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Ex-Russian Oil Tycoon Could Face 10-Year Prison Sentence from Fraud Trial

  • Simon Marks

It's taking days to read the verdict in one of Russia's most-watched criminal trials. But it's already clear that Mikhail Khrodorkovsky, once Russia's wealthiest entrepreneur, finds himself facing a possible 10-year jail sentence following his conviction on fraud charges.

Mr. Khordorkovsky was once the poster child for Russia's so-called 'oligarchs', the men who made their millions during the era of President Boris Yeltsin by securing assets that were previously owned by the state.

Eighteen months after Mr. Khrodorkovsky's arrest, the founder of the Yukos oil conglomerate already knows that he's been convicted on at least some of the seven fraud and tax evasion charges brought against him.

And the events in the downtown courtroom where the verdict is slowly being read are being closely watched in the trading rooms of Russia's investment houses.

Roland Nash, Chief Strategist with investment bank Renaissance Capital, says the guilty verdict was never really in doubt. "It's not an unexpected outcome. The market was anticipating that Khordorkovsky would be jailed," he said. "It's been coming for a very long time, and quite frankly in some ways it's good that it's finally come to an end. Good for the market at least".

Good for the markets, but bad for Mr. Khordorkovsky and his Yukos empire.

The oil conglomerate has already been dismembered, its prime assets sold off by court order after the Russian government sought payment of more than $26 million in back taxes.

And while the Moscow business community is not entirely supportive of Mr. Khordorkovsky, as one of the principal entrepreneurs to benefit during the Yeltsin, it is widely assumed that he must have cut a few corners to amass his unparalleled fortune.

Former New York stockbroker Bernie Sucher, who now runs the Russian bank Alpha Capital, says the state's treatment of the Yukos founder sends a chilling signal to the investment community. "It's I think fair to say that Russia was open for business on its own terms certainly before Yukos. It's certainly open for business now on its own terms. And what Mr. Khordorkovsky's predicament reminds all of is that you have to know what those terms are. If you don't know those terms, then you are probably going to be in for unpleasant surprises".

The Russian government insists it has nothing to do with Mr. Khordorkovsky's legal troubles, and that Russia's legal wheels turn independently of government. But critics contend Mr. Khordorkovsky's arrest came shortly after he started funding Russia's liberal opposition parties.

U.S. Secretary of State Condoleezza Rice, on a recent visit to Moscow, expressed concern about how the case will impact Russia's global reputation as a place to conduct business.

Russian government defenders, like Moscow television host Alexei Pushkov, maintain that Mr. Khordorkovsky broke laws, is being punished, and that Russia is stronger as a result.

"You very seldom in the last four years you would have found reasonable estimates of the level of political stability, of how the economy develops, what are the relationships between the regions and the center, that the fact that Boris Yeltsin has given Putin the country which is basically falling apart and the society which was falling apart. Now it seems to be coming together a bit," said Mr. Pushkov.

But investors, who already fled Russia once following the 1998 collapse of the ruble, may take some convincing. Just last week the Carlyle Group, the world's largest equity fund manager, pulled out of Moscow altogether, saying Russia is too risky to go ahead with a planned $300 million investment fund.

But with oil prices rising, and Russia pumping more-and-more crude, the economy is booming and the Kremlin knows that whatever the rules of business, some investors will find the potential returns just too alluring.