Khodorkovsky & Lebedev Communications Center

Morning Session.

The trial resumed with Judge Danilkin informing the parties the court received a phone call from Mr. Lyadin, head of the Syzran Refinery, informing the court that he was "busy" and would not be appearing today. [This is the second time that Mr. Lyadin informed the court he will not be appearing, the first time being on July 01. Notably, Section 188(3) of the CCP requires a person summoned to provide the court with "a valid reason" if unable to appear. Judge Danilkin seems to have accepted "busy" as "a valid reason" for Mr. Lyadin's second failure to appear. -Eds.] Mr. Klyuvgant asked the court for a short break to allow defense to confer on today's strategy.

After a short break, Mr. Krasnov told the court that defense was expecting the prosecution's response to the motion pending since last Thursday, but Judge Danilkin told the defense attorney that all motion related matters will be taken up in the afternoon. "In that case, we have another matter pending from last week," Mr. Krasnov told the court and proceeded to motion for the court to dismiss prosecutor Lakhtin.

At the center of defense's motion was Mr. Lakhtin's conduct last week, which Mr. Krasnov described as "purposeful... blocking of defense's evidence presentation, in fact the right to a defense." Mr. Krasnov explained that the documents Mr. Lakhtin sought to prevent the court from hearing contained facts of the violations committed during the preliminary investigation by the very same prosecutor Lakhtin, who was the supervising prosecutor. According to Mr. Krasnov, Mr. Lebedev's motions and other materials contained description of Mr. Lakhtin's failure to act on and to enforce various court decisions which not only established that Mr. Lebedev's rights were violated, but, in addition, found prosecutor Lakhtin to have been complicit and, even, of falsifying documents in order to cover up the aforementioned violations.

Mr. Krasnov argued that prosecutor Lakhtin's actions in Khamovnicheskiy Court were nothing more that an attempt to cover his tracks and to prevent the court from learning of these and other substantive and procedural violations committed by investigators "under his supervision" during the preliminary investigation. Mr. Krasnov reminded Judge Danilkin that the Constitutional Court stated that violations of the Constitution and of the Criminal Procedure Code, committed during the preliminary investigation, lead to a conclusion that "an indictment cannot be considered as complying with the Criminal Procedure Code." According to Mr. Krasnov, Mr. Lakhtin's vehement objections to presentation of evidence of such violations was a clear sign of his bias and interest in not having his improper conduct being entered into the record.

In addition, defense motion contained panoply of examples of Mr. Lakhtin's improper and unprofessional conduct during the court proceedings. Mr. Lakhtin's showing of disrespect to the opposing side, to witnesses, to experts and, even, to the court, was described by Mr. Krasnov. Mr. Krasnov quoted some of the comments made inside and outside of the courtroom by those "lucky enough" to interact with the prosecutor. Ms. Lopashenko, Messrs. Delyagin and Nikitin's reactions were quoted at length. Mr. Krasnov provided the court with excerpts from commentary of those who follow the trial, as well. Mr. Krasnov asked the court to compare Mr. Lakhtin's conduct in the courtroom to the recently implemented [Prosecutor's] Code of Ethics, explaining that if every requirement there could be prefaced with a "No" it would describe perfectly prosecutor Lakhtin's conduct in the courtroom.

In support of the motion, Mr. Lebedev told the court that "to highlight the absurdities and lies of a person, whose lack of mental capacity and recklessness are obvious, is pointless and, in certain ways, shameful." Mr. Lebedev told the court that Mr. Lakhtin's "pearls and behavior" had no place in the courtroom. "His participation in the court process is a disgrace for the court," Mr. Lebedev concluded.

Mr. Khodorkovsky, drawing laughter from the gallery, told the court that he would be bored without Mr. Lakhtin, but he fully supported the motion to dismiss him. Mr. Khodorkovsky explained that the prosecutor supervised and signed off on - by arguing the charges in court - on an indictment which was full of holes, mistakes and contradictions. Defense brought this up to investigators and the prosecutor's attention during the preliminary investigation. These motions and the responses was what the defense wanted this court to hear. According to Mr. Khodorkovsky, this was going to be the best proof of the fact that no one explained the indictment to the defendants and their defense attorneys. Mr. Khodorkovsky told the court that as the supervising prosecutor, Mr. Lakhtin bore formal responsibility for the indictment that was sent to court. As such, prosecutor Lakhtin's actions have the goal of concealing his professional incompetence. "Your Honor, he's pursuing personal goals and this prevents us from defending ourselves. That's why I support the motion for his dismissal!" Mr. Khodorkovsky concluded.

