Home of Russian state telco boss raided in fraud probe
MOSCOW (Reuters) - Russian investigators searched the home of the head of a state telecoms firm on Tuesday, in a fraud case that underlines an intensifying battle for money and influence six months into Vladimir Putin's presidency.
Investigators searched the house of Alexander Provotorov, chief executive of Rostelecom, and the home of a minority shareholder, Konstantin Malofeyev, newspapers and news agencies quoted law enforcement sources as saying.
Rostelecom spokeswoman Kira Kiryukhina said she had no information about the searches. Malofeyev's fund, Marshall Capital, could not be reached for comment and its web site was out of service.
Official investigations into leading Russian companies can quickly unsettle investors concerned by the country's weak property rights and political control over law enforcement and the courts.
Analysts said Tuesday's raids could herald a management shake-up at the $12 billion phone company, Russia's former fixed-line monopoly over which well-connected officials have long vied for influence.
"Maybe this is connected with some conflicts between Rostelecom and the Ministry of Communications - we heard previously that the ministry wanted to replace the current CEO," said Alexander Vengranovich at brokerage Otkritie.
"Probably they are connected and it's another push on Rostelecom."
The Rostelecom case is linked to a deal involving Marshall Capital, in which Provotorov used to be a partner, and follows a slew of scandals that has soured the mood of investors towards Russia and Putin's brand of state capitalism.
A corruption probe led Putin to fire his defense minister, Anatoly Serdyukov, this month, while cases of alleged financial malfeasance are being investigated at Russian satellite network Glonass and over preparations for a recent Asia-Pacific summit.
Commentators say such cases are increasingly becoming a tool to settle political and business scores under Russia's 'vertical' power structure, in which Putin - now serving a third Kremlin term - acts as a final arbiter.
The Rostelecom fraud probe is linked to a $225 million loan by VTB to finance a business deal in 2007 in which, investigators suspect, Malofeyev was involved on both sides of the transaction.
VTB is seeking to recover the money and has secured a UK court order freezing part of the 10 percent stake in Rostelecom owned by Malofeyev's fund, Marshall Capital.
Alexei Navalny, an anti-corruption activist who has emerged as a leader of opposition election protests over the past year, has accused VTB managers of questionable lending practices, while a UK judge has faulted the state bank for failing to do adequate due diligence on the deal.
VTB has rejected Navalny's allegations as "deceitful, biased and insubstantial" and declined to comment on the fraud probe on Tuesday.
News of the searches broke the day before Rostelecom - one of four firms to win licenses to provide fourth-generation mobile services in Russia - reports quarterly results.
Shares in the firm, in which the state owns a voting stake of 53 percent, fell by as much as 4.3 percent initially but pared earlier losses to trade down 2.9 percent by 1145 GMT.
According to reports, Malofeyev has been taken into custody and Provotorov may be arrested later on Tuesday, while a lawyer for Marshall Capital was being questioned.
Police said only that they were investigating individuals suspected of defrauding a bank, adding that the case did not relate directly to Rostelecom.
In the deal that is at the heart of the investigation that has sucked in Provotorov, a company called Russagroprom bought six Russian dairy plants from Nutritek, in which Marshall Capital was a shareholder.
Russagroprom defaulted on the VTB loan and the bank later brought proceedings against Nutritek and Marshall Capital, securing a UK court order freezing part of the fund's 10 percent stake in Rostelecom.
A prolonged investigation could affect Rostelecom's ability to find business partners at a time when, according to financial daily Vedomosti, it is in talks with Sweden's Tele2 to merge their Russian mobile operations.
The latest raids come as MegaFon, Russia's No.2 mobile phone firm, markets a $2 billion initial public offering that has met concern among some investors over standards of corporate governance at the company and in the country.
Russia ranks 117th out of 185 countries for investor protection in the World Bank's Doing Business survey, the lowest of any of the countries in the Group of 20 leading economies.
(Additional reporting by Maria Tsvetkova and Sonia Elks; Editing by Jon Boyle)
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