Feds level charges in Red Mountain scheme | AspenTimes.com

Feds level charges in Red Mountain scheme

Chad Abraham

Three men, including two with Aspen connections, who allegedly tried to bribe their way into controlling a former Soviet republic’s oil industry were indicted last week.Viktor Kozeny, Frederic Bourke Jr. and David Pinkerton face more than 25 charges relating to alleged violations of two federal laws that concern foreign corruption, along with counts of money laundering and lying to the FBI.Kozeny, a former owner of the Peak House on Red Mountain, surrendered Oct. 5 in the Bahamas, where he has a home. Bourke, of Aspen and Greenwich, Conn., and Pinkerton, of Bernardsville, N.J., turned themselves in to the FBI office in Manhattan, N.Y., the following day.The Justice Department alleges Kozeny, Bourke and Pinkerton hatched a $450 million scheme to bribe senior government officials in Azerbaijan in the late 1990s. The men bought millions of dollars worth of privatization vouchers from the Azerbaijan government, says a statement from the U.S. Attorney’s Office in the Southern District of New York.The three stood to make a fortune “in the anticipated profits arising from that privatization,” the statement says. The alleged bribes would have also allowed the suspects “to acquire a controlling interest in the [state oil company],” according to the 64-page indictment.The plan reportedly originated during a Christmas party at the Peak House, one of Aspen’s most prominent mansions. In July 1997, according to the statement, Kozeny began directing others to purchase privatization vouchers and requisite options on behalf of his companies, Oily Rock and Minaret.”These vouchers and options were purchased using millions of dollars of cash that was flown into Azerbaijan on Kozeny’s private jet and on planes he chartered,” the statement says.That year Bourke invested approximately $8 million in Oily Rock using a company he owns, according to the indictment.Federal prosecutors allege Bourke made that investment, and a subsequent one, in part because he knew Kozeny would bribe Azeri officials “to ensure Oily Rock’s and the investment consortium’s successful participation in the privatization” of the state oil company.Also investing in the scheme was insurance conglomerate AIG, which allegedly invested $15 million in Oil Rock and Minaret. Pinkerton, the other suspect, was a managing director of AIG and was in charge of the company’s private equity group, according to the U.S. attorney’s office. The statement also says he was responsible for supervising AIG’s investment in the Azeri privatization.The case has already resulted in a handful of prosecutions. Omega Advisors, a Wall Street hedge fund, and an affiliated investment fund called Pharos Capital invested in Kozeny’s companies, as well. The principal behind those firms, Clayton Lewis, has pleaded guilty to two charges relating to the Foreign Corrupt Practices Act. Oily Rock’s director of voucher purchases, Thomas Farrell, pleaded guilty to the same two charges, and Hans Bodmer, a lawyer for the consortium, has pleaded guilty to a money-laundering charge.In allegedly buying millions of vouchers, the investment group was competing with Azeri citizens, who used free, government-issued vouchers to bid for shares of state-owned industries that were to be privatized. Foreigners could also own vouchers but had to purchase a governmental “option” for each voucher they held.The republic of Azerbaijan is in southwestern Asia, alongside the Caspian Sea. Bordering Russia, Georgia, Armenia and Iran, it gained sovereignty from Russia in 1991. The country contains substantial deposits of oil and natural gas, the indictment says, as well as oil and gas production and refining facilities.”By law certain industries such as the oil industry were deemed strategic enterprises that could only be privatized with a special decree from the president of Azerbaijan,” the indictment says.AIG and Omega sued Kozeny for $423 million after the plan to buy into the state oil company failed. The companies alleged that he used the Peak House to scam wealthy Aspen investors. He also apparently tried to get the companies to join him in suing Azeri officials, who “double-crossed” him by taking a $100 million mark-up on the purchase of the options. Kozeny and Azeri President Heydar Aliyev apparently worked together on the deal.According to published reports, the Manhattan district attorney indicted Kozeny on grand larceny charges, alleging that after the oil deal fell through he kept investors’ money and fled to the Bahamas.On Oct. 6 of this year, the U.S. attorney’s office announced that Kozeny, Bourke and Pinkerton all face a charge of conspiracy to violate the Foreign Corrupt Practices Act. The law makes it a crime to pay or offer to pay foreign government officials in order to obtain or retain business, the office’s statement says.They are also all charged with conspiracy to violate the Travel Act, which makes it illegal to travel or use U.S. mail or other interstate facilities for unlawful activity.In addition to the conspiracy charges, they are charged with actual violations of the Foreign Corrupt Practices Act. Kozeny faces 12 counts of this alleged crime, Bourke is charged with five counts and Pinkerton one count. They also allegedly violated the Travel Act, Kozeny six times, and Bourke and Pinkerton once each, the statement says.Kozeny also faces four counts of money laundering, Bourke two counts and Pinkerton one. In addition, Bourke and Pinkerton are charged with making false statements to the FBI. The statement says they lied about their knowledge of the Azeri dealings.The conspiracy charges, actual violation counts and false statement charges each carry a maximum of five years in prison and a fine of $250,000, or twice the gross gain or loss resulting from the alleged violations. The money-laundering counts each carry a maximum sentence of 20 years in prison and a fine of $500,000, or twice the value of the laundered funds.The federal government is seeking to recoup $20 million from the Red Mountain mansion’s sale by one of Kozeny’s companies in 2001. The home is under a court-ordered restraint in a lawsuit involving a Pittsburgh insurance company and Kozeny, the indictment says. If Bourke is found guilty, the government could also seize his home at 2131 Red Mountain Road.”Finally, the indictment contains a forfeiture allegation seeking the forfeiture by the defendants of $174 million that was involved in the charged money-laundering offenses,” the U.S. Attorney’s Office said.Michael J. Garcia, U.S. attorney in New York’s Southern District, said anyone who makes illegal payments to foreign governments will be vigorously prosecuted.”Corrupt payments to foreign officials, such as the ones charged in this indictment, are a global threat to democratic institutions and fair competition,” he said.Chad Abraham’s e-mail address is chad@aspentimes.com