US investor Michael Calvey's embezzlement trial begins despite the resolution to the commercial dispute between partners.

While the world obsesses over the Alexey Navalny trial that got underway on February 2, another trial started in Moscow on the same day: US investor and founder of Baring Vostok was in court to face embezzlement charges despite having already paid the disputed $35mn to his former Russian partners in Vostochny Bank.

“I’m not guilty,” Calvey told the judge at the start of the proceedings. "I plead not guilty," Calvey said responding to a question from the judge.

Arguably the most respected and successful foreign investor into Russia, Calvey’s fund is responsible for bringing billions of dollars of Western money into the Russian market over the last three decades. However, his arrest on February 14, 2019 sent shock waves through the market after his deal with Artem Avetisyan regarding the regional banking specialist Vostochny Bank went wrong.

The Central Bank of Russia (CBR) demanded that the owners increase the bank’s capital in 2018 as part of the regulator’s sector clean-up, but an argument broke out over how much the partners needed to contribute. Avetisyan, who is close to the son of the former head of the FSB, Nikolai Patrushev, allegedly pulled strings and criminal charges were brought against Calvey and several of his colleagues, who spent almost a year in jail before being released to house arrest.

As bne IntelliNews reported, Baring Vostok reached a deal with former Russian partners in a corporate dispute over their joint investment Vostochny Bank that is widely believed to have led to a criminal case and Calvey’s jailing.

“The Shareholders of Vostochny Bank have settled their corporate dispute,” the two sides said in a joint statement sent to bne IntelliNews by email at the time. “IC Finvision Holdings (“IC Finvision”) and Evison Holdings Limited (“Evison”) (together the “Shareholders”) signed a settlement agreement (the “Settlement Agreement”) to the benefit of the Bank, its clients, depositors and creditors.”

The whole case turned on the fact that the Russians partners claimed Baring Vostok had defrauded them out of $35mn as a result of mispricing the bank’s value. However, since Barings Vostok paid this money to the Russian side, in theory there is no basis for the trial to go ahead.

Nevertheless, Moscow’s Meschansky Court began to consider the merits of the Baring Vostok founder’s case on February 2.

Calvey declared that he had not committed any wrongful acts and had not formed a criminal group.

"During the course of the investigation, law enforcement agencies deliberately ignored all the evidence supporting the legality of all the transactions that were conducted, and would have invalidated this accusation. I expect that this court will examine the evidence and evaluate it," Calvey stated as cited by newswires.

The prosecution claimed that Calvey was the mastermind of the embezzlement scheme in question and accused him of running an organised criminal group.

"The defendants drew up and implemented a plan of embezzling funds for their own gain. The group formed by Calvey was distinguished by stability, careful planning, sound co-ordination and a common understanding of the goals," the state prosecutor declared.

Russia’s Investigative Committee launched a criminal case into the embezzlement of RUB2.5bn rubles ($32.9mn) from Vostochny Bank following a complaint by Serzod Yusupov, a minority shareholder in the bank, filed with Russia’s Federal Security Service (FSB).

Law enforcement agencies arrested Calvey on St Valentine’s Day and five others: Vagan Abgaryan, a partner at Baring Vostok; Philippe Delpal, an investment partner for the financial industry sector at Baring Vostok; Ivan Zyuzin, investment director at Baring Vostok; along with general director of the First Collection Bureau Maxim Vladimirov and Alexey Kordichev, an advisor to the management board of Norvik Bank.

They are all facing charges under part 4, article 159 of Russia’s Criminal Code (fraud committed on a large scale by an organised group).