City of Almaty v. Sater

• Decision Date: 30 November 2020
• Docket Number: 19-cv-2645 (AJN)
• Citation: 503 F.Supp.3d 51
• Parties: CITY OF ALMATY, et al., Plaintiffs, v. Felix SATER, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

503 F.Supp.3d 51

CITY OF ALMATY, et al., Plaintiffs,

v.Felix SATER, et al., Defendants.

19-cv-2645 (AJN)

United States District Court, S.D. New York.

Signed November 30, 2020

Craig A. Wenner, Matthew Lane Schwartz, Boies Schiller Flexner LLP, New York, NY, for Plaintiffs.

Jill Levi, David Beresh Rosenberg, Todd & Levi, LLP, New York, NY, for Defendants Felix Sater, Daniel Ridloff, Bayrock Group, Inc., Global Habitat Solutions, Inc., RRMI-DR LLC.

Michael Stuart Horn, Archer & Greiner, P.C., New York, NY, Michael Lauricella, Archer & Greiner, P.C., Hackensack, NJ, for Defendant Ferrari Holdings LLC.

OPINION & ORDER

ALISON J. NATHAN, District Judge:

In this case, Kazakhstan's largest city and a Kazakhstani bank seek to recover millions of dollars in stolen funds from those who allegedly helped the culprits launder them. Felix Sater—the alleged ringleader of the money-laundering operation—along with his associate Daniel Ridloff and several business entities they control, move to dismiss. For the reasons that follow, the Court grants the motion in part and denies it in part.

I. Background

For purposes of this motion, the Court takes as true all factual allegations in the first amended complaint ("FAC"), Dkt. No. 120, and draws all reasonable inferences in the Plaintiffs’ favor.

Between 1997 and 2009, Mukhtar Ablyazov and Viktor Khrapunov—sometimes working separately and sometimes in concert—used their prominent positions in Kazakhstani society and government to steal billions of dollars from the City of Almaty and BTA Bank JSC, a corporation headquartered there. Khrapunov served as Kazakhstan's Minister of Energy before taking office as the mayor of Almaty in 1997. FAC ¶ 53. As mayor, he wielded substantial influence over the privatization of state-run assets in the formerly communist country. Id. ¶ 54. He used this influence to transfer public assets to shell companies controlled by his family members for a fraction of their value. Id. ¶¶ 56–62.

Ablyazov founded BTA and served as its chairman from 2005 to 2009. Id. ¶¶ 16–17. However, even before 2005 (including while serving a nine-month prison term for corruption), he exercised substantial informal influence over the bank's operations through a business partner. Id. ¶¶ 19–20. Ablyazov used his position to direct billions of dollars in sham loans from BTA to shell corporations that he secretly controlled. Id. ¶ 16. He also worked with Khrapunov, to whom he was related by marriage, using his network of shell companies to launder Khrapunov's ill-gotten gains and Khrapunov's properties as collateral for further fraudulent BTA loans. Id. ¶¶ 57–61.

Ablyazov's graft came to light after BTA defaulted on billions of dollars of debt in the wake of the 2008 financial crisis. Id. ¶ 30. In 2009, the New York Times reported that Ablyazov may have directed up to $12 billion in loans to companies he controlled, amounting to about half of the bank's loan book. Id. ¶ 31. Ablyazov fled to London. Id. ¶ 33. English courts entered a series of judgments against him for over $4 billion, imposing worldwide asset-freezing orders, requiring him to disclose details of his assets and surrender his passport, and ordering that his assets be placed into receivership. Id. ¶¶ 36–43, 47. Ablyazov largely defied these orders. Id. ¶ 44. An English court held him in criminal contempt and sentenced him to prison. Id. He then fled the United Kingdom and remained a fugitive until he was apprehended in France in mid-2013. Id. ¶ 46. A court in Kazakhstan sentenced him in absentia to 20 years’ imprisonment for embezzlement, abuse of office, and organizing a criminal enterprise. Id. ¶ 49.

Khrapunov's career in Kazakhstani politics met a similar end. He and his wife fled to Switzerland in 2007. Id. ¶ 64. Kazakhstani authorities indicted Khrapunov and several members of his family in 2011 and 2012. Id. Switzerland opened an investigation against him for money laundering, which remains ongoing, and ordered his assets frozen. Id. ¶ 65.

Shortly after an English court ordered his assets frozen, but before he fled the United Kingdom, Ablyazov met with his son-in-law Ilyas Khrapunov in London and hatched a scheme to evade the English asset-freezing orders. Id. ¶ 66. The two of them routed about $440 million through a series of shell companies owned by members of the Khrapunov family into accounts at FBME bank. Id. ¶¶ 68–77. The next challenge was to get the funds out of FBME without arousing suspicion. That is where Felix Sater enters the picture.

Sater began working with Viktor Khrapunov and other members of the Khrapunov family with his company Bayrock Group LLC in the mid-2000s. Id. ¶¶ 89–91. While Khrapunov was the mayor of Almaty, Sater and the Khrapunov family pursued several coal and gas extraction ventures together in Kazakhstan. Id. ¶ 93. Sater met Ablyazov at the wedding of Ablyazov's daughter Madina Ablyazov and Ilyas Khrapunov in 2007. Id. ¶ 96. Around that time, he learned of Ablyazov's theft of BTA funds. Id.

