A Moscow-based investment firm is fighting to recover $5.3 million frozen as part of a U.S. investigation into insider trading by a former high-ranking government official in Central Asia, according to court records.
The firm, Ergoport Experts Ltd., is being sued by the U.S. Securities and Exchange Commission. The agency’s complaint cites “highly profitable and suspicious” trades in oil-field construction company Global Industries Ltd.
Federal prosecutors in Brooklyn, New York, are also probing the trades, which involve an individual “who previously held a high-level position in the government of a Central Asian country, which government was overthrown by a coup d’etat in 2010,” they said in court papers.
“We are investigating a conspiracy in which it appears that individuals who exercised control over an account in Ergoport’s name agreed to use inside information in order to execute stock trades,” Assistant U.S. Attorney Rachel Nash told U.S. District Judge Ronnie Abrams at an Oct. 12 hearing in Manhattan federal court, where the SEC lawsuit is pending.
Nash didn’t identify the subjects of the criminal probe. One individual under scrutiny is Maksim Bakiyev, the son of former Kyrgyzstan leader Kurmanbek Bakiyev, the Wall Street Journal reported, citing people involved in the investigation that it didn’t name.
Michael O’Kane, a lawyer for Maksim Bakiyev, didn’t return a phone call seeking comment on the report.
The U.S. is seeking to extradite the younger Bakiyev, who was arrested in London on Oct. 12 for allegedly conspiring to commit securities fraud and obstructing justice, the U.S. Embassy in Kyrgyzstan said in an Oct. 13 statement. President Bakiyev, a former U.S. ally who was ousted in a 2010 coup, has taken refuge in Belarus.
Ergoport’s New York-based lawyer, Robert Heim, said in an e-mailed statement yesterday that neither the elder Bakiyev nor his son is an Ergoport shareholder.
The “allegations that Ergoport is related to Bakiyev stem solely from the anonymous sources referenced in the documents” filed in court by prosecutors, Heim said in the e-mail.
Ergoport’s identity surfaced after the SEC filed a lawsuit on Sept. 16, 2011, seeking to freeze proceeds of the trades in Carlyss, Louisiana-based Global Industries.
The SEC said the owners of an account at Vienna-based Raiffeisen Bank International AG bought 685,840 shares of Global Industries days before a Sept. 12, 2011, announcement that the company would be acquired by Technip SA (TEC), Europe’s second-largest oil services business.
The account earned $1.7 million when shares were sold after the deal was announced, according to the SEC. The agency said it didn’t know who owned the account when it filed the lawsuit.
On July 31, about 10 months after the SEC won a judge’s order freezing the funds, Ergoport responded to the SEC’s lawsuit, identifying itself in court papers as a unit of an entity called Interhold Ltd. Ergoport, which according to Heim manages at least $40 million, said it made the trades, denied acting on inside tips and sought to recover the $5.3 million.
Dean Conway, an SEC lawyer, declined in an e-mail to comment on the agency’s lawsuit.
On Aug. 15, prosecutors asked the judge to halt proceedings in the suit so as not to interfere with a pending criminal probe. That investigation has already led to criminal charges against a trader named Taiyyib Ali Munir. Ergoport opposes the prosecutor’s request.
Munir pleaded guilty on Oct. 15 to conspiracy to commit insider trading, said Robert Nardoza, a spokesman for U.S. Attorney Loretta Lynch in Brooklyn. He declined to comment further on the case. Munir’s lawyer, Pamela Johnston, declined to comment on the plea.
Munir, a U.K. citizen who is free on bail, was accused in a criminal complaint of gathering and passing tips in 2010 and 2011 to a person managing the accounts of “a high-level government official of the Central Asian country.”
The scheme involved illegal trades in Tyco International Ltd. (TYC:US), InterMune Inc. (ITMN:US) and Global Industries, according to Munir’s complaint. The trades were made by a “shell company registered in New Zealand” with accounts at Latvia-based JSC Baltic International Bank, according to the complaint. Ergoport, incorporated in New Zealand, held funds at that bank, prosecutors said in their filing in the SEC case.
The shell company’s accounts were managed by a consultant who had a “personal and professional relationship” with the ex-Central Asian official, according to the complaint against Munir. The consultant, a U.S. citizen who is cooperating with U.S. prosecutors, hasn’t been publicly identified in court papers.
Separately, Maksim Bakiyev has been charged in Kyrgyzstan with theft of state assets and other crimes, Edil Baisalov, deputy minister of social development in the country’s current administration, said in a phone interview.
The civil case is Securities and Exchange Commission v. One or More Unknown Purchasers of Securities of Global Industries, 1:11-cv-06500, U.S. District Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Munir, 1:12-mj- 00331, U.S. District Court, Eastern District of New York (Brooklyn).
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