Russian Oil Tycoon Ridicules Fraud, Tax-Evasion Charges Against Him

The richest man in Russia, Mikhail Khodorkovsky, vigorously proclaimed his innocence on fraud and tax-evasion charges Friday, speaking from the type of steel cage in which defendants are routinely kept during trials here.

Khodorkovsky, the former head of Yukos Oil Co., argued that his meteoric rise to wealth during the 1990s privatization of state assets came not because he did anything illegal but because he took advantage of poorly written laws. He and his co-defendant, fellow billionaire and Yukos stockholder Platon Lebedev, ridiculed the 11 charges against them, for which each could face 10 years in prison.

The prosecutors’ case shows an “internal lack of logic,” Khodorkovsky said, reading from notes but acting as if he did not need them. “I intend to prove that it is an awkward attempt to write off, at my expense, the mistakes made in the privatization legislation at the beginning of the privatization process,” he said.

Analysts who express some sympathy for Khodorkovsky often describe his prosecution as an example of selective law enforcement. By this argument, many of Russia’s oligarchs -- tycoons who got rich through privatization -- at the least bent the law in acquiring their wealth, but Khodorkovsky was targeted because of his political ambitions, which challenged Russian President Vladimir V. Putin.

Khodorkovsky went far beyond that argument Friday, insisting he had done nothing wrong. He admitted using tax breaks but said they were legal. “The law unequivocally prohibits considering the use of tax breaks as a crime, and thus it doesn’t allow the shifting of bureaucrats’ mistakes to business,” he said.

Nikolai Petrov, a political analyst at the Carnegie Moscow Center, said that “it may be rather hard for the prosecution to prove Khodorkovsky’s guilt, for many of the charges ... are formulated not as violations of certain legal norms but as the use of various financial schemes that were quite legal -- despite the fact that they took advantage of some flaws and loopholes in the laws of that time.”

Typical of the charges outlined by the prosecution Thursday was a description of how Khodorkovsky got control of a 20% interest in a large fertilizer company. An auction was held, and the highest bidder was declared the winner, but that bidder and two runner-ups declined to take the assets, according to the charges. The company that placed fourth, with the lowest bid, ended up getting the assets -- but unknown to authorities at the time, all four bids had been backed by Khodorkovsky, according to the charges.

The court will have to decide whether such a scheme took place and whether it was illegal at the time.

Similarly, Khodorkovsky and Lebedev are charged with siphoning off profits from the fertilizer company through trading firms, at the expense of other shareholders and the state. But not all observers believe that the techniques they used were illegal.

In what sounded to Western ears much like an accusation of committing capitalism, prosecutor Dmitry Shokhin declared while reading the charges that companies under Lebedev’s control bought fertilizer “at a lower price on the domestic market and sold it for export at a higher price.”

A smiling Khodorkovsky, dressed in bluejeans and a black polo shirt, projected cheerful confidence before Friday’s court session began, joking with a uniformed guard standing near the cage.

Lebedev, who says he suffers from a liver disorder and is seeking court approval for an independent medical check, looked tired. He showed moments of cheerfulness before the trial began but wore a vacant, dejected look during much of the proceedings.

Some of the charges accuse Khodorkovsky and Lebedev of complicated machinations between companies they controlled, at times transferring money back and forth and at other times refusing to do so, to the detriment of minority stockholders.

“I am being accused of an attempt to refuse to transfer funds from one private enterprise into the pocket of another private enterprise,” he said. “What’s more, according to the investigators’ assertions, both these companies belong to me ... that is, the prosecutors accuse me of refusing to take money out of my one pocket and put it into my other pocket.”

Lebedev showed much less apparent confidence and strength, speaking in a monotone and holding on to a bar of the cage for support. But he too ridiculed prosecutors.

“There is not a shred of solid evidence that would back up the charges,” he said. He accused the prosecution of waging a political vendetta based on “invented or craftily organized charges.”

Prosecutor Shokhin responded that although the defendants “can quite skillfully juggle with facts,” the evidence showed they were guilty.

“Their attempt to create a big fuss around their case by way of making loud statements cannot but be regarded as a desire to apply pressure not only on the mass media and the participants in the court procedures but also on public opinion,” Shokhin said.

After the session, one of Khodorkovsky’s lawyers, Genrikh Padva, appeared pleased with how the trial was going. “So far, the judge is conducting the trial impeccably,” he said.

Irina Khakamada, a former presidential candidate who is leader of the Free Russia party, said the case against Khodorkovsky and Lebedev was aimed primarily at redistributing their property.

That kind of policy can lead to endless takeovers of wealth by whoever is in power, she said, adding, “It does not help Russia advance toward becoming a state ruled by law.”

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Times staff writer Sergei L. Loiko and Alexei V. Kuznetsov of The Times’ Moscow Bureau contributed to this report.