Ilyas approached Sater near the end of 2011 and asked him to help launder money that Ablyazov and Khrapunov had stolen from BTA and Almaty. Id. ¶ 102. Throughout his involvement with the money-laundering scheme, Sater knew that the funds were the rightful property of BTA and Almaty and were subject to asset-freezing orders. Id. ¶ 103. The two negotiated the terms of Sater's involvement, and Sater executed a consulting agreement in early 2012 with Swiss Promotion Group ("SPG"), a company owned and controlled by Ilyas and used to launder the stolen funds. Id. ¶ 104. Working with Ilyas, Sater devised and executed a series of schemes to launder the stolen funds, relying on his associate Daniel Ridloff and several business entities they owned and controlled. Id. ¶ 119–272. In the course of doing so, they pocketed tens of millions of dollars stolen from BTA and Almaty. Id. ¶ 272.

In the first of these schemes, Sater created a sham healthcare startup called World Health Networks ("WHN"). Id. ¶¶ 120, 124. Sater installed Ridloff as the company's chief operating officer, and Ridloff submitted fraudulent visa applications for individuals connected to the Khrapunov family, including Ilyas's sister Elvira Kudryashova, who they misrepresented as the owner of the business. Id. ¶¶ 128, 133–34. Sater and Ridloff used the company to launder about $7,000,000 into the United States between June 20, 2012, and March 1, 2013. Id. ¶ 140. Sater and Ridloff received millions of dollars in consulting fees related to their work for WHN and spent WHN funds on lavish personal expenses. Id. ¶ 143. Sater also received transfers of about $1,300,000 to a company he wholly owned and controlled between March 2012 and July 2013, and he paid several of his personal credit card bills from WHN accounts. Id. ¶¶ 145, 150. In April 2013, Sater oversaw about $5,000,000 in fraudulent personal loans to Kudryashova, which were funneled into New York City residential units in which Sater had a financial interest through Bayrock. Id. ¶¶ 155–57, 165–68.

In another scheme, Sater and Ridloff used a straw purchaser to buy the French payment card processing corporation Creacard S.A. with funds from SPG subject to asset-freezing orders. Id. ¶¶ 169–81. In another, they purchased a disused mental health facility in Syracuse, New York, for a shell company called Syracuse Center LLC, which was a subsidiary of Triadou SPV S.A., which was itself a subsidiary of Swiss Development Group S.A. ("SDG"), a Swiss entity owned by Ilyas and funded by Ablyazov and the Khrapunov family. Id. ¶¶ 99, 182–90. The Creacard transaction took place between November 2012 and April 2013, and the Syracuse transaction took place between April and July 2013.

The largest money-laundering scheme undertaken by Sater and Ridloff centered on the Tri-County Mall in Cincinnati, Ohio. Id. ¶¶ 191–93. The pair learned that the holder of some of the mall's debt was having financial difficulties. Id. ¶ 194. Sater and Ridloff sought to launder about $30,000,000 by quickly purchasing and then reselling the mall's debt with tainted funds held in an FBME account for Telford International Ltd., another of the shell companies controlled by Ilyas. Id. ¶ 158–60, 195.

Sater and Ridloff created a shell company headquartered in New York called Tri-County Mall Investors LLC ("TCMI") to conduct the transaction in April 2013. Id. ¶ 196. TCMI was a subsidiary of Triadou. Id. At Sater's direction, Ridloff submitted a bid for the note on behalf of TCMI brimming with fraudulent misrepresentations. Id. ¶¶ 202–03. The bid identified a fictitious Luxembourg specialized investment fund as TCMI's funding source, claimed that CEO Nicolas Bourg would control the investment, and failed to disclose Sater's involvement with the transaction. Id. In fact, Sater and Ridloff held power of attorney over TCMI and planned to personally control the investment. Id. ¶¶ 200–01. These misrepresentations were designed to conceal the involvement of Sater, Ablyazov, and Khrapunov both from the seller (who they feared might balk if they knew who was behind it) and entities like Almaty and BTA who were investigating Ablyazov's and the Khrapunovs’ investment activities. Id. ¶¶ 198–99, 204–06.

The bid was successful. Id. ¶ 207. Sater and Ridloff attempted to obtain financing for the deal through a mortgage broker, but the broker backed out once its background investigation revealed the relationship between TCMI and the Khrapunov family. Id. ¶¶ 211–214. They ultimately funded the transaction entirely with funds from Telford's FBME account. Id. ¶ 216. Ilyas arranged for transfer of a $2,800,000 deposit and then a second payment of $28,000,000 in stolen funds to complete the transaction, routed through a real estate law firm from which Sater and Ridloff also concealed the origin of the funds. Id. ¶¶ 225–28.

Sater and Ridloff pocketed about a half-million dollars of the money transferred for the Tri-County Mall purchase. Shortly after the firm handling...