Insider Deals at Lukoil

Glenn R. Simpson (Wall Street Journal) has written an interesting article entitled A tycoon’s death reveals insider deals at Lukoil (December 06, 2006). In summary, the article says,

He rejected allegations made by Mr. Schmidt’s son, [VadimSchmidt], that Lukoil executives sometimes took control of company profits Mr.Schmidt had secreted in the Isle of Man. Vadim made the allegations in an Isleof Man court and in the high U.K. appellate court known as the Privy Council. “Unfortunately,the son didn’t take after his father,” said Mr. [Vagit Alekperov].”He’s looking for his father’s supposed money.”

Mr. Schmidt’s death evidently didn’t end Lukoil’s penchantfor related-party dealings. In 2004, Lukoil announced it had sold a 65%interest in its banking subsidiary, Petrocommerce, to a firm called IFDKapital. Besides owning a bank where a majority of Lukoil employees holdaccounts, IFD Kapital collects $130 million in insurance premiums from Lukoilper year and manages Lukoil’s multibillion-dollar pension fund.

IFD’s majority owners are Lukoil’s president, Mr. Alekperov,and Mr. [Leonid Fedun], a Lukoil vice president. Their ownership wasn’t madeclear until early this year, in Petrocommerce’s annual report. Lukoil’s ownannual reports disclosed the deals in vague terms without naming the businessor the insiders. Mr. Fedun said in an interview that “the transaction isfully transparent and is reflected in all reports, including the Lukoil annual report.”

Special thanks to Prof. Joel C. Dobrisof the University of California-Davis for bringing this article to myattention.