State-owned PrivatBank has filed a new lawsuit, this time against Israel’s Discount Bank. The bank is accused of aiding the Ukrainian oligarchs Ihor Kolomoisky and Gennadiy Boholyubov in stealing at least $600 million.
The lawsuit, announced on Dec. 19, is part of PrivatBank’s drive to recover as much of the $5.5 billion dollars in alleged fraudulent losses as it can. The losses occurred when the bank was owned by Kolomoisky and Boholyubov. In December 2016, Ukraine nationalized the nearly bankrupt financial institution.
The bank is already suing Kolomoisky and his business partners in the U.K., U.S. and Cyprus. The latest claim was filed at the Tel Aviv District Court in Israel.
PrivatBank and its lawyers in Israel declined to comment on the details of their new claim. A source close to the bank’s management, who asked not to be named because of ongoing legal proceedings, said that the new case against Discount Bank may become central to their efforts to recover funds they say were stolen.
The Kyiv Post made multiple attempts to speak with Discount Bank, but a spokesperson could not be reached for comment before publication time.
Three years ago, on Dec. 19, 2016, the state nationalized PrivatBank and auditors exposed a $5.5 billion gap in the bank’s balance sheet, caused by insider lending and embezzlement, according to the Ukrainian government.
The government had to recapitalize the bank with taxpayer money to prevent bankruptcy.
Its former owners deny wrongdoing and have been trying to regain control over the bank in Ukrainian courts.
Fraud claim in Israel
PrivatBank’s new case adds to a growing roster of legal claims against former owners Kolomoisky and Boholyubov, as well as the companies, accountants, banks and lawyers who may have been involved in a decade-long, Ponzi-like scheme of insider lending.
A claim filed on Dec. 18 in the Tel Aviv District Court by Israeli lawyers retained by PrivatBank and the Ukrainian government shows that PrivatBank is aiming to recoup 2.1 billion Israeli Shekels, or $600 million, it alleges were transferred into accounts held at Discount Bank.
The accounts, held by an alleged shell company named in Israeli court documents as St. John, are said to have received $1.2 billion in fraudulent transfers from Cyprus between 2007 and 2011.
The Tel Aviv claim further accuses the two Ukrainian oligarchs of fraud and embezzlement and also names the bank, one of Israel’s largest, as a defendant in the complaint, accusing it of aiding the alleged scheme.
A few local media outlets in Israel, published in Hebrew, have begun to shed more light on details in the Israeli court documents.
The Calcalist business news website in Israel reported that the claim contained allegations of “fraud, robbery, violation of the money laundering ban and a host of other wrongdoings and offenses, which caused huge financial damage… of unprecedented sums” to PrivatBank and the Ukrainian state.
Kolomoisky and Boholyubov are Israeli residents and passport holders. Kolomoisky has a residence and office in Herzliya Pituach, an affluent beachfront neighborhood in Tel Aviv District.
The lawsuit, which Calcalist reports was filed on behalf of state-owned PrivatBank but also the Ukrainian government, demands repayment “for the damage done… by those acts of embezzlement and fraud… smuggled to Israel and deposited in a bank account managed by a shell company in Israel.”
Discount Bank should have realized that huge amounts of money transferred to its branch came from “toxic funds,” the lawsuit further states, local media reported.
In a robust but at times bizarre conversation with the Kyiv Post on the evening of Dec. 19, Kolomoisky repeated his previous denials of any wrongdoing in relation to PrivatBank and again said he was poised to take back control of the nationalized bank.
“This is complete bullshit. They’re just wasting your money,” Kolomoisky said of the new claim in Tel Aviv, during a profanity-filled and conspiracy-laden telephone call.
“I don’t even remember this bank. Maybe I’m familiar with it, maybe I once was a client but I hadn’t heard of it in, I don’t know, 10 years,” the oligarch said in reference to Discount Bank in Israel.
After the call, and without explanation, Kolomoisky sent the Kyiv Post a Christmas-themed pornographic video in a WhatsApp message.
PrivatBank also said on Dec. 19 that it has increased the amount of its claim in the U.S. Chancery Court of Delaware, but it did not provide details. The causes of action are almost identical to the Israel case.
