourke’s defense has called the “book,” a detailed look at how a deal that burned many who count themselves as part of Aspen’s elite went awry.Bourke and Kozeny, a former owner of Aspen’s Peak House and a Czech national who has been dubbed the “Pirate of Prague,” face more than 25 charges of violating federal foreign corruption laws, money laundering and lying to the FBI. Also implicated in the scheme is David Pinkerton, an executive who worked at insurance conglomerate AIG.The Justice Department says the three men, among others, tried to bribe their way into controlling the former Soviet republic’s oil industry. The scheme was apparently hatched at a decadent Christmas party in 1997 at the Peak House, the mansion that Kozeny bought for nearly $20 million the same year. Bourke, who has pleaded not guilty, owns a mansion on Red Mountain just down the street from the Peak House, as well as homes in Greenwich, Conn., and Seal Harbor, Maine.Federal prosecutors allege that wealthy investors from Aspen and elsewhere were defrauded out of millions by Kozeny, Bourke and Pinkerton. The victims include former Senate Majority Leader George Mitchell and well-known Wall Street hedge fund manager Leon Cooperman, according to Fortune magazine. The three suspects allegedly then used the money to bribe Azerbaijan officials and to purchase millions of dollars worth of oil privatization vouchers. The cash was purportedly flown into the country on Kozeny’s private jet and other chartered flights.The three suspects stood to make a fortune when former Azerbaijan President Heydar Aliyev privatized the republic’s oil industry, according to a statement from the U.S. Attorney’s Office in the Southern District of New York. They also would have acquired a controlling interest in the state oil company. Kozeny and Aliyev allegedly worked together on the deal.AIG, which reportedly invested $15 million into Kozeny’s companies that were negotiating the deal, and a Wall Street hedge fund sued him for $423 million after the plan fell apart. In 2003, a district attorney in New York City filed 17 charges against Kozeny, who reportedly took $182 million left over from the broken deal and moved to the Bahamas, a safe haven in the Caribbean that has only limited extradition arrangements with the United States. According to the defense motion, Bourke had tipped Manhattan prosecutors to Kozeny’s scheme and then testified before a state grand jury “as a victim of Kozeny’s fraud.”Bourke’s motion, filed Nov. 15 in U.S. District Court in New York, was an effort to consolidate all the charges the men face before one judge. It was denied a earlier this month, but it spells out Bourke’s defense.Bourke maintains that before entering the deal with Kozeny, a battery of attorneys reviewed the plan and said it was legal. In 1997, according to the indictment, Bourke thus invested $8 million into Oily Rock and Minaret, Kozeny’s companies. But Bourke says he soon suspected the companies were engaged in illegal activities.He and a lawyer for Omega Advisors, the hedge fund that later sued Kozeny, started collecting evidence that allegedly proves Kozeny’s fraudulent scheme.”That evidence was compiled in the form of the ‘book,’ the central purpose of which was to persuade law enforcement to investigate and prosecute Kozeny,” the motion says. “The book – a centerpiece of Mr. Bourke’s defense – is comprised of a memorandum and hundreds of pages of detailed supporting documents.”In one example of Kozeny’s fraudulent activities, the documents provide a step-by-step account of the investments by Omega and Pharos Capital, a related investment fund, in the Azeri privatization plan. Clayton Lewis, the principal behind those companies, has pleaded guilty to two violations of the Foreign Corrupt Practices Act.Lewis’ companies backed Kozeny financially in his effort to obtain the vouchers needed to gain ownership of the state oil company. Azerbaijan gave its citizens free vouchers to use for bidding on shares of state-owned enterprises that were to be privatized following the break up of the Soviet Union. Foreigners could also own vouchers but had to purchase a government-issued “option” for each voucher they held.Kozeny was supposed to acquire the vouchers for investors at cost – for $1 or less. But he instead allegedly sold them to the investment funds for $25 each after buying them from the Azeri government. “By contract, Kozeny was to have sold those options and vouchers for the same price he paid,” the motion says. “To accomplish this fraud, the option certificates were doctored. Although Omega and Pharos had paid $96 million for the options, the face value of those options was only $2 million, leaving approximately $94 million unaccounted for.”Another key part of Bourke’s defense is that he traveled to Azerbaijan to warn Aliyev about Kozeny’s alleged scam. His defense basically asks that if Bourke, Kozeny and Aliyev were working together on the scheme, why would Bourke then travel there to warn the president?Aliyev, who died in 2003, is described in a BBC obituary as having been a “colossus” of Azeri politics for more than 30 years. It says he “spent his youth in the cutthroat world of the Soviet KGB.” Asked how Aliyev responded to Bourke’s warning, Cleary said the president was noncommittal and told Bourke to talk with state oil officials.His defense will include many witnesses who “are or were leaders in the legal, business and diplomatic communities.” The witnesses will testify that Bourke was very upset with the illegal activities, Cleary said.The attorney, who said he spent 18 years as a federal prosecutor, is confident a jury will find Bourke innocent. The amount of information his client has accumulated is “extraordinary,” he said.”I have never seen even a fraction of this amount of defense evidence,” Cleary said. “So we feel good about it, but it’s always nerve-wracking being the subject of a criminal case.”Bourke, the motion claims, lost “every penny of his investment.” He did not return a message left at his Aspen residence.Chad Abraham’s e-mail address is chad@aspentimes.com

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