Khodorkovsky & Lebedev Communications Center

Yesterday, Judge Danilkin accepted the defense's appeal of his decision to extend Messrs. Khodorkovsky and Lebedev's arrest until November 17. The appeal will be forwarded to Moscow City Court for further consideration. Also yesterday, defense motioned the court to amend entries made in the official trial transcript, known as "the protocol." The motion concerns transcript dates ranging from October 5 to November 2, 2009. We remind our readers that November 2, 2009, remains the last date for which the court provided the official trial transcript, leaving defense unable to review the record testimony of the majority of prosecution witnesses as well as the entire defense case up to this point in the trial.

Morning Session.

The trial resumed with Mr. Lebedev showing the court Mr. Karimov's order from December 02, 2004, pursuant to which a criminal case against Messrs. Khodorkovsky, Lebedev and others, was separated from case #18/41-03. Mr. Lebedev read those portions of the order containing allegations of laundering the Open Russia Foundation funds and asked the court to note that Mr. Karimov, while alleging "money laundering," managed to forget to state what the predicate crime was and, more importantly, managed to accuse Messrs. Khodorkovsky and Lebedev of laundering Open Russia Foundation's funds almost a full year before the alleged bank transfers even took place. According to Mr. Lebedev, "the mysterious origin" of the ORF episode and its "mysterious disappearance" were a clear sign of the political motives behind the charges.

Mr. Lebedev turned to the slide presentation and continued to explain how investigator Karimov and Co. sought to convince everyone that Yukos Universal Limited, with Mr. Lebedev serving as its Director, was involved in money laundering. To do this, investigators insisted that YUL was involved in crude oil and petroleum products trading, which allowed Mr. Lebedev to launder the proceeds.

Mr. Lebedev noted that both the documents that investigators did and did not add to the case file exposed this falsification. Mr. Lebedev testified that none of the companies within GML holding structure traded crude oil or petroleum products and it was not surprising that the government did not include a single contract involving YUL, Hulley Enterprises or any other GML subsidiary. What the government included were audited financial reports of GML and its subsidiaries. Mr. Lebedev read from a GML financial report, where YUL's sole activity was described as "trading transactions with shares of OAO NK YUKOS." Same information, under Mr. Lebedev's signature, appeared in an application to be filed with the SEC in connection with the proposed issuance of YUKOS ADRs. Mr. Lebedev went over the transactions with YUKOS shares involving YUL and various banks.

In the slides being projected on the courtroom's wall, Mr. Lebedev showed the court information about some of YUL's banking and investment partners, UBS, Morgan Stanley, Credit Suisse First Boston, ING and HSBC among them. Mr. Lebedev assured the court that these banks were not inexperienced players on the world banking scene and would have caught even a whiff of "money laundering" at its partner.

Mr. Lebedev took the time to go over audited financial reports of Yukos Universal Limited and Hulley Enterprises Limited. The YUL report contained a list of over 40 investors who purchased YUKOS shares from October 2000 through January 2002 - Merrill Lynch, JPMorgan, Morgan Stanley and the State of Wisconsin Investment Board among them. Mr. Lebedev noted that during that period transactions with YUKOS shares brought in close to $1 billion USD, while investigator Karimov accused Mr. Khodorkovsky and him of laundering $1 million in intended donations to the ORF. "What, he though we had nothing better to do?" Mr. Lebedev posed a rhetorical question.

To explain the interest in the company's shares, Mr. Lebedev showed a slide with a diagram depicting share price quote dynamics of YUKOS, LUKOIL and Surgutneftegaz. Over the time period YUKOS share price grew by almost 250% compared to those its peers, even when crude oil prices stagnated.

Prior to concluding with this episode, Mr. Lebedev asked the court to note that the case materials did not contain a single piece of evidence confirming crude oil or petroleum products trading by YUL or any other companies where he was a director. Mr. Lebedev reiterated that accusations to the contrary were a blatant falsification.

After a short recess, Mr. Lebedev turned to the next portion of his testimony, concerning the VNK subsidiaries' shares exchange episode of the indictment. After reading some of the assertions contained on pages 6 through 17 of the complaint and highlighting some of the company names, directors and contracts mentioned there, he summarized it with a simple statement "I know nothing of the transactions appearing on pages 6 through 17 [of the complaint]."

