The story of the rise and fall of the biggest foreign investor in Russia.
- Bill Browder was born into a Jewish family in the United States. His father was a math genius. His brother was a math genius. His father suffered discrimination because this guy’s grandfather was the leader of the communist party of America. Bill as a rebel towards his family decided to go into capitalism. He did MBA at Stanford and joined BCG. He insisted on working in Eastern Europe. This was the 90s and these countries were just getting out of the shadow of communism.
- While helping restructure a failing bus company in Poland, he came across a privatization offer. The shares were extremely undervalued. He, using his Polish friends, decided to apply to invest 2000$ (all of his net worth then). He made 10X soon after.
- While trying to establish himself as an authority on Eastern Europe investments, he came across and joined Maxwell. Later, the company turned out to be a big accounting fraud. He, then, joined the Salomon Brothers in London. Finding no other team to join, he declared himself the in-charge of Russia.
- Russia, at that time, handed vouchers to the citizens to be eligible for equity. These vouchers valued the whole share market of Russia for less than Walmart. He invested and made millions for the firm. But then he saw that the whole bureaucracy there wants to stratify the division and take the credit for it. He decided to start his fund, Hermitage Capital in 1996 instead.
- After multiple attempts, he was able to convince billionaire Safra to invest 25M dollars. He invested in preferred shares which were undervalued and ended up as the best-performing fund of 1998.
- Sidanco, one of his best investments, wanted to issue new bonds that excluded minority shareholders like Hermitage (4% owner). He fought back and get the offering canceled.
- In 1998, the fund was doing great till the Asian financial crisis hit. Eventually, it reached Russia. Russia, rather than taking a loan from the World Bank, decided to default even on its domestic debt. His fund lost 90% in one year.
- Russians, especially, those deep inside the company out of jealousy for the oligarch, would share information with him. And he would use that to fight the Russian oligarch for better governance. Vladimir Putin was aligned with Browder all along. Till the conviction of Khodorkovsky. That conviction made the oligarch realize the power of Putin. And as per Browder, oligarchs, all gave 50% of their company to Putin.
- Now Putin turned against Browder. Browder got deported in 2005. This was when he was the biggest foreign investor in Russia. Then he learned from Russian security police (FSB) insider that this is just the beginning. He soon covertly sold all the Russian holdings and moved the money out. His plan was then to build Hermitage Global. Find undervalued companies around the world and buy them.
- In 2007, Browder’s office and his lawyers’ offices were raided. He moved his employees and lawyers out.
- The stolen documents and seals were used for transferring ownership of Hermitage’s holding companies. Then cases were filed against these companies. Some fake lawyers appeared on behalf of Hermitage and plead guilty! This all made sense, once the tax refund was filed and all of the $230M that Hermitage paid in 2005 was received back by these companies. This was the biggest tax refund in Russia’s history. Later, a man in London, shared how a woman inside the tax department received $2M for doing this in her husband’s Swiss bank account. On reporting, the Swiss authorities froze those funds. Browder hired a lawyer Sergi Magnitksy to investigate this. Later, realizing that his life could be in danger, he wanted Sergi to move out of Russia. Sergei refused.
- Sergei after filing a detailed complaint about $230M tax fraud was arrested and tortured for almost a year in Russian prisons. He eventually died due to a beating. Browder eventually learned Kuznetsov and Karpov were behind this. Browder fought heavily to get justice. Giving talks around the world, making YouTube (then a small site) videos in the process. Browder, an ex-US citizen, hustled in Washington DC and eventually, much to Obama’s dismay, got the Magnitksy Act passed. Browder gets unexpected help from Russian dissidents who were also fed up with the regime. This ensured that all those named officials can never enter the US and not own any property in the US.
- Putin was rattled by all this. His regime always maintained that contrary to the autopsy report, Sergei died due to a heart attack. Putin’s government decided to file a case against Browder (in absentia) and Sergei (after death!) for tax fraud. Both were charged for 6 years in prison.
- Interpol first accepted the Russian request to arrest Browder and after public outcry, then rejected the notice. Russia has tried seven times to get him arrested via Interpol.