Prosecution asked for an hour and a half to prepare its response. At the appointed time, Mr. Kovalihina stood up in defense of her colleague. She told the court that defense argued that Mr. Lakhtin's dismissal was warranted by his unprofessionalism and rude behavior. But, as Ms. Kovalihina insisted, defense did provide any evidence to support Mr. Lakhtin's dismissal. Nothing defense said showed that prosecutor Lakhtin had a direct or an indirect interest in the outcome of the case. Ms. Kovalihina told the court that everything offered by the opposing side came from a subjective point of view. Also, prosecutor Lakhtin's professional zeal was being interpreted as hindrance of the right to adequate defense.

Launching an attack, Ms. Kovalihina accused the defense of using the motion to improperly examine evidence, which was a gross violation of the Criminal Procedure Code. Furthermore, Ms. Kovalihina told the court that the motion and Mr. Lebedev's commentary contained rude comments directed at the prosecutor. She demanded that the court issue an on the record warning to Messrs. Krasnov and Lebedev for what the said about the prosecutor.

Prosecutor Lakhtin declined an opportunity to speak in support of himself and continued to stare at his notebook's screen. Judge Danilkin adjourned the proceeding for about an hour and went to ponder his ruling.

Afternoon Session.

After touching briefly on the arguments offered by both sides, but summarizing more of the prosecution's position, Judge Danilkin agreed with Ms. Kovalihina that there were no circumstances evinced which would preclude prosecutor Lakhtin from further participating in the trial.

But Judge Danilkin was not done, yet. After everyone was seated, Judge Danilkin noted that what he was about to say will be entered in the official trial transcript. "I want defense and defendants to note the importance of compliance with Section 9 of the CCP, respect for the honor and dignity of the individual. Because the written text, including the portion not read in court, and defendant Lebedev's comments contained insults directed at the [prosecution], including the presiding judge," Judge Danilkin told those located on his right, causing a bit of a stir in the gallery. [We are wondering whether Judge Danilkin finally officially joined the prosecution's team. -Eds.]

Mr. Krasnov returned to presentation of documents from the case materials. In a quick succession he read several pieces of correspondence written by Mr. Khodorkovsky and others to Messrs. Putin, Kudrin and Fradkov, amongst others, informing the addressees that former shareholders of Bank MENATEP, voluntarily, paid to the federal budget over 2 billion rubles which the government was unable to recover as a level four unsecured creditor during the bank's bankruptcy.

Next set of documents contained orders and motions signed by Mr. Alyshev during the preliminary investigation. These documents, whether seeking to extend the preliminary investigation or motioning to extend Messrs. Khodorkovsky and Lebedev's arrest, contained a common lie. Investigator Alyshev wrote that "Khodorkovsky and Lebedev are accused of embezzling through conversion shares of OAO VNK, which belonged to the Russian Federation, and of laundering [those shares]." Mr. Krasnov reminded the court that prosecutor Lakhtin kept asking Mr. Khristenko about "who controlled the VNK shares." [We remind our readers that Messrs. Khodorkovsky and Lebedev were never accused of embezzling the government-controlled VNK shares. In fact, the shares of VNK which investigator Alyshev lied about were sold by the federal government to YUKOS for over $225 million USD. However, as Mr. Lebedev noted last week, investigators Karimov and Alyshev used this language in documents to be filed in court proceedings in order to induce the government to enter the proceeding as one of the victims/civil complainants. The actual charges that Messrs. Khodorkovsky and Lebedev embezzled then laundered shares of Tomskneft, Achinskiy Refinery and four other VNK subsidiaries are disproved by the documents investigators included in the case file, showing that shares in all of the aforementioned subsidiaries were reflected on the VNK balance sheet when the government's stake in the company was sold to YUKOS in 2002. -Eds.] Despite Mr. Lakhtin's objections, Mr. Krasnov was able to finish his thought, telling the court the government continued to be confused. To further stress this point, Mr. Krasnov read a letter from Mr. Malin, the head of the Russian Fund for Federal Property (RFFI) informing Prime Minister Kasyanov that the agency was in the final stages of preparing the auction to sell the government's 36.82% stake in VNK. In addition, the head of RFFI was informing Mr. Kasyanov that Tomskneft shares were back on VNK's balance sheet, as provided for by the reverse exchange provisions in exchange contracts. In addition, Mr. Malin was informing Mr. Kasyanov that VNK retained the YUKOS shares it received during the initial exchange.