The transactions described on those pages took place between November 6 and November 12, 1998. Mr. Lebedev reminded the court that the government had a year and a half to try to find and to present evidence to support the assertions that he was in Moscow on those dates, that he used his official position of Deputy Executive Director of Rosprom, that he converted Tomskneft's shares for his personal use, or how Tomskneft's minority shareholders suffered any harm when VNK exchanged its Tomskneft shares for YUKOS shares. Mr. Lebedev told the court that the case file did not contain a single piece of evidence to support any of these assertions. Laughing, he asked the court how electronic shares of Tomskneft could have been entrusted to him.

Mr. Lebedev told the court that during the preliminary hearing he was asking the prosecution to provide an explanation on which "magical stock exchange" 17 million 112 thousand Tomskneft shares cost 3.199 billion rubles. He told the court that VNK's financial report, included by the government in the case file, had the shares's balance cost at 2.139 million rubles, or almost 1500 times less than the government was asserting.

Finally, Mr. Lebedev reminded the court that he was asking for and was still waiting for an explanation as to why the government swapped Mr. Golubovich's name for Mr. Lebedev's during the timeframe from November 6 through November 12, 1998. Mr. Lebedev explained that the swap was one of investigator Karimov's trademarks, but Mr. Golubovich testified already and, thanking Mr. Golubovich, Mr. Lebedev assumed his testimony was entered into the official trial record.

Summarizing, Mr. Lebedev testified that he began to learn some of the information about the VNK subsidiaries' shares exchanges much later, first in 2000 when some of the YUKOS employees were summoned for interrogation. According to Mr. Lebedev, the entire money laundering episode in connection with VNK subsidiaries' shares exchanges was fabricated. He noted that during the trial in Meschanskiy Court the government swapped him for Mr. Golubovich in everything connected with Apatit and, unfortunately, Mr. Golubovich could not take the witness stand there. However, he testified in Khamovnicheskiy Court and the court was able to hear explanations from the eyewitness himself.

Mr. Lebedev turned to the slide presentation and told the court that he will now go over what he learned and what he was being accused of. As the language from the indictment, concerning the market value of Tomskneft shares being 3.199 billion rubles, appeared on the wall, Mr. Lebedev explained that this number, alone, told him that this charge was being fabricated against others and him.

Mr. Lebedev testified that he learned that there was a share valuation report prepared by MCO, which valued a little over 17 million of Tomskneft's shares to be equivalent of a little over 31 million YUKOS shares, which, to this very day, remained uncontested in any court proceeding, was not found to be void or invalid, and remained fully applicable to the exchange. And, while the prosecution was using a criminal trial to, effectively, contest the validity of the MCO valuation, despite the court not having jurisdiction over this question, it failed to present a single piece of evidence showing that the MCO valuation was fabricated or falsified.

To simplify matters, Mr. Lebedev explained that the exchange coefficient was, approximately 2 YUKOS shares for 1 Tomskneft share, with the slide showing 1.8~2. The case file contained evidence, including Mr. Golubovich's correspondence to Mr. Khodorkovsky, that the share exchange would require about 2 YUKOS shares for 1 Tomskneft share. Mr. Lebedev reminded the court of Mr. Golubovich's testimony from January 19: prosecutor Lakhtin kept asking about Mr. Golubovich's opinion on the value of the exchange, with Mr. Golubovich testifying that from his perspective, at the time, "an exchange of shares of approximately equal value based on their exchange quotes was fair."

Mr. Lebedev, referring to the case materials, asked the court to note that he fully agreed with Mr. Golubovich that an RTS stock exchange share price quote was a good place to start for a valuation. He noted that when YUKOS requested one of the most respected Russian economic and management consulting firms - Kim and Partners - to review the MCO valuation, Kim and Partners provided a certified report stating that MCO was justified in using the procedures and methodologies that were chosen.

