Letters to President Vladimir Putin and Russia’s powerful Federal Security Service (FSB) reveal how shareholders in Russian lender Vostochny Bank sought to smear US investor Michael Calvey and draw other senior figures from finance and the security services into their scandalous dispute, bne IntelliNews can reveal.

Calvey, Russia’s most successful private equity investor, was detained in February 2019 on suspicion of “fraud carried out by an organised group” that is punishable by up to 10 years in prison. The 52-year-old investor, who remains under house arrest and who has just been diagnosed with cancer, maintains his innocence, claiming that the probe into alleged embezzlement of RUB2.5bn ($40mn) from Vostochny Bank is the result of a shareholder dispute.

His arrest and the detention of six others, including three colleagues at Baring Vostok, sent shockwaves through Russian financial circles. The affair has been a major embarrassment for the Kremlin, as Calvey has attracted billions of dollars of investment to Russia and is one of the best-known investors in Moscow. Several senior Russian officials, such as presidential ombudsman for business Boris Titov and head of the Russian Fund for Direct Investment (RDIF) Kirill Dmitriev, have broken ranks to agitate for Calvey’s release, but to no avail.

Now bne IntelliNews has obtained correspondence sent by Artem Avetisyan, a fellow shareholder in Vostochny Bank, to President Putin and the FSB showing the extraordinary lengths that were used to try to frame Calvey and his colleagues and portray them in a negative light. It is widely believed that Avetisyan engineered the charges making use of his friendship with Andrei Belousov, Russia’s First Deputy Prime Minister and a key economic adviser to Putin.

Artem Avetisyan (right) is a well connected Russian business man, friends with First deputy Prime Minister and Putin's economic advisor Andrei Belousov and Russian Minister of Agriculture Dmitry Patrushev, who is also the son of the former head of the FSB

The correspondence claims Vadim Bakatin, a former adviser to Baring Vostok, who has not worked with the fund for 10 years, who was the former head of the KGB (the FSB’s predecessor), used his influence to help various probes into Baring Vostok go away over many years. The letters also drag Boris Jordan, the co-founder of the investment bank Renaissance Capital, into the scandal and claim his Sputnik Group tried to use nefarious methods with Baring to seize control of Vostochny Bank. The correspondence also includes claims made of an insurance scam involving Sputnik-controlled Renaissance Insurance and the bank.

The tranche of letters sent by Avetisyan to Putin, the FSB and the governor of Russia’s Central Bank (CBR) was described by one insider that spoke with bne IntelliNews as a “guide to reiderstvo” or “raiding”, a catch-all term that describes a variety of illicit tactics – including theft, bribery, forgery and physical intimidation – used by businessmen, tax officials, lawyers and financiers to seize another business.

It is claimed that Calvey has “close ties” to Bakatin, a Russian politician who served as the last chairman of the KGB before it was transformed into the FSB, and his son Dmitry Bakatin.

One letter says funds had been paid to the Bakatins to help “end any investigation in the Russian Federation against Baring Vostok.” Bakatin was on the Baring Vostok’s payroll as an adviser, although his exact duties are unknown. Before leaving the KGB, Bakatin was accused of treason after revealing to the US Ambassador at the time how his Embassy was to be bugged.

The correspondence levels accusations at Calvey for allowing Boris Jordan’s Sputnik Group “exclusive terms” to sell Sputnik’s Renaissance Insurance products in the bank’s branches at rates much higher than the market. Jordan and his Sputnik partners are furthermore alleged to have aided and abetted Calvey in trying to seize control of Bank Vostochny by providing “false testimony” in an Amur court case to replace the chairman of the board. Jordan didn’t reply to request for comment.

Calvey is also accused by Avetisyan in the letters of disrupting the sale of shares in Modulbank by “spreading false and defamatory information.” In 2019, Avetisyan sought to sell his stake in Modulbank so he could participate in the additional issue of Vostochny Bank shares.

The letters also grumble about Nabiullina and the “unfair treatment” of Vostochny Bank under Avetisyan and his partners compared to when the lender was controlled by Baring Vostok. The CBR inspected the bank and found it to be undercapitalised and ordered to shareholders to increase its capitalisation, which was the trigger for the conflict between the shareholders.

While none of these claims have actually formally been levelled against Michael Calvey and his colleagues, it looks more like a smear campaign that pushes all the right buttons with Kremlin and security services officials in order to lay the groundwork for the “raid” that came later.

Representatives for Baring Vostok declined to comment on the accusations laid out in the documents seen by bne IntelliNews, saying they could not comment on claims that had not been filed as part of the criminal case.

Avetisyan and Vostochny Bank did not reply to requests for comment. Avetisyan has previously refuted any involvement in the criminal proceedings and claims they are unrelated to the dispute over control of the bank.

Avetisyan, 43, is a director at the Kremlin-backed Agency for Strategic Initiatives, which is charged with improving Russia’s investment climate and chaired by President Vladimir Putin.

