In the history of great partnerships, few people can attribute their origins to having been on a Mission from God, as the “Blues Brothers” felt they were in the highest-grossing movie musical of all time, released 39 years ago last month.
Mordechai Korf and Uriel Laber fit that bill. Over 25 years, they have achieved great success investing together in oil and gas, real estate and heavy industry by parlaying equal parts smarts, risk, grit and elbow grease.And it all grew out of their having first met as 13-year-old pre-rabbinical students at a boarding school in Detroit.
Even more striking, they have done it in one of the riskiest and most harrowing business environments in the world: in Ukraine and other Eastern Bloc countries after the breakup of the old Soviet Union. In addition to the regular rigors of doing business, they have had to endure the vagaries of government seizure, political coups, rapacious oligarchs, imperious bureaucrats and the Communistic remnants of anti-business and anti-growth policies.
Another risk just erupted: Korf and Laber recently got dragged into a bogus government lawsuit filed against two Ukrainian billionaire industrialists by the former bank they once had controlled. PrivatBank, as it is known, filed this lawsuit on May 21 in, of all places, Delaware Chancery Court. Case No. 2019-0377 caps a bizarre turn of events encompassing betrayal, retaliation, and brazen legal overreach.
Oh, it also involves the arbitrary and trumped-up seizure of PrivatBank, Ukraine’s largest commercial bank, by the government of Petro Poroshenko, who was voted out of office on April 21—and the de facto theft of twelve billion cubic meters of natural gas, which the Ukrainian government expropriated without ever bothering to pay for it.
PrivatBank, with tens of millions of customers [List of banks in Ukraine - Wikipedia], had been controlled by the two billionaire industrialists, Igor Kolomoisky and Gennadiy Bogolyubov, both of whom have been branded in the media as oligarchs with fearsome reputations. (Reputations forged with stories that highlight the shark tank that Kolomoisky kept in his office, supposedly to intimidate visitors; but rather than a maneater, the creature in Kolomoisky’s tank was an old, usually slumbering nurse shark with no teeth.)
These two men, in turn, did business with Mordechai Korf and Uriel Laber on a variety of ventures. People close to Korf and Laber say they always found the Ukrainian billionaires to be legitimate, honorable and smart investors.
The Ukrainian government, by way of the nation’s central bank, seized control of PrivatBank in December 2016 on what appears to be bogus, trumped-up assertions that the bank was on the brink of insolvency when, in truth, a review of the facts shows the opposite. No reports of any loan defaults, no run on the bank, no loss of customer deposits.
In the U.S., it would be all but unimaginable for regulators to seize the operations of Wells Fargo (WFC), or JPMorgan Chase (JPM), or Bank of America (BAC) on such a flimsy premise, but this is Ukraine: it is apparently just another part of doing business.
National Bank officials accused Kolomoisky and Bogolyubov (let us mash that into portmanteau: KoloBogo) of allegedly draining billions of dollars from their own bank and supposedly “laundering” it into loans to—and investments in—businesses in the U.S. that they controlled or acquired (allegedly with the help of Korf and Laber). These investments included real estate and industrial assets in various states.
“Since when did ‘investing’ become ‘laundering’?” one person familiar with the case asks me in a recent call.
Government officials claimed that 95% of PrivatBank loans went to entities linked to KoloBogo. But another credible source later declared that only 6% of the bank’s portfolio funded KoloBogo properties. That is a stark gap between two supposed truths.
Now the nationalized PrivatBank, doing the Ukrainian government’s bidding, has filed suit against the two oligarchs, and their Korf and Laber, plus some 20 different companies they own. The lawsuit, rich in purple prose and overdrawn aspersions, alleges a boatload of fraudulent loans and deals. It seeks to seize all of the defendants’ assets and take control of their operations.
Korf and Laber, through a spokesman, say the allegations are fabricated and baseless.
The Ukrainian lawsuit claims the total sum siphoned out of PrivatBank was $5.5 billion. What a coincidence! That is close to the sum that Igor Kolomoisky himself claimed to be owed by the Ukrainian government in an arbitration he filed back in 2015, a year before the government seized his bank. Kolomoisky is a major shareholder in Ukrnafta, a natural gas supplier, which sold 12 billion cubic meters of gas, worth some $5 billion, to the state-owned Naftogaz over five years without ever getting paid for it.
So, while the Ukrainian government goes to court seeking leverage against Kolomoisky to offset the $5 billion gas bill it welched on paying, suddenly, the two American investors are caught in the crossfire of this distinctly Ukrainian gunfight.
Like I said, it kind of started with a Mission from God. Korf, born and bred in Miami, graduated from the Detroit boarding school and later moved to Ukraine in 1991 to do humanitarian work for the local oppressed Jewish community. He was barely 19 years old. His schoolmate, Laber, born in Syracuse and raised in Milwaukee, joined him three years later for more of the same. They soon discovered they possessed a keen knack for starting, building, running and flipping various kinds of businesses.
At first, they used their credit cards to finance a few new businesses. One early deal: they bought on the cheap an entire semi-truck container filled with street-lamp bulbs. Uncertain whether the bulbs would function properly as New York City street lights, they persuaded a construction worker in Brooklyn to pilot his cherry pickerup to a street light overhead and screw in one of the new bulbs for a test run. It worked.
Soon they were setting up tables near factories in Ukraine and offering workers a premium to buy the stock that had just been handed out to them as part of the (U.S.- and IMF-supported) privatization of formerly government-owned companies in the nat-gas and oil business. Korf and Laber would flip those shares a year or two later for a tidy profit.
By 2000, after achieving success in a variety of businesses and building one of the largest telecommunications companies in Ukraine, they were doing business with KoloBogo on various investments, privatizations, acquisitions and sales.
In one investment, the four businessmen erected a chain of a thousand Avias gasoline stations cum convenience stores across a country that rarely had seen such a thing. The first gas stations were shipped out from the U.S. in a huge container that held all the pieces for full assembly. A filling station in-a-box. On a semi, no less.
Kolomoisky and Bogolubov have been Forbes-list billionaires since the early 2000s – even before they reportedly sold a steel mill to a Russian steel conglomerate in 2007 for a cool $2.2 billion [ CORRECTED - UPDATE 1-Russia's Evraz to pay $2 bln for Ukraine assets ]. The oil and gas group they put together is publicly traded on the Ukraine Stock Exchange and paid out $519 million in dividends to Kolomoisky and Bogolubov from 2005 to 2013.
Korf led a wireless deal in which the partners bought a GSM license for Ukraine, built out a network and sold it to a Russian public company. Korf moved back to the U.S. in 2007 and his partner followed a year later. They started investing in office buildings, steel-alloy companies and other outlets in Kentucky, Michigan, Texas, Ohio, West Virginia and elsewhere.For most of their investments, KoloBogo were involved, holding a 66% stake, with Korf and Laber splitting the other 33%.
According to sources familiar with the matter, PrivatBank, under control of the Ukrainian government, has spent upwards of $42 million on legal fees pursuing this monstrosity of a case. Oddly, it has hired $2,000-an-hour partners at a white-shoe law firm to pursue a lawsuit on behalf of a country whose citizens are lucky to earn $2,000 in an entire year. Why are they wasting the money? Who knows?
There is something very wrong with this picture.