Mr. Lebedev noted that a letter from Mr. Beylin to Deputy Interior Ministry Solovyov explained the purpose of the Kim and Partners review, with the review being attached to the letter. Mr. Lebedev quoted from the review and, for the first time in almost a day and a half, the courtroom heard the scraping of a chair and prosecutor Lakhtin shouting an objection. The prosecutor demanded to know what document Mr. Lebedev was referring to and whether it was found in the case materials. According to the prosecutor, either Mr. Lebedev had to show where the document was in the case materials, or he could not cite to it. Furthermore, he needed to know what was happening with everything that was being projected on the courtroom's wall. Mr. Lebedev noted that he was referring only to what he knew, including to what he learned from others, the case materials and other sources. He knew from the case materials that there was a letter from Mr. Beylin, referring to the aforementioned review. He had a copy of the review and knew that it was part of the materials in case #18/41-03, but was not included in the case file in Khamovnicheskiy Court. Mr. Lebedev added that at this point he was only informing the court of the document's existence, but will motion to enter it into evidence at a later time.

A slide with RTS price quotes was projected on the courtroom's wall. Before Mr. Lebedev could even utter a word, the prosecutor was up and arguing. He insisted, since the slide was not part of the record, for Mr. Lebedev to explain what everyone was looking at. Judge Danilkin informed the prosecutor that this was what Mr. Lebedev was doing. But Mr. Lakhtin insisted that this was not a document and Mr. Lebedev should properly frame his testimony. Mr. Rivkin objected to the prosecutor's behavior, telling the court that Mr. Lebedev can figure out on his own how to frame his testimony, and asked Judge Danilkin to warn the prosecutor from further interruptions.

Mr. Lebedev explained to the court that on October 13, 1998, Tomskneft's share purchase quote was one penny and sell quote was $1.20 USD. Furthermore, through October 30, 1998, there wasn't a single transaction made with Tomskneft's shares. Mr. Lebedev told the court that the RTS data proved investigator Karimov lied when he wrote in the indictment that the exchange quotes for Tomskneft's shares were effectively $10 USD per share. "The maximum someone was offering to sell their shares for was $1.20. There were no other offers," Mr. Lebedev described what was happening on the RTS.

Mr. Lebedev asked the court to note that, based on the information from RTS, the last sales quotes were about 18 rubles per share. However, Kvinto Consulting appraisers did not have a problem concluding that the real market price of those shares on November 1, 1998, was 187 rubles per share. Mr. Lebedev told the court he hoped defense will get a chance to question those appraisers and to solve a mystery of how that happened. "Even expert Shkolnikov, on October 29, 2009, answering a question about whether on November 1, 1998, there was a market price on Tomskneft shares responded ‘No. There wasn't,' adding that there were no transactions and exchange quotes," Mr. Lebedev used the government expert's statement to support his point.

Afternoon Session.

The trial resumed with Mr. Lebedev highlighting additional assertions in the indictment alleging actions on his part in connection with the VNK subsidiaries' shares exchanges. Mr. Lebedev noted that everything that the government alleged to have been his actions was actually performed by Mr. Golubovich. "I, Lebedev Platon Leonidovich, in November of 1998, had nothing to do with any share exchange transactions. The consolidation of YUKOS and any transactions in connection with the purchase of subsidiaries' shares was the responsibility of Golubovich, Aleksey Dmitrievich. Just as Mr. Golubovich had nothing to do with YUKOS-RM during that time period, when I was its President," Mr. Lebedev explained the roles Mr. Golubovich and he had at the time.

Mr. Lebedev reminded the court that Mr. Golubovich and other witnesses did not utter a single word about any alleged orders he gave them. He reminded the court that Mr. Khodorkovsky testified that he did not give any orders to Mr. Lebedev about the share exchanges, either. Mr. Lebedev explained that, after reading the shares exchanges episode, he asked his defense attorneys to check with all the persons mentioned, to see what they had to say about the assertions being made.

As he began explaining that the case file contained a response from Mr. Gololobov, he was interrupted by prosecutor Lakhtin, who demanded to know where in the case materials the statement from Mr. Gololobov was, because the prosecution needed to analyze the evidence. "Gololobov wasn't even here. Unfortunately," the prosecutor grumbled. Mr. Lebedev continued. Mr. Gololobov told the defense attorneys that Mr. Lebedev did not participate in any of the exchange transactions.

