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Legal Troubles Deepen for Russia's Yukos - 2004-07-26

A court in Moscow has issued a murder arrest warrant for a large shareholder of the Yukos oil company, adding to the legal turmoil surrounding the company and its former executives. Last week, the Russian Justice ministry announced plans to sell off the company's main production unit, sending stock prices tumbling.

Russian media report Moscow's district court is seeking Yukos' second largest shareholder, Leonid Nevzlin, for allegedly ordering the murder of a married couple in 2002, with the help of a former Yukos security officer, Alexei Pichugin.

The warrant reportedly alleges that Mr. Pichugin, who has been jailed since the middle of last year in connection with the killing, acted on the order of Mr. Nevzlin.

There was no immediate comment from Mr. Nevzlin, who lives in self-imposed exile in Israel. But his lawyer, Genrich Padva, dismissed the claims against his client as groundless.

Mr. Padva said the court and prosecutors, in his view, are spitting on the law and are, in his words, absolutely indifferent about justice. He says he finds the latest turn of events alarming.

The arrest warrant is the latest in a string of legal actions concerning Yukos, which analysts and company insiders say is on the brink of bankruptcy.

The threat of collapse loomed closer still late last week when Russia's Justice Ministry said it plans to sell Yukos' main subsidiary Yuganskneftegaz, as part of the government claim over unpaid tax bills.

Ron Smith, who is an oil and gas analyst with the Moscow-based brokerage firm Renaissance Capital, says the sale would be fraught with danger for the Russian economy.

"If they follow through with it, and if the price that is received from assets during the sale are too low, you are going to see a lot of investors, I am afraid, reconsidering their investments in Russia," said Mr. Smith. "The risk to property rights, or the threat to property rights, will have markedly increased and people will have to count that into evaluations of companies, and in a lot of cases, I think it will lead them to cut exposure. So, the effects on the Russian economy potentially could be quite large."

But the head of the federal service for Russia's financial markets, Oleg Vyugin, says investor concern is misplaced. Speaking on Russia's Echo Moscow radio, Mr. Vyugin said the sale of the Yukos subsidiary would be handled, as he put it, in an absolutely normal manner. He also said the primary concern should not be whether Yukos remains or disappears, but whether justice is served.

Mr. Vyugin said no one disputes that Yukos owes the government back taxes and that in order to meet that debt, assets will need to be sold. He says that means that the only purpose of the sale of the Yukos subsidiary Yuganskneftegaz is to recover the debt and turn the money over to the Russian treasury.

Critics of the government have long maintained that the claims against Yukos are, in effect, the Kremlin's payback for the former chief executive, Mikhail Khodorkovsky's funding of opposition political parties.