Khodorkovsky & Lebedev Communications Center

Morning Session.

The hearing began with Mr. Lakhtin asking the court to postpone prosecution's response to Mr. Lebedev's motion. Mr. Lakhtin explained that prosecution needed time to look at and analyze the documents Mr. Lebedev was referring to. Mr. Krasnov objected to the postponement, explaining that prosecution had ample time to prepare its response. However, Judge Danilkin granted Mr. Lakhtin's request and allowed prosecution additional time to prepare its response.

Next, prosecution called Mr. Pavel Maliy to the witness stand. From April 2002 through May 2004, Mr. Maliy was a director at the Directorate for Corporate Finance at YUKOS-Moscow. Mr. Maliy explained that he was invited to join YUKOS-Moscow by Mr. Oleg Sheiko. [Mr. Sheiko was YUKOS Vice-President and Director of Directorate for Corporate Finance at YUKOS-Moscow. -Eds.]

Mr. Maliy explained that he was expected to participate in handling large finance projects within the directorate. The first project he worked on was the proposed listing of YUKOS on the NYSE, appropriately named "Voyage." Mr. Maliy explained that the work on the project was being done for the entire 2002, but was halted in February 2003. Later he worked on the YUKOS/Sibneft merger, which fell apart in November 2003.

Mr. Lakhtin was only interested in the proposed NYSE listing and asked numerous questions on that topic. Mr. Maliy testified that after being halted, the project never resumed. Actively involved in the project were Pricewaterhouse Coopers, UBS, Akin Gump and various consultants. According to Mr. Maliy, [Group MENATEP] actively participated, as well.

Mr. Lakhtin asked about difficulties involved in implementing the "Voyage" project. Mr. Maliy asked for more specificity, explaining that there were some mistakes, mainly due to how little experience he had at the time with this kind of complex undertaking. "This was the biggest project of its kind. Our country did not see anything like this before," Mr. Maliy attempted to paint the scope of the proposed listing.

Mr. Maliy testified that all communication about the project was in electronic form. As was the practice, the project was being prepared by Akin Gump, the company's attorneys. Mr. Lakhtin asked, once again, why the project did not come to fruition. Mr. Maliy declined to speculate, telling the court that he was told that the project was being halted and that was it. Mr. Lakhtin made another attempt, asking if the project was halted due to uncovered legal risks, but Mr. Maliy repeated that he could only testify as to what he knew and did not want to speculate.

Mr. Lakhtin asked about Group MENATEP's participation. Mr. Maliy explained that in mid-2002 Group MENATEP disclosed its ownership structure as well as what percentage of YUKOS it owned. According to Mr. Maliy, that was an event of large magnitude because no other Russian oil company was pursuing that level of transparency.

Mr. Lakhtin turned to e-mail correspondence between Messrs. Maliy and Sheiko. In a July 30, 2002, e-mail, Mr. Maliy was updating Mr. Sheiko on the project's status. He wrote that Akin Gump was asking for additional information on how YUKOS was privatized, because the information they received so far did not leave the attorneys completely satisfied. Mr. Lakhtin, with a triumphant look, told Mr. Maliy that there were problems with the listing. Defense objected to the prosecutor's formulation. Mr. Lakhtin asked how Mr. Lebedev reacted to the Akin Gump request. Mr. Maliy referred Mr. Lakhtin to the same paragraph where he stated that Mr. Lebedev was on vacation and could not be reached.

Another question raised was whether Behles Petroleum, Baltic Petroleum and South Petroleum were affiliated with YUKOS. According to Mr. Maliy, Douglas Miller was handling that particular issue. Mr. Lakhtin asked whether the issue had any impact on the project. Mr. Maliy replied that he couldn't answer a hypothetical question, which prompted Judge Danilkin to strike the question.

Mr. Maliy testified that his role in the project was to coordinate interaction between attorneys and various YUKOS departments and to ensure that all deadlines were being met. Mr. Maliy testified that he attended one or two of the meetings where representatives from all interested parties were present, but mostly forwarded questions through Mr. Drel. Mr. Lakhtin was curious to find out what Mr. Drel told Mr. Maliy about results of these meeting, but Mr. Maliy explained that Mr. Drel and he did not discuss these meetings.

Mr. Maliy testified that he met Mr. Lebedev on the first day of work at YUKOS. Afterwards they met once or twice. Mr. Maliy explained that he worked for YUKOS and was not managed by anyone from Group MENATEP.

Mr. Lakhtin returned to Behles, Baltic and South, and asked what was Mr. Khodorkovsky's final decision about these companies. Mr. Maliy testified that Mr. Khodorkovsky approved further research into the issue, but that was all that he knew. "So we can assume that Khodorkovsky admitted these companies were affiliated?!" Mr. Lakhtin stated more than asked. Judge Danilkin warned Mr. Lakhtin, who sheepishly said that he wasn't present at these meetings. "I was there and no one admitted any affiliation or event commented on it. A decision was made to research and solve a problem," Mr. Maliy told the court precisely what he knew.