Mr. Lebedev was ready to quote from Mr. Burganov's statement, but heard, once again the prosecutor's objection. This time the prosecutor insisted that it was his right and responsibility "to prevent announcement of inappropriate documents." Judge Danilkin told the prosecutor that his objection was noted. Mr. Krasnov, besides objecting to the prosecutor's outbursts, reminded the court that Mr. Rivkin already asked the court earlier to react appropriately to prosecutor's interruptions of Mr. Lebedev's testimony. Mr. Krasnov told the court that the prosecutor's behavior was unacceptable.

Mr. Burganov's statement contained assertions similar to those made by Mr. Gololobov. In addition, Mr. Burganov explained that he never even met Mr. Lebedev. Finally, Mr. Lebedev reminded the court that even Mr. Golubovich testified that he checked his daily planner and saw that he had no meetings with Mr. Lebedev during that time period. Mr. Lebedev lamented that he was unable to refer to an official trial transcript, but expressed hope that the protocols may be ready prior to the closing arguments, so that he may use them during his closing statement.

Mr. Lebedev explained that some of the information he learned about the share exchanges was from the YUKOS consolidated reports, which were included in the case materials, and from conversations with YUKOS employees. In the summer of 2000, he learned from Messrs. Golubovich and Shakhnovsky that YUKOS employees were being questioned by Interior Ministry personnel. He knew that the criminal case #190911 was initiated by the former management of VNK and Tomskneft. He explained that this was their attempt to blackmail from YUKOS somewhere between $400 million to $1billion USD in connection with artificial encumbrances of Tomskneft, made prior to YUKOS privatizing VNK. Mr. Lebedev explained that the entire affair was initiated by Mr. Avalishvili, who used his power as the Deputy Minister of Fuel and Energy. The so-called "leg-man" was none other than Mr. Rybin.

Mr. Lebedev testified that, as a concerned shareholder, he met with auditors from PricewaterhouseCoopers to see if under US GAAP Tomskneft's results were properly consolidated with YUKOS. He received assurances from PwC and YUKOS management that under the applicable US GAAP standards YUKOS controlled Tomskneft and the latter's shares remained under YUKOS control. Mr. Lebedev testified that his concerns as a shareholder were fully laid to rest after a decision by Arbitration Court voided the VNK/Birkenholz agreement which was the cause for YUKOS to take steps to protect Tomskneft's shares. Mr. Lebedev reminded the court that the case file contained documents showing that any issues pending from the government were resolved, because Tomskneft's and other VNK subsidiaries' shares were returned to the VNK balance sheet. The government authorized final privatization of VNK. After YUKOS acquired the government's remaining stake in the company, VNK was liquidated by being merged with YUKOS, with the latter becoming the owner of all of the company's assets.

Mr. Lebedev reminded the court that the case file contained two foreign arbitration court decisions concerning claims being made by Messrs. Avalishvili and Rybin in connection with two joint venture agreements entered into between Tomskneft and East Petroleum. Mr. Lebedev, referring to the case materials, described the resolution, favorable to YUKOS and Tomskneft, as well.

Mr. Lebedev told the court that as a shareholder he understood and fully supported the management of YUKOS on the steps it took to protect YUKOS and VNK from the harm they were facing. In addition, he noted that if in 1998 Messrs. Avalishvili and Rybin agreed to exchange their assets for YUKOS shares, in 2002-2003, they would have had the $400 million USD they were hoping to obtain through fraudulent means. Instead, they chose a fight and got only what the arbitration courts gave them - nothing.

Mr. Lebedev told the court that, as a shareholder, he thought Mr. Golubovich, in spite of all the problems from 1998-2000, as the person in charge of consolidation of YUKOS, performed well. Mr. Lebedev told the court that he was thankful to him for that and for his professional opinion that shares are exchanged based on exchange quotes, and not based on gimmicks that make the shares valued 10 times more than they really were. Mr. Lebedev told the court that it was Messrs. Karimov and Lakhtin who could come up with and try to push through whatever they wanted. "These guys came up with $60 trillion USD in the first indictment, without even understanding what that number means!" Mr. Lebedev reminded the court of how some liked to play loose with numbers. Mr. Lebedev reminded the court that even Federal Property Ministry did not go to court to contest the MCO valuation, because any mistakes that were found were not material to the valuation itself.

Mr. Lebedev informed the court that this concluded his testimony on the VNK subsidiaries' shares exchanges episode of the charges.