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HARDBOUND

Against a Common Enemy
An extract from Bill Browder's book 'Red Notice'

When the Russian government turns on you, it doesn't do so mildly — it does so with extreme prejudice. Mikhail Khodorkovsky and Yukos were prime examples. The punishment for presenting a challenge to Vladimir Putin went beyond Khodorkovsky to anybody who had had anything to do with him: his senior managers, lawyers, accountants, suppliers, and even his charities. By early 2006, ten people connected to Yukos were in jail in Russia, dozens more had fled the country, and tens of billions of dollars of assets had been seized by the Russian authorities. I took this as an object lesson, and I was not going to allow the Russians to do similar things to me. I needed to move my people, and my clients' money, out of Russia as quickly as possible.

I brought Hermitage's chief operating officer, Ivan Cherkasov, to London to help do these things. Ivan had joined Hermitage five years earlier from JP Morgan, and he was the one who hounded brokers, chased banks, and organized the payroll. He was thirty-nine, tall and telegenic, spoke flawless American English, and did his job perfectly.

Ivan set up a war room in our serviced offices on Tavistock Street in Covent Garden and got to work. Getting our people out was relatively easy. Within a month everyone at Hermitage whom I thought was at risk, as well as their families, was safely outside of Russia.

The harder part was selling billions of dollars' worth of Russian securities without anyone knowing. If the market caught wind of what we were doing, brokers and speculators would engage in a practice called "front-running." In our case, if brokers learned that Hermitage was going to sell all of its Gazprom holdings, those brokers would try to sell their shares first, driving down the price and potentially costing Hermitage clients hundreds of millions of dollars in that one stock alone.

To avoid this, we needed to find a broker who could execute the fund's sell orders with complete confidentiality and discretion. However, brokerage firms are generally not a trustworthy bunch, and local Russian brokerage firms are particularly untrustworthy. We also couldn't choose a major Western brokerage house that we had previously done business with because, as soon as it started executing our orders, the other brokers would put two and two together and conclude that Hermitage was selling, causing them to start dumping their shares.

This didn't leave us with many options. We looked at who was left and zeroed in on an affable thirty-two-year-old broker who headed a two-person trading desk at one of the big European banks in Moscow. He'd tenaciously been trying to get some business from us for years, and now we were going to give him his shot.

Ivan called him up and told him that his persistence was about to pay off. "There's one thing, though. We can only do this if you can swear to complete secrecy."

"Of course," he said. "I won't let you down."

The next day the broker received a sell order for $100 million. He was probably expecting $1 million—$5 million max—but never in his wildest dreams $100 million. It was likely the biggest order anyone had given him in his career.

Over the next week, he sold $100 million of our shares without any market impact or any information leak. He reported his results proudly, thinking he had completed the job, but was completely surprised when he got another $100 million sell order. Again, he executed this flawlessly. He continued to receive large orders from the fund over the next two months, and in the end he sold billions of dollars' worth of Russian stocks for us without any leaks. This virtuoso performance transformed his little operation from total obscurity into his bank's most successful European trading desk. Most importantly, Hermitage had successfully removed its money from Russia without our enemies ever knowing. 

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