The next set of documents contained the government's analysis of the expert analysis written by employees of Kvinto-Consulting. The actual language in the agency's evaluation stated "the valuation methodology used by ZAO Kvinto-Consulting does not comply [with generally accepted methods]." The government agency provided a 4 analysis on why it came to this conclusion.

Mr. Krasnov read Mr. Khodorkovsky's motion addressed to investigator Alyshev, asking the investigator to add to the case materials documents, contained in a 3 page list, which contained exculpatory information. The documents in question were dumped into case #18/41-03, after being printed from computer servers seized in Zhukovka. Next, Mr. Krasnov read a response from investigator Shapovalova, Mr. Alyshev's deputy, in which Ms. Shapovalova informed Mr. Khodorkovsky that the latter did not identify the requested documents with any particularity, adding that the Criminal Procedure Code leaves it solely to the investigator to determine the evidence required to substantiate the charges and to send the indictment to court.

Mr. Krasnov asked whether now would be a good time for the prosecution to file their response concerning the pending motion. Prosecutor Lakhtin asked what motion that would be and, after being reminded which one, asked to postpone the response until Friday. Judge Danilkin asked why. Mr. Lakhtin began mumbling about the size and the depth of the motion, but was interrupted by prosecutor Smirnov who, after admitting that they just were not ready, asked to postpone the response until Thursday morning. Judge Danilkin agreed. "In addition, we summoned Bogdanchikov for Thursday... Not a fact that he'll show, though...," Judge Danilkin added, showing once again the lack of faith in official court summons.

After Mr. Klyuvgant proposed to halt further presentation of documents for today, Mr. Lebedev made a statement, which he told the court was directed to prosecutor Smirnov. Judge Danilkin warned Mr. Lebedev that he could only make statements to the court. Mr. Lebedev told Judge Danilkin that he'll make a statement to the court concerning prosecutor Smirnov.

Mr. Lebedev reminded the court how prosecutor Smirnov, when arguing against obtaining accounting documents from Samaraneftegaz, told the court that "stolen crude oil" would not have been reflected on line 95 - Loss of Product, but on line 45 - Product Shipped, of the accounting documents." Mr. Lebedev began explaining to the court what the accounting rules stated about these specific lines, including the definition of line 45, which was for temporary use only. Mr. Smirnov began objecting, demanding to know whether Mr. Lebedev was testifying. Mr. Lebedev did not pay attention and showed the court a slide from Samaraneftegaz's accounting for 2000, where line 215 - Products Shipped, contained a zero.

Judge Danilkin interrupted Mr. Lebedev, telling him that he was forced to offer Mr. Lebedev to start his testimony. Mr. Lebedev insisted that he was making a statement. Mr. Lebedev told the court that he wasn't analyzing the prosecutor's statements, but showing to the court that the prosecutor was brazenly lying to the court, by making statements which were entered into trial record. Judge Danilkin, referring to Section 9 of the CCP, threatened Mr. Lebedev with denying him a right to speak. Mr. Lebedev attempted to tell the court that the prosecutor could not just say whatever he wanted without having something to support his statements. Prosecutor Smirnov interrupted, demanding to know if Mr. Lebedev was appointed as presiding judge. Judge Danilkin told the prosecutor that it was not so. "We have defendant Lebedev behaving as if he was actually setting the order of proceedings. Is he testifying? Or isn't he?" the prosecutor continued to fan the flames.

The back and forth that followed resulted in an on the record warning for Mr. Lebedev. However, as Mr. Lebedev attempted to finish his statement, prosecutor Smirnov began to demand Mr. Lebedev's ejection from the courtroom. Judge Danilkin told Mr. Lebedev that if the latter continued to evaluate evince he will be ejected.

Mr. Lebedev concluded by filing a very brief motion, in which he asked the court, after noting that he diligently went over every page of the indictment, to order the prosecution to identify the page where "counter node" - the place where the alleged crime took place - is found.

The trial will resume on Thursday, July 22, 10:00 Moscow Time.