I’d stayed in Moscow for one simple reason: I was going to make my clients’ money back no matter what it took.
In theory, the post-crash economic conditions should have made that easy. The fund held big positions in most of Russia’s oil and gas companies. These companies sold their oil in dollars but paid their costs in rubles. Their sales had not decreased, but their costs had gone down by 75 percent because of the currency crash. In simple terms, when a company’s costs go down, its profits go up. I estimated that the profits of companies in our portfolio would rise by anywhere from 100 to 700 percent because of the devaluation. All else remaining equal, this should have led to a spectacular recovery in the shares of these companies.
Except all else didn’t remain equal.
Prior to the crash, the oligarchs, who were the majority shareholders of these companies, had for the most part acted honestly toward minority shareholders. Why? Because they wanted to get what they viewed as «free money» from Wall Street. Back then, Western investment bankers told them, «We can raise lots of money for you, but if you want it, don’t scandalize your investors». So, they didn’t.
This arrangement worked before the crash, generally keeping the oligarchs in line. But after the crash, all the bankers who had anything to do with Russia were fired and those who weren’t put their hands on their hearts and swore to their bosses that they had never even heard of Russia. When the oligarchs called their bankers in 1999 looking for that «free money», nobody answered. Overnight, they’d become pariahs. Wall Street was closed for business for the Russian oligarchs.
With no more incentive to behave, and with all these profits piling up after the devaluation, there was no longer any incentive not to steal. Why share the profits with minority investors? What had they done to help? Nothing.
With the brakes off, the oligarchs embarked on an orgy of stealing. The tools they used were many and with no law enforcement to stop them, their imaginations ran wild. They engaged in asset stripping, dilutions, transfer pricing, and embezzlement, to name but a few of their tricks.
This was a huge problem that every business person in Russia was obsessed with, and because I’d developed a reputation after my fight with Sidanco, in early January 2000 I was invited by the American Chamber of Commerce in Moscow to give a presentation to the local business community about corporate-governance abuse. It seemed as though I was the only person in Moscow crazy enough to speak publicly about the misdeeds of the Russian oligarchs.
I decided to use the Yukos oil company as my case study. I could have picked any Russian company, but Yukos was attractive because it had had so many minority-shareholder scandals. I called my presentation «The Armed Forces of Corporate Governance Abuse» to describe the many ways that the oligarchs went about ripping off their minority shareholders. The «Army» was transfer pricing; the «Navy», asset stripping; and the «Marines», shareholder dilutions.
The presentation was scheduled for 8:00 on a snowy morning in January. As my alarm went off at 6:30, I could barely pull myself out of bed. The temperature outside was minus-twenty degrees Celsius, the streets were covered with a fresh coat of snow, and the sun had not yet risen. Because the Moscow stock exchange didn’t open until 11:00 a.m., I didn’t normally get to the office until 10:30. I simply wasn’t used to getting up so early. Besides, who would go to a presentation at 8:00 a.m. on a snowy morning in Moscow? I wouldn’t have gone myself except that I was the speaker.
Alexei picked me up at 7:45 and drove me the short distance to the American Chamber of Commerce. When I arrived, I was surprised to find the conference room completely full. I made my way in and mingled with the crowd of indistinguishable middle-aged men in gray suits. I couldn’t help but notice that in the midst of this sea of gray was a beautiful young woman in a red-and-orange dress, her hair pulled into a tight bun that rested on top of her head like a ballerina’s. All of a sudden I felt that I had gotten up at the crack of dawn for a good reason. As I made my way toward the front of the room, I gravitated toward her.
When I reached her, I stuck out my hand. «Hi, I’m Bill Browder».
Her grip was firm, her fingers a little cool. «I’m Elena Molokova», she said professionally.
«What brings you here at such an early hour?»
«I’m interested in the Russian investment climate».
I handed her my business card. She reluctantly opened her purse and handed me hers. I looked down and saw that she worked for a US public relations firm that advised Mikhail Khodorkovsky, none other than the CEO of Yukos. It now made sense. I was about to rake her company’s biggest client over the coals and they had sent someone to assess the damage.
«You’re interested in the investment climate?» I asked, the tone of my voice perhaps betraying a bit too much surprise.
«Of course we are, Mr. Browder», she answered with a straight face.
«In that case, I’m glad you came».
I walked away with a strange feeling, as if she were pulling me back to her ever so slightly. I couldn’t be sure, but there seemed to be a spark between us, and even though it was way too early in the morning, I felt newly motivated to do a good job with my speech. I went through the presentation with a lot more flair and drama than I would normally have, and it was well received. Elena, however, appeared unmoved. I glanced at her far more often than I should have while speaking, and her expression never changed: professional and unsmiling. I wanted to talk to her again when I was finished, but I was accosted by several men in the room, who acted as a barrier to Elena. I watched her colorful dress from the corner of my eye as she slid out of the door and out of my life.
But I still had her card.
It practically burned a hole in my wallet. I wanted to call her as soon as I got back to the office, but had the good sense to wait an hour. I felt a bit like a high school kid strategizing the best way to ask out a girl without appearing to be too desperate.
Her phone must have rung seven times before she picked up. She didn’t sound nearly as eager to hear from me as I was to talk to her, but I still succeeded in inviting her to lunch, even if her tone of voice made it clear that she considered it to be a business meal and nothing more. What the hell, I had to start somewhere. At least my foot was in the door.
Our lunch took place a week later at a Swedish restaurant called Scandinavia, just behind Tverskaya Street near Pushkin Square. The meeting was slightly uncomfortable because neither of us knew what the other person’s agenda was. I supposed she expected me to talk to her about Russian business, Yukos, and corporate governance, and she was clearly confused when I started asking more personal questions, all of which she artfully declined to answer. By the middle of the meal we both understood that we were operating on different wavelengths, but even so, my persistence began to pay off. She didn’t open up entirely, but by the time the bill came I’d learned that Elena was not merely beautiful but incredibly smart. She’d graduated at the top of her class at Moscow State University (the Russian equivalent of Harvard) and had a pair of PhDs, one in economics and the other in political science. That she was working for the enemy made her fiercely attractive to me, even more than she had been when I first laid eyes on her.