Reports say one of Central Europe's best-known -- many would say most notorious -- financiers may finally have run out of luck. Viktor Kozeny is a Czech who made millions of dollars from his country's voucher privatization program in the early 1990s, but who ran aground trying a similar scheme in Azerbaijan. He may now be in liquidation. RFE/RL correspondent Mark Baker talked to Kozeny by telephone at Kozeny's home in the Bahamas about the state of his finances and prospects for the future.
Prague, 12 July 2001 (RFE/RL) -- Czech emigre financier Viktor Kozeny is reportedly close to bankruptcy -- the victim of bad investment decisions and a lavish lifestyle that in the end he could not afford.
Britain's "Sunday Times" newspaper reported this month that Kozeny's $25 million home in central London was up for sale and that its interior had been stripped.
The report said Kozeny, whose wife had left him, is in the process of selling off homes, properties, jet planes and boats in places as far-flung as the Bahamas -- his principal residence -- and the U.S. ski resort of Aspen, Colorado. Czech newspapers -- eager to report on the misfortunes of a man who many believe improperly profited from privatization and tarnished the country's reputation -- quickly publicized the story and added their own details.
Our correspondent spoke with Kozeny by telephone at his home in the Bahamas. Kozeny admits that he is going through difficult personal times, but he says reports of his financial demise are exaggerated.
"I am -- put it this way -- nowhere close to being bankrupt. This is entirely fictitious. And there has been no claim [which] was adjudicated against me."
Kozeny was one of the first of a new breed of entrepreneurs from formerly communist Europe to amass huge fortunes by using questionable legal means.
He made a name for himself in the early 1990s by profiting from then-Czechoslovakia's coupon privatization program. Under that plan, private citizens could purchase vouchers at a nominal price and redeem them for shares of companies or investment funds.
Kozeny convinced hundreds of thousands of coupon-holders to invest their vouchers in his family of funds, called "Harvard" funds, by promising a 10-fold return on their investment within a year.
In the end, more than 800,000 Czechs accepted Kozeny's offer, handing Kozeny a sizable portion of the country's industry in the process. It was never clear how much money Kozeny made at the time, but estimates run from tens of millions to hundreds of millions of dollars.
It also wasn't clear if Kozeny violated any laws, but he was widely suspected of using former secret service agents to obtain investment information. Later he was fined by Czech authorities for violating laws on asset stripping and forced to repay almost $7 million to holders of his Harvard funds.
Kozeny's luck ran out several years later when he tried more or less the same scheme in Azerbaijan, which was embarking on a similar voucher privatization program.
Kozeny and his associates raised hundreds of millions of dollars to purchase vouchers from citizens to use them to buy shares in Azerbaijan's state oil company SOCAR -- by far the country's most valuable asset.
Kozeny says he met on several occasions with Azerbaijani President Heidar Aliyev and other leading officials, and that he was given full approval for his plan:
"Well, we [the president and I] discussed a variety of issues. [These issues] all centered around privatization -- and obviously it was of a great concern to us that the privatization is going to go through and that a sufficient and valuable asset will be privatized in the foreseeable future. [We were] given all of the necessary assurances that this is the case."
Kozeny says not only he but one of his partners at the time, George Mitchell -- a former U.S. Senate majority leader and author of the Northern Ireland peace accords -- met with Aliev:
"Besides myself meeting with Mr. President, also one of our directors, Senator George Mitchell, met with him and confirmed the same."
The Azerbaijani government did not proceed with the privatization of SOCAR, and Kozeny and his partners were left holding vouchers that may never be redeemable into shares.
This week, reacting to news of RFE/RL's interview with Kozeny, the Azerbaijani newspaper "Alternative" -- which reflects the views of the presidential administration -- reported that the president had never met with Viktor Kozeny.