His beef with Calvey originates from a disastrous merger between Vostochny and his lender Uniastrum that bne IntelliNews profiled in 2009 during its heyday, which is the source of RUB17.5bn in claims by Baring Vostok for “fraud and questionable transactions” that Avetisyan and his junior partner Sherzod Yusupov committed after the pre-merger due diligence was over but before the legal documents were signed.

Since the 2014 devaluation of the ruble, Vostochny has been having serious problems and has been one of Baring's worst ever punts. It was once one of Russia’s leading consumer financing banks, which bne IntelliNews profiled in 2012, specialising in providing services in Russia’s regions, but the CBR ordered the owners to re-capitalise the bank once the holes in the Uniastrum balance sheet came to light. This prompted a fresh dispute between Calvey and Avetisyan about how much money they should put in and to what extent their stakes should be diluted.

Saying all other attempts to resolve the dispute had failed, Baring Vostok sued in the London International Arbitration Court to recover the RUB 17.5 billion they say Avetisyan and Yusupov took out of Uniastrum.

In the face of potentially crippling damaged from the LCIA, Avetisyan’s junior partner Sherzod Yusupov filed a criminal complaint against Calvey and his colleagues last year to the FSB, which led to arrests just eight days later. Avetisyan’s company Finvision took over the bank last summer after the Russian court ordered Baring Vostok to execute an option agreement for 10% of the shares in Vostochny, even though Baring Vostok claims the agreement is no longer valid in light of the numerous violations of other parts of the shareholder agreement.

Despite being very successful, Calvey built up a reputation of an honest investor and is well-liked in the business community. Calvey and his team made canny bets in early Russian internet projects and sat on the investments even after the first tech boom imploded in early 2000s. It paid off handsomely and Calvey once told this correspondent that they had made a staggering 500-fold return on their investment in the Russian tech giant Yandex.

A former exec at the EBRD and Salomon Brothers, Calvey had moved to London a few years ago for family reasons after more than two decades in Moscow. As a founder and senior partner, he still very much the lead dealmaker and frequently visited Russia. A thoughtful man who speaks fluent Russian, Calvey may have believed he was safe if he complied with all the written and unwritten rules but it’s now apparent that there are no longer any rules for doing business in Russia.

While the First General-Jurisdiction Appeal Court of Moscow was hearing the appeal on June 23 against the extension of Calvey's house arrest and the house arrest of other defendants, his lawyer asked the court to pay attention to the medical documents certifying Calvey has been diagnosed with cancer. As has been reported previously, Calvey had hip surgery in the spring.

"At the moment he is alright, fully in his faculties, and doctors have given a favourable prognosis," said his lawyer, Timofei Gridnev. “Michael feels about this ordeal the same as he feels about the process of proving his innocence: he has no doubt he will win.

But the Appeal Court didn’t listen to the entreaties at a hearing on June 22 and upheld as lawful the extension of the house arrest of Calvey and his colleagues until the middle of August.

If Calvey is eventually convicted, he faces up to 10 years in Russia's often violent penal colony system.

What remains to be seen is what is going to happen to Baring Vostok and its impressive array of asserts worth $3.7bn. It’s an awful time to sell given the global economic climate but the firm may have effectively secured itself a new krysha in the form of the Russian Direct Investment Fund, led by private equity veteran Kirill Dmitriev. The Kremlin-backed RDIF and Baring Vostok are now co-investing together, with their latest punt being in IT developer SKB Kontur.

On June 5, the RDIF also announced the creation of “a joint investment platform of up to $200mn” along with Baring Vostok and two other local private equity players, Elbrus Capital and RTP Global Dmitriev, a stalwart of the Russian buyout scene before being hired by the Kremlin, has been the most vocal advocate in official circles of Calvey’s innocence. The Ukrainian cut his teeth working as a manager at Delta Private Equity Partners, a US-government backed investment fund designed to promote capitalism by financing the growth of independent business in Russia.

An industry insider said RDIF gains from seeming to shield Baring Vostok: “They are seeing as having genuine and reputable partners in the market, while it’s no secret that Dmitriev has long been envious of Calvey’s reputation and track record since his days at Delta.”

Dmitriev set up the RDIF with the aim of it becoming a sovereign private equity fund but had to pivot to the public market as the shallow market in Russian buyouts was dominated by Baring Vostok and other non-state players. Plans to co-invest in Russia with global buyout players Blackstone and Goldman Sachs faded as the RDIF ended up having to do mostly politically motivated deals with sovereign funds in Saudi Arabia and Qatar.

In an interview with RBK newspaper on June 19, Dmitriev said Baring Vostok has “a high reputation” and he has given a personal guarantee for Calvey from day one. “We hope that in the near future the court, having understood all the circumstances of this case, will make a fair decision,” he said.