The bank filed an extraordinary civil complaint in Delaware in May, accusing Kolomoisky, Boholyubov and their associates of moving transactions valued at $470 billion through Cyprus over the course of a decade through loan recycling schemes and laundering. The complaint alleges that “hundreds of millions of dollars” were funneled into the United States.
The defendants used a Ponzi-like “shadow bank” unit inside of PrivatBank and their Cyprus companies to move the money out of Ukraine and park it in assets and a variety of enterprises across a dozen U.S. states, including real estate and metallurgical companies.
Their co-defendants in the U.S. include Mordechai Korf, Chaim Schochet and Uriel Tzvi Laber.
Korf owns a series of metallurgical companies in the U.S., along with Laber, who was also once a director of the Ukrnafta energy firm in Ukraine, in which Kolomoisky holds a significant stake. Schochet is allegedly Korf’s brother-in-law and a major commercial real estate landlord in the state of Ohio.
Also among the defendants are 20 U.S. companies, many registered in the state of Delaware and owned by the oligarchs and their business partners. The U.S. case has reportedly triggered an FBI investigation into Kolomoisky and his alleged accomplices.
The PrivatBank claims are also being heard in London. Three U.K. firms that appear to be shell companies and three more firms incorporated in the British Virgin Islands were allegedly used by Kolomoisky and Boholyubov to launder $1.82 billion from PrivatBank.
On Oct. 15, PrivatBank won an appeal in London over U.K. jurisdiction and got a green light to advance the lawsuit that alleges fraud on a massive scale carried out by its former owners. The amount of their claim has increased to $3 billion with interest and fees.
The London High Court, which without passing judgment has already recognized that “fraud on an epic scale” took place at PrivatBank, is now set to hear the case. A trial is expected to take place in mid-2021. Kolomoisky has told the Kyiv Post he is not sure if he will attend the hearing.
Kolomoisky on the offensive
While PrivatBank has gained ground in legal cases abroad, Kolomoisky has been on the offensive in Ukraine.
There are around 400 cases against PrivatBank and its nationalization active in Ukrainian courts today, according to a lawyer acting for the bank, Andriy Pozhidaev.
Among the most crucial is a dispute over the nationalization itself. In April, the largely discredited Kyiv District Court ruled that the 2016 state takeover was illegal. PrivatBank, the Ministry of Finance, NBU, and the other five state bodies have appealed.
The first appellate hearing was scheduled for Dec. 19. It was very brief and took place behind closed doors, with media and the public barred from attendance. The court adjourned the hearing quickly and stated that one of the other hundreds of PrivatBank cases must be resolved first.
Kolomoisky told the Kyiv Post that PrivatBank was forced to postpone because he is at an advantage in the Ukrainian cases, and the state-owned bank cannot risk displeasing the International Monetary Fund and government regulators.
“If (the courts) even had the slightest chance, they would have ruled in favor of the government, PrivatBank, the national bank and so on,” the billionaire told the Kyiv Post. “But they can’t.”
PrivatBank’s lawyer had a different position and said that proceedings are expected to be lengthy because of the sheer amount of case material.
This is the second postponement in recent months. The Kyiv Economic Court adjourned proceedings to hear from the Court of Appeal, which has now shifted responsibility to the Supreme Court.
On Jan. 31, the Supreme Court is scheduled to hear PrivatBank’s appeal of a May district court decision in favor of Kolomoisky.
Making return illegal
PrivatBank and other state institutions claimed on Dec. 19 that overturning the nationalization would be illegal. They cite a law that states that banks taken by the state through nationalization procedures cannot be returned to their former owners. However, the legislation has loopholes that Kolomoisky has been able to exploit.
A bill to toughen the law was introduced on Dec. 11, stating that once a bank has been deemed insolvent, court challenges from former owners could not stop liquidation or nationalization. Instead, former owners may be entitled to monetary compensation for “real damages.”
A senior government source, who did not want to be identified because of ongoing legal cases, told the Kyiv Post that Ukraine will not return PrivatBank. They said the government also will not pay any damages to Kolomoisky and will instead go after him for the billions he owes the state.