U.S. v. Kozeny
| Decision Date | 21 June 2007 |
| Docket Number | No. 05 Cr. 518(SAS).,05 Cr. 518(SAS). |
| Parties | UNITED STATES of America v. Viktor KOZENY, Frederic Bourke, Jr. and David Pinkerton, Defendants. |
| Court | U.S. District Court — Southern District of New York |
v.
Viktor KOZENY, Frederic Bourke, Jr. and David Pinkerton, Defendants.
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Dan K. Webb, Esq., J. David Reich, Esq., Winston & Strawn LLP, Chicago, IL, Robert J. Cleary, Esq., Matthew S. Queler, Esq., Emily Stern, Esq., Proskauer Rose LLP, New York City, for Frederic A. Bourke, Jr.
Barry H. Berke, Esq., Paul Schoeman, Esq., Jeffrey S. Trachtman, Esq., Kramer Levin Naftalis & Frankel LLP, New York City, for David B. Pinkerton.
Jonathan S. Abernethy, Assistant United States Attorney, New York City, Mark F. Mendelsohn, Deputy Chief, Fraud Section, Robertson Park, Assistant Chief, Fraud Section, United States Department of Justice, Washington, DC, for the Government.
SCHEINDLIN, District Judge.
I. INTRODUCTION
Viktor Kozeny, Frederic A. Bourke, Jr., and David B. Pinkerton are charged with participating in a scheme to bribe senior government officials in the Republic of Azerbaijan ("Azerbaijan") in order to ensure the privatization of the State Oil Company of the Azerbaijan Republic ("SOCAR") and to, ensure that each of the defendants and others would be able to participate in and profit from the privatization. The grand jury returned the Indictment containing these charges on May 12, 2005, but it remained sealed under October 6, 2005. On October 20, 2006, Pinkerton and Bourke ("defendants") moved separately pursuant to Federal Rule of Criminal Procedure 12 to dismiss various counts of the Indictment as time-barred and for failure to adequately charge federal offenses.1
These motions raise various issues of law that are of first impression in the Second Circuit. Not only is there a dearth of Second Circuit law on these issues, but there has been surprisingly few decisions throughout the country on the FCPA over the course of the last thirty years — especially with respect to the, specific questions raised by these motions. Indeed, other than a single circuit court decision and a district court case citing thereto — neither of which analyzed the relevant subsection of the statute and neither of which binds this Court — no case has addressed the statute of limitations challenge raised herein. As a result, the Court was faced with the difficult task of addressing several first-impression issues of statutory interpretation. After careful consideration, for the reasons discussed below, both motions to dismiss are granted on the ground that the Indictment is time-barred as to all counts except the false statement counts that defendants do not challenge. In the interest of completeness, I also address defendants' remaining contentions in support of their motions and find them all to be without merit.
II. BACKGROUND
A. Factual Allegations2
In the 1990's, Azerbaijan undertook to privatize certain of its state-owned enterprises.
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The privatization process was governed principally by the State Privatization Program from 1995 to 1998. Certain industries, however, such as the oil industry, could be privatized only at the direction of the president of Azerbaijan. SOCAR, which held Azerbaijan's oil and gas reserves and facilities, was one of the state-owned companies that could be privatized only by a special decree from the president. Pursuant to the privatization program, each Azeri citizen received, at no cost, a booklet containing four voucher coupons, which were freely tradeable bearer coupons that could be used to bid for shares of privatized companies at auction. Foreigners who wished to participate in the privatization or use vouchers at auction were required to purchase an option for each voucher coupon, which were sold at an official government price by the Azerbaijan State Property Committee (the "SPC"), which principally administered the privatization process.
1. Kozeny and the Investment Consortium
Viktor Kozeny is a Czech national, Irish citizen and resident of the Bahamas. In or about July 1997, Kozeny created Oily Rock Group Ltd. ("Oily' Rock") and Minaret Group Ltd. ("Minaret"), both of which are organized under the laws of the British Virgin Islands with their principal place of business in Baku, Azerbaijan. Kozeny was President and Chairman of the Board of both Oily Rock and Minaret. Kozeny exercised effective control over both companies. For the benefit of its shareholders, which consisted of individuals and entities, Oily Rock entered into co-investment agreements with institutional investors to pursue a joint investment strategy in acquiring, safeguarding, and exercising at auction Azeri privatization vouchers and options for the primary objective of acquiring a controlling interest in SOCAR. Minaret engaged in various investment banking activities, including the acquisition and safeguarding of Azeri privatization vouchers and options on behalf of the parties to the co-investment agreements, which included Minaret itself (collectively, the "investment consortium").
