Fraudsters don’t want you to be creative…

 What a Florida circuit court ruling means for defrauded investors

Earlier this year, the US courts froze a USD 7 million condominium on Florida’s Fisher Island. It is indirectly owned by Janna Bullock, a New York socialite, property mogul and art dealer known for her lavish parties and furniture made from human hair. Bullock is also the ex-wife of Alexey Kuznetsov, a former Russian official convicted of massive embezzlement. For years, Russian authorities have argued that Bullock laundered her former husband’s stolen millions. But the latest freeze was ordered not at the behest of Russia, but through the creative application of available legal and investigative tools by a victim of Kuznetsov’s fraud.

On 17 February 2021, the 11th Judicial Circuit of Florida in Miami-Dade County recognised a prejudgment world-wide freezing order, made by the District Court of Limassol in Cyprus in August 2012 in Gorsoan Ltd v Janna Bullock et al, and went on to issue its own global asset freeze. This immediately caught the eye of seasoned asset recovery practitioners, who are all too familiar with the general debtor-friendly stance of the courts in Florida. The reason for this is a 1999 decision by the US Supreme Court, following which US courts have generally shunned pre-judgment asset freezing orders, the use of which is restricted to certain types of proceedings.

While for asset recovery practitioners it is undoubtedly a positive development, whether the February decision is indeed a harbinger of a new approach by US courts remains to be seen – there is an appeal pending before the Third District Court of Appeal, with the respondent’s answer brief yet to be filed.

Background to the case

It wasn’t only the novelty of the US court decision which caught our attention, but the underlying case itself.

Alexey Kuznetsov was the finance minister of the Moscow Region from 2000 to July 2008.   He left his post following allegations of large-scale corruption and embezzlement. Among other things, it was reported that he had transferred valuable land to companies controlled by his then wife, Janna Bullock. Shortly after resigning, Kuznetsov fled Russia, but was arrested in France in 2013. In 2019, he was extradited back to Russia, where he is understood to be serving a 14-year prison sentence, having pleaded guilty to the charges. In 2018 Bullock was also sentenced in absentia to 11 years’ imprisonment. 

Documents filed in Cypriot and US proceedings allege that from 2005 to 2007 various parties invested c. USD 550 million in bonds issued by domestic companies affiliated with the Moscow Region government. The funds were then siphoned to offshore companies controlled by Janna Bullock, Kuznetsov and their acolytes, and used to buy luxury real estate in France, London and elsewhere, art and “toys” such as a yacht.

Enter Gazprombank

One of the investors in the bonds was Russia’s Gazprombank, which had invested c. USD 23 million, according to court filings. The bank clearly decided not to tolerate Kuznetsov’s and Bullock’s shenanigans, and instead of relying on the formal Russian criminal process decided to go after Bullock on its own. One of the considerations would have been that Bullock is based in the US, with which Russia does not have an extradition treaty.  

Gazprombank assigned its rights and claims under the bonds to the Cypriot-incorporated Gorsoan (thereby reducing the threat of security for costs orders in Cyprus and other common law jurisdictions); started civil proceedings for fraud in Cyprus; obtained the above freezing order and served it personally on Bullock in New York; registered the freeze in the BVI and other offshore jurisdictions; sought extensive discovery in the US and elsewhere; and, finally, had the freezing order enforced in Florida. Property in London, Switzerland, France and the US has been frozen as a result, including two luxury hotels and a Bentley, as well as assets held through three trusts set up for Bullock, which were identified through court-sanctioned discovery.

What this means

While Gorsoan’s recovery efforts appear to be still ongoing, the benefits of a creative approach comprising robust investigative and legal work are very clear, especially in the context of an elaborate domestic fraud where there is seemingly no direct recourse against the perpetrators. Among other things, it requires a team of professionals who understand what investigative and legal tools exist across the globe to quickly, effectively and ethically unravel elaborate holding structures; identify and freeze assets; and exert maximum pressure on fraudsters and enablers.

This approach is not cheap and not everyone’s pockets are as deep as those of Gazprombank, reportedly the third largest bank in Russia by assets. External capital can help and the third party funding market is more vibrant and competitive than ever, so that even clients whose exposure is fully provisioned may benefit from cheaper capital.

A dedicated asset tracing and recovery practice can be used to help clients package their cases to make them more attractive to funders. Often this requires a considerable amount of effort to identify attachable assets, assess collectability and develop strategy, and calls for knowledge of the underwriting process and an eye for what makes a good investment. Being prepared to take on risk through contingent arrangements or fully-funded solutions, whether in packaging a case or working towards a recovery, can also be considered.

In the meantime, practitioners are eagerly awaiting the Third District Court of Appeal’s ruling on Bullock’s challenge to the February decision.