Implying suspicion and impropriety, Mr. Lakhtin asked about disclosure of information about the aforementioned companies. Mr. Maliy answered that no one disclosed anything. Mr. Khodorkovsky objected to Mr. Lakhtin's questions, telling the court that the witness did not testify about any suspicions, while the prosecution already had documents in the case materials on the topic of these companies.

After Mr. Lakhtin rephrased the question, this time asking who brought up the issue of Behles, Baltic and South, Mr. Maliy testified that he first became aware of anything related to these companies when told by Mr. Miller.

Mr. Lakhtin continued to go over correspondence between Messrs. Maliy and Sheiko. In a brief from August 14, 2002, Mr. Maliy was explaining some of the outstanding issues with the "Voyage" project. Mr. Lakhtin asked for Mr. Maliy's explanation of a section titled "To list or not to list?' Mr. Maliy explained that he was summarizing impact of SEC regulations on YUKOS decision of whether to proceed with the listing. Mr. Maliy testified that he thought of the "Voyage" project as being important to the company and would have like to see it come to fruition. He explained that he discussed his opinions with Mr. Sheiko, but Mr. Sheiko did not explain why the project was halted, except to say that there were some risks involved.

Mr. Lakhtin asked, again, why the project was halted. Judge Danilkin, showing some exasperation, told Mr. Lakhtin that this was the fourth time he's asked that question. Mr. Lakhtin complained that the witness was not testifying as he did during the investigation. "Give him a hint!" was heard from the glass cage. After the laughter subsided, Mr. Lakhtin asked, one more time, if Mr. Sheiko explained the risks. Judge Danilkin struck the question.

Mr. Lakhtin asked whether Mr. Khodorkovsky was personally involved in drafting and filing Form F-1. [SEC Form F-1 is a registration form authorized for certain foreign private issuers. -Eds.] Mr. Lebedev objected, asking the court to strike questions with that kind of formulation. Mr. Lakhtin, telling the court he could not work this way, demanded for Mr. Lebedev to stop interrupting him. Mr. Lebedev reminded Mr. Lakhtin that he was talking with the judge and asked the court to issue a warning to Mr. Lakhtin. Judge Danilkin ignored Mr. Lebedev's objection and asked Mr. Maliy to answer the question. Mr. Maliy explained that the question was hypothetical, because no one came close to filing Form F-1 [with the SEC].

No one was surprised, based on his earlier comments, when Mr. Lakhtin motioned to read Mr. Maliy's interrogation transcript. Mr. Lakhtin argued that Mr. Maliy gave "incomplete" testimony. Mr. Krasnov told the court that Mr. Lakhtin was welcome to continue to question Mr. Maliy in order to get more detailed testimony. But nothing was said about any contradictions. Judge Danilkin asked if Mr. Lakhtin had anything. Mr. Lakhtin argued that Mr. Maliy did not say anything about Daiwa Bank, but Mr. Lebedev was disagreeing, telling the court that what little Mr. Maliy said was the same as he told investigator Iogan. He reminded the court that transcripts should only be announced when prosecution made a showing of material contradictions. Judge Danilkin was unconvinced and granted Mr. Lakhtin's motion.

Mr. Lakhtin began reading Mr. Maliy's transcript. Mr. Maliy described his work history and how he was recruited from the J.P. Morgan's London office. He was interested in coming to work at YUKOS because he met Mr. Sheiko back in 1997, when the latter had some contacts at Skaden Arps, where Mr. Maliy worked at the time.

Mr. Iogan asked for details of project "Voyage." Mr. Maliy ended up explaining the concept of an American Depository Receipts (ADR), the difference between Level II and Level III. Mr. Maliy explained that all preparation was geared towards the highest Level III type of ADR. Mr. Maliy explained that the project involved a lot of time and effort, because YUKOS was a very large company, with many of its departments "set in old bureaucratic ways." But as things started rolling, a draft of Form F-1 was put together. Investigator Iogan wanted to find out if the draft Form F-1 was ready to be filed, but Mr. Maliy explained that submitting Form F-1 without a signature did not place any obligations on the submitting party. He called it "an informal consultation" with American regulators.

Just as he testified today, Mr. Maliy did not have an answer as to why project "Voyage" was halted. He told investigator Iogan that in April of 2003 YUKOS/Sibneft merger was announced and that may have put project "Voyage" on the backburner.

Judge Danilkin called a lunch break.

Afternoon Session.