Two members of the investment consortium were Omega Advisors, Inc. ("Omega") and Pharos Capital Management, L.P. ("Pharos"). Omega was a hedge fund organized as a corporation under Delaware law with its principal place of business in New York, New York. Pharos was an investment fund organized as a limited partnership under Delaware law with its principal place of business in New York, New York until September 1998, then in Red Bank, New Jersey. Omega and Pharos, through their respective subsidiaries and affiliates, each entered into a co-investment agreement with Oily Rock and Minaret on or about April 30, 1998.
2. The Alleged Bribery Scheme
Beginning in August 1997, and continuing until 1999, defendants made a series of corrupt promises, payments, and offers of payments to Azeri government officials, comprised of a senior official of the Azeri, government, a senior official of SOCAR, and two senior officials. of the SPC (collectively, the "Azeri Officials"). The purposes of these payments included: (1) "to induce Azeri Officials to allow the investment consortium's continued participation in privatization;" (2) "to ensure the privatization of SOCAR and other valuable Azeri State assets;" and (3) "to permit the investment consortium to acquire a controlling interest in SOCAR and other valuable Azeri State assets."3 The bribes were made in the form of cash, shares of profits from SOCAR's privatization, vouchers and
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options, wire transfers, stock, personal items, medical expenses and other things of value.
3. Bourke
Frederic A. Bourke, Jr. is a United States citizen. Bourke invested in Azeri privatization with Kozeny. Bourke was the principal shareholder of an investment vehicle named Blueport International, Ltd. ("Blueport"). In or about March and July 1998, Blueport invested a total of eight million dollars in Oily Rock, of which 5.3 million dollars were Bourke's personal funds. Bourke made these investments based in part on his understanding that Kozeny had paid and would pay bribes to Azeri officials to ensure SOCAR's privatization and the investment consortium's participation in the privatization.
Bourke assisted Kozeny in arranging for medical treatment for two different Azeri Officials in New York on three separate occasions. The treatments were paid for by Oily Rock and Minaret.
4. Pinkerton
Pinkerton is a United States citizen. In 1998, Pinkerton was the head of American International Group, Inc.'s Global Investment Corporation ("AIG"), a unit that managed billions of dollars of American International Group Inc.'s funds. In late March 1998, Clayton Lewis, an investment manager at Omega, contacted Pinkerton to solicit AIG's participation in a deal involving privatization in Azerbaijan, which had been brought to Omega by Kozeny a few weeks earlier. AIG invested approximately $15 million in June 1998 pursuant to a co-investment agreement with Oily Rock and Minaret pursuant to which the parties agreed to pursue a joint strategy to acquire and exercise vouchers and options to gain a controlling interest in SOCAR. AIG wired the funds from accounts in New York to accounts controlled by Kozeny in Switzerland. Pinkerton caused AIG to make this investment based in part on his understanding that Kozeny had paid and would pay bribes to the Azeri Officials to ensure the privatization of SOCAR and the investment consortium's participation in the privatization.
B. Official Requests for Evidence to Foreign Governments
On October 29, 2002, the Department of Justice's Office of International Affairs (the "OIA") submitted an official request to the Netherlands seeking, inter alia, bank account records from certain Dutch banks that "received wire transfers for the benefit of third parties and on behalf of an Azeri government official."4 On January 13, 2003, OIA submitted a separate official request to Switzerland seeking, inter alia, records of bank accounts held by Oily Rock, Minaret and certain Azeri officials, and requested that a search be conducted of a law firm in Switzerland that represented Kozeny in the Azeri investment.
On July 21, 2003, the government applied for an order suspending the running of the statute of limitations based on these two official requests. On July 22, 2003, Judge George Daniels of the Southern District of New York granted the application, finding that lilt reasonably appears, and reasonably appeared at the time the official requests were made, that ... evidence is, or was" in the Netherlands and Switzerland (the "July 22, 2003 Order").5 Judge Daniels further found that at the time of the July 22, 2003 Order, no final action had been taken by either the Netherlands or Switzerland on those official requests.6
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The July 22, 2003 Order specified that the period of...
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