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Private Equity Firm Baring Vostok Set to Defend Employees Detained in Russia

Baring Vostok's assets may be at risk, according to William Browder, the CEO of Hermitage Capital who was expelled from Russia.

Private equity firm Baring Vostok Capital Partners is standing by its U.S. founder and other employees who are reportedly being detained in Russia on allegations of fraud.

“Baring Vostok believes that the detention of its employees and the charges that have been brought are a result of a conflict with shareholders of Vostochniy Bank,” the firm said in a statement posted Friday on its website. “We have full confidence in the legality of our employees' actions and will vigorously defend their rights. Baring Vostok's activities in the Russian Federation are fully compliant with all applicable laws.”

Michael Calvey, the U.S. founder of Baring Vostok Capital Partners, is among those accused of embezzling 2.5 billion rubles ($37.61 million), according to a Reuters report Friday. The report said he denied the allegations of fraud in a Moscow court.

The firm oversees more than $3.7 billion of committed capital from investors including pension funds and university endowments, its website shows. Baring Vostok's assets may now be at risk, according to William Browder, chief executive officer of Hermitage Capital and Kremlin critic. 

“Russia has a brutal dog-eat-dog culture,” Browder said in an email. “When I was expelled from Russia, there was a free-for-all of crooked Russian officials trying to get their hands on my firm’s assets.”

Baring Vostok’s offices in Moscow and Guernsey did not immediately respond to emails seeking comment on the detention of its employees and what that may mean for its investors.

The firm focuses on deals in Russia and the Commonwealth of Independent States, a group of countries that were part of the former Soviet Union. Since 1994, the firm’s funds have invested more than $2.8 billion in 80 companies in Russia, Kazakhstan, Ukraine and other countries of the former Soviet Union, according to its website. 

Baring Vostok says on the site that 47 of its investments have been fully or partially exited.

While Browder hasn’t seen Calvey in a decade, he described the Baring Vostok senior partner as “a very low key, competent, ‘play it by the rules’ type of guy who would have never done anything to upset the government.” 

[II Deep Dive: Bill Browder: Putin’s Foreign Enemy #1]

Browder got on the wrong side of Russian president Vladimir Putin as an activist shareholder in Russia. After his former lawyer, Sergei Magnitsky, died in a Russian prison in 2009, the hedge fund manager began lobbying the U.S. government to pass what is known as the Magnitsky Act. The 2012 legislation retaliated for his death by blocking certain Russian officials from entering the U.S., freezing their assets, and preventing them from using the U.S. financial system.

The detention of Calvey shows that investing in Russia remains dangerous, according to Browder. 

“This is a standard Russian raiders attack, where some business rival wants to grab his assets and uses the courts and law enforcement to make that happen,” he said.

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