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Financier Is Charged With Stealing From Hedge Funds

October 03, 2003|From Bloomberg News

Czech financier Viktor Kozeny was indicted Thursday in New York on charges of stealing $182 million from investment funds managed by Leon Cooperman's Omega Advisors Inc., in connection with the anticipated privatization of Azerbaijan's state-owned oil company.

Kozeny lied to investors when he said their money would be used to buy a controlling interest in State Oil Co. of the Azerbaijani Republic, or Socar, said Manhattan Dist. Atty. Robert Morgenthau.

Instead, Kozeny, 39, used investors' money to buy out his own stake in Socar, charging them $95 million for Socar options and vouchers that cost him $2 million, prosecutors said.

The case is another black eye for the hedge fund industry, which was implicated last month in trading schemes involving mutual fund shares. Omega Advisors, a $3.5-billion hedge fund, said it had been victimized by Kozeny.

Omega investors included Columbia University, which lost $15 million allegedly because of Kozeny; the Common Fund, an investment fund for colleges that lost nearly $5 million; and American International Group, taken for $15 million, prosecutors said.

The charges are the latest legal development stemming from Kozeny's efforts to invest in the privatization of Socar. The firm was never sold and is still entirely state-owned. Last year, Kozeny sued Azerbaijan and its president, seeking more than $100 million in damages over the failed privatization plan.

Kozeny's lawyer, Benjamin Brafman, said his client "maintains that he committed no crime and defrauded nobody. Each of the investors in this case were very sophisticated and conducted their own due diligence."

Prosecutors said Kozeny used $14 million of the money from Omega for personal expenses, including $3 million for homes in Colorado and the Bahamas, and $11 million to pay off a personal line of credit.

Morgenthau said prosecutors were continuing to investigate what Kozeny did with the remainder of the $182 million from Omega's clients.

Kozeny was charged with 15 counts of grand larceny, a felony punishable by as many as 25 years in prison if he's convicted.

Morgenthau said his office was trying to extradite Kozeny, a Czech national who holds an Irish passport. Kozeny is believed to be in the Bahamas.

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