Mr. Lakhtin resumed reading the transcript. Mr. Iogan was looking for more detailed explanations of difficulties facing the listing project. He asked if Mr. Maliy encountered issues on the corporate side, as far as ownership structure. Mr. Maliy explained that, on the contrary, he had more difficulty in getting information on the number of oil wells YUKOS owned. Once again the courtroom heard that in mid-2002 Group MENATEP disclosed the ownership structure of YUKOS. Mr. Maliy explained that what went into the final Form F-1 draft was a detailed description of all transactions involved in acquisition of YUKOS shares. According to Mr. Maliy, attorneys from Akin Gum and Cleary Gottlieb continued to press for more transparency, and were satisfied with what was presented. Mr. Iogan was looking for details of conversations between attorneys and Mr. Lebedev, who represented Group MENATEP, but Mr. Maliy explained that he was not present at the final meeting where all attorneys left satisfied.

Mr. Iogan was suspicious that Mr. Maliy did not try to attend more meetings on a project he was coordinating. Mr. Maliy explained that Mr. Lebedev was a particular type of person, with whom he did not seek out more meetings than was entirely necessary. Some questions went through Mr. Sheiko, while sometimes he would forward attorney's questions to Mr. Drel, who represented Group MENATEP.

Mr. Iogan moved on to Behles, Baltic and South. Mr. Maliy's testimony was a more detailed version of what he told the court. Mr. Khodorkovsky asked Pricewaterhouse Coopers, specifically Mr. Miller, to check whether sales to those companies were at below market price. At this point Mr. Iogan attempted to convince Mr. Maliy that aforementioned companies were controlled by Mr. Lebedev. Mr. Maliy told the investigator that he never heard this before; otherwise he would have certainly remembered.

A lengthy round of questions on Group MENATEP agreement with Messrs. Muravlenko, Ivanenko, Kazakov and Golubev followed. Mr. Maliy explained to Mr. Iogan that questions about how to account for the share award prompted numerous discussions between Pricewaterhouse Coopers and Group MENATEP. In the end, according to Mr. Maliy, everyone was satisfied with the explanation provided to PWC.

Mr. Iogan returned to the final status of project "Voyage." Mr. Maliy explained that he was pushing Mr. Sheiko to find out whether the project would get the final "go-ahead." Instead, he heard from Mr. Sheiko that the project was on hold at least until mid-2003. Mr. Iogan asked Mr. Maliy to speculate what may have been the cause. Mr. Maliy was hesitant to do that. He explained, however, that many companies were weary about listing in United States because of newly implemented legislation. Mr. Maliy explained that those signing Form F-1 probably had various obligations under American law, but he did not know the specifics. Mr. Maliy mentioned that a large number of Russian companies, unwilling to face scrutiny of American regulators, chose to list in London.

Mr. Iogan made an attempt to convince Mr. Maliy that a decision not to list was precisely because Mr. Khodorkovsky was afraid of running afoul of American authorities. Mr. Maliy scoffed at the idea, explaining that the purpose of Sarbanes-Oxley Act was disclosure and as long as all risks were adequately explained to prospective investors, likelihood of American regulators getting involved. Mr. Maliy went so far as to explain to Mr. Iogan what kind of disclosure provision would have covered sales between affiliated entities. Mr. Iogan made a final attempt at convincing Mr. Maliy that the latter may have been kept in the dark, but Mr. Maliy insisted that all risks, particularly tax related, were more than adequately disclosed in the draft of Form F-1.

After concluding, Mr. Lakhtin announced that Mr. Maliy did not have any comments or changes to the transcripts. Defense pointed out that, actually, Mr. Maliy did. The transcript contained a note, in which Mr. Maliy added that he was not giving legal opinion on Sarbanes-Oxley, but was discussing it based on his personal understanding.

Ms. Ibragimova asked the court for a 5 minute break, in order to determine where the audio tape of Mr. Maliy's interrogation was. Judge Danilkin, who did not have the tape, gave prosecution 5 minutes to call the investigator to find out if he had the tape. After the break Mr. Lakhtin informed the court that prosecution was still awaiting information on the search for the audio tape, while Ms. Ibragimova asked to adjourn the hearing.

Mr. Krasnov asked to make a short statement. He told the court that the tape was unavailable when defendants were examining case materials during pre-trial stage. It was not available now. Mr. Krasnov noted that this was a violation of Article 189 of the Criminal Procedure Code, requiring for the audio tape to be kept with the transcript. Defense considered this a violation of their clients' right to defend themselves.

Messrs. Khodorkovsky and Lebedev asked the court to provide to Mr. Maliy access to several documents from the case materials. Defendants wanted to ensure that Mr. Maliy was familiar with these documents, which included a Clifford Chance memorandum on YUKOS privatization, before they begin his cross-examination.

The trial will resume on Tuesday, February 2, 10:30 Moscow Time.