Kozeny's former partners -- including Mitchell and the U.S. insurance company AIG -- have taken the financier to court, arguing that Kozeny deceived them about the risks of investing in Azerbaijan. They also claim Kozeny swindled them by charging more for the vouchers than he paid for them himself and pocketing the difference. Kozeny may have earned tens of millions of dollars this way.
Kozeny denies the allegations and says that his partners were fully aware of the risks involved in doing business in Azerbaijan.
A judicial decision is months if not years away, but the courts have already frozen many of Kozeny's assets. Kozeny says that's one of the reasons for claims that he is bankrupt:
"Until you resolve the case (and end the freeze on assets), you are not effectively able to continue your business. You're not able to arrange even the most basic financing, even for house reconstruction."
Kozeny remains optimistic. He says if the Azerbaijani government accepts even a fraction of his vouchers -- a questionable proposition at this point -- then his partners will receive their money.
Whatever happens to Kozeny is not likely to affect the some 300,000 Czechs who hold shares in a successor fund that still bears the name Harvard -- Harvard Industrial Holdings.
Earlier this year, a Czech court ruled to separate Harvard Industrial Holdings from Kozeny's Harvard funds. Michal Pacovsky, a member of the board of Harvard Industrial Holdings, says Kozeny is no longer involved with the fund, which is now what Pacovsky calls a "normal" investment fund.
But the Kozeny legacy lives on. Pacovsky says that as part of the court ruling, his fund has assumed ownership of at least some of the Azerbaijani vouchers, and like Kozeny, he's waiting for a pay-off -- one that may never come.
"In January, when we finished the [legal process] against the company of Viktor Kozeny, and from this case, from this time, we are the owner of these tickets, these vouchers, from Azerbaijan privatization. And these vouchers, we have to exchange for shares in Azerbaijan companies."
Harvard Industrial Holdings also is still awaiting receipt of the proceeds from a deal in Russia involving the oil company Sidanco. That deal, too, goes back to the Kozeny days, and may bring as much as $150 million to the fund and significantly shore up its asset base.
Trading in shares of Harvard Industrial Holdings has been frozen because of the confusion of the company's assets, and shareholders have no easy way of liquidating their shares. Pacovsky says he hopes trading will resume later this year.
(The Azerbaijani Service contributed to this report.)
Prague, 12 July 2001 (RFE/RL) -- Czech emigre financier Viktor Kozeny is reportedly close to bankruptcy -- the victim of bad investment decisions and a lavish lifestyle that in the end he could not afford.
Britain's "Sunday Times" newspaper reported this month that Kozeny's $25 million home in central London was up for sale and that its interior had been stripped.
The report said Kozeny, whose wife had left him, is in the process of selling off homes, properties, jet planes and boats in places as far-flung as the Bahamas -- his principal residence -- and the U.S. ski resort of Aspen, Colorado. Czech newspapers -- eager to report on the misfortunes of a man who many believe improperly profited from privatization and tarnished the country's reputation -- quickly publicized the story and added their own details.
Our correspondent spoke with Kozeny by telephone at his home in the Bahamas. Kozeny admits that he is going through difficult personal times, but he says reports of his financial demise are exaggerated.
"I am -- put it this way -- nowhere close to being bankrupt. This is entirely fictitious. And there has been no claim [which] was adjudicated against me."
Kozeny was one of the first of a new breed of entrepreneurs from formerly communist Europe to amass huge fortunes by using questionable legal means.
He made a name for himself in the early 1990s by profiting from then-Czechoslovakia's coupon privatization program. Under that plan, private citizens could purchase vouchers at a nominal price and redeem them for shares of companies or investment funds.
Kozeny convinced hundreds of thousands of coupon-holders to invest their vouchers in his family of funds, called "Harvard" funds, by promising a 10-fold return on their investment within a year.
In the end, more than 800,000 Czechs accepted Kozeny's offer, handing Kozeny a sizable portion of the country's industry in the process. It was never clear how much money Kozeny made at the time, but estimates run from tens of millions to hundreds of millions of dollars.
