Russia Frees US Investor From Jail in Closely Watched Case

April 11, 2019 Updated: April 11, 2019

A Moscow court released American private equity manager Michael Calvey to house arrest after two months in jail in a case that has shaken the nerves of foreign investors who remain in Russia.

The Basmanny Court judge at a hearing April 11 granted a motion from investigators that Calvey, who built Baring Vostok Capital Partners into one of the country’s biggest investment funds, be moved to house arrest. The sudden shift in the authorities’ position came after a chorus of criticism of Calvey’s jailing from Russian officials and business leaders. But several other Baring Vostok executives linked to the case, including Russian nationals and a French citizen, had their detentions extended by three months earlier this week.

Investigators justified the move saying that circumstances had changed since they asked to have Calvey jailed in February, citing affidavits filed by prominent supporters, as well as his charity work and ownership of real estate in Russia. The judge ordered him held under house arrest until April 13, but investigators filed a motion late April 11 to extend it for two more months, according to Interfax.

“Michael simply said that as long as his colleagues are under arrest he doesn’t have a reason to celebrate,” his lawyer Dmitry Savochkin told reporters after the ruling.

‘Good Sign’

Some Russian officials were more sanguine, with Economy Minister Maxim Oreshkin issuing a statement that the move to house arrest was a “good sign for the investment climate.”

Baring Vostok is suspected by Russian authorities of stealing 2.5 billion rubles ($39 million) from Bank Vostochny, a local lender the fund controls. The defendants deny wrongdoing and blame the prosecution on a corporate conflict with the other large shareholders in Vostochny, including a prominent local businessman with ties to the Kremlin and the security services.

In a sign that the investigation is continuing, Vostochny’s former chief executive Alexei Kordichev was moved to house arrest from jail after he admitted guilt and agreed to testify against the other defendants in the case, Interfax reported April 11, citing a court document.

Calvey will be barred from using the internet or speaking to the media under the terms of house arrest, which also require him to wear a monitoring bracelet and remain in his Moscow apartment.

“Calvey’s release is a step in the right direction toward restoring” the damage done to Russia’s investment climate, Kirill Dmitriev, head of the country’s sovereign wealth fund and one of those who spoke out on his behalf, said after the ruling. “I will continue efforts to soften the measure of restraints for other BVCP employees who are still in custody.”

Shareholder Dispute

Speaking from the glass defendants’ cage before the decision, Calvey accused the other shareholders of seeking to stop an additional share issue at the bank that would dilute their stakes. “If control over the bank goes to our partners, it can’t be excluded that they will siphon more assets from it,” he said.

Bank Vostochny, a top-40 lender, has been hamstrung by the investor dispute. A 10 percent stake held by Baring Vostok has been frozen by a Russian court due to the fraud case and a central bank-mandated recapitalization has also stumbled. This week, the bank announced and then canceled a supervisory board meeting scheduled for April 10 to discuss acting chief executive Alexander Nesterenko’s removal.

Calvey and several other officials from his fund are charged with overvaluing assets contributed to the bank. They blame the prosecution on the conflict with Russian investor Artem Avetisyan and an ally, who filed the criminal complaint that led to their arrest. The two sides are also fighting a legal battle in London, where Baring Vostok has accused the other investors of stripping assets from a bank they controlled before it was merged with Vostochny. The Russian investors have denied those allegations.

Calvey, 51, an Oklahoma native, founded Moscow-based Baring Vostok in 1994 and the fund has raised $3.7 billion in total capital since then. It controls 52 percent of Vostochny, while Avetisyan and his allies hold 37 percent.

“Despite the corporate conflict, which has turned into a criminal prosecution, I still believe in the investment potential of Russia,” Calvey said at the court before the ruling.

By Irina Reznik & Jake Rudnitsky