It also wasn't clear if Kozeny violated any laws, but he was widely suspected of using former secret service agents to obtain investment information. Later he was fined by Czech authorities for violating laws on asset stripping and forced to repay almost $7 million to holders of his Harvard funds.
Kozeny's luck ran out several years later when he tried more or less the same scheme in Azerbaijan, which was embarking on a similar voucher privatization program.
Kozeny and his associates raised hundreds of millions of dollars to purchase vouchers from citizens to use them to buy shares in Azerbaijan's state oil company SOCAR -- by far the country's most valuable asset.
Kozeny says he met on several occasions with Azerbaijani President Heidar Aliyev and other leading officials, and that he was given full approval for his plan:
"Well, we [the president and I] discussed a variety of issues. [These issues] all centered around privatization -- and obviously it was of a great concern to us that the privatization is going to go through and that a sufficient and valuable asset will be privatized in the foreseeable future. [We were] given all of the necessary assurances that this is the case."
Kozeny says not only he but one of his partners at the time, George Mitchell -- a former U.S. Senate majority leader and author of the Northern Ireland peace accords -- met with Aliev:
"Besides myself meeting with Mr. President, also one of our directors, Senator George Mitchell, met with him and confirmed the same."
The Azerbaijani government did not proceed with the privatization of SOCAR, and Kozeny and his partners were left holding vouchers that may never be redeemable into shares.
This week, reacting to news of RFE/RL's interview with Kozeny, the Azerbaijani newspaper "Alternative" -- which reflects the views of the presidential administration -- reported that the president had never met with Viktor Kozeny.
Kozeny's former partners -- including Mitchell and the U.S. insurance company AIG -- have taken the financier to court, arguing that Kozeny deceived them about the risks of investing in Azerbaijan. They also claim Kozeny swindled them by charging more for the vouchers than he paid for them himself and pocketing the difference. Kozeny may have earned tens of millions of dollars this way.
Kozeny denies the allegations and says that his partners were fully aware of the risks involved in doing business in Azerbaijan.
A judicial decision is months if not years away, but the courts have already frozen many of Kozeny's assets. Kozeny says that's one of the reasons for claims that he is bankrupt:
"Until you resolve the case (and end the freeze on assets), you are not effectively able to continue your business. You're not able to arrange even the most basic financing, even for house reconstruction."
Kozeny remains optimistic. He says if the Azerbaijani government accepts even a fraction of his vouchers -- a questionable proposition at this point -- then his partners will receive their money.
Whatever happens to Kozeny is not likely to affect the some 300,000 Czechs who hold shares in a successor fund that still bears the name Harvard -- Harvard Industrial Holdings.
Earlier this year, a Czech court ruled to separate Harvard Industrial Holdings from Kozeny's Harvard funds. Michal Pacovsky, a member of the board of Harvard Industrial Holdings, says Kozeny is no longer involved with the fund, which is now what Pacovsky calls a "normal" investment fund.
But the Kozeny legacy lives on. Pacovsky says that as part of the court ruling, his fund has assumed ownership of at least some of the Azerbaijani vouchers, and like Kozeny, he's waiting for a pay-off -- one that may never come.
"In January, when we finished the [legal process] against the company of Viktor Kozeny, and from this case, from this time, we are the owner of these tickets, these vouchers, from Azerbaijan privatization. And these vouchers, we have to exchange for shares in Azerbaijan companies."
Harvard Industrial Holdings also is still awaiting receipt of the proceeds from a deal in Russia involving the oil company Sidanco. That deal, too, goes back to the Kozeny days, and may bring as much as $150 million to the fund and significantly shore up its asset base.
Trading in shares of Harvard Industrial Holdings has been frozen because of the confusion of the company's assets, and shareholders have no easy way of liquidating their shares. Pacovsky says he hopes trading will resume later this year.
(The Azerbaijani Service contributed to this report.)
