Gazprom fights share write-off scandal

A flurry of cases are reaching the Russian courts from investors who say their shares were illegally written off in the early days of the market economy. The country's biggest company, Gazprom, is in the midst of one such dispute.

The 1990s privatisations in Russia saw the general population win the right to buy into companies.   The problem was that neither the share issuers nor the buyers had much understanding of financial matters. This made it easy for shares to be illegally written off or simply stolen in later years.

The president of the National Association of Market Participants, Aleksey Timofeev, said there used to be two institutions – registrars and depositaries – to monitor shares.

“Both could write off shares; one from a personal account, the second from a deposit account, but only on the instruction of  the share owners.

Now the situation is much better, but there are still cases of illegally writing off shares from private accounts and hiding them,” Timofeev said.

As the stock market has risen, more people have become aware of the value of shares.  This has led to more cases of illegal share write-offs.

Attorney Valery Ishnazarov explained how crooks steal shares.

“People fake a notarial trust letter or send the registrar a fake death certificate. 

In our case they used a stolen passport displaying their photo with documentation that did not require shareholder presence. So the guilty party could not be found,” Ishnazarov said.

The case is not closed yet and Gazprom is going to file an appeal. 

“We think that those filing the case have showed neglect, by going to court 6 years after the write-off happened, when it's impossible to find the guilty party,” company spokesman Sergey Kupriyanov said.

Lawyers say the extent of the problem in Russia is not known.  Attorney Natalia Barshevskaya from Barshevky and Partners says legislative changes in 2006, designed to protect shareholders, mean that more cases can be expected.

“Under the new law the issuer is responsible for illegal share write-offs. In the case of Gazprom, I think that is controversial, because a company the size of Gazprom cannot follow all its shares,” Barshevskaya said.

More cases are in the legal pipeline.  But many people are wary of standing up for their rights in court.  Financial journalist Yan Art says the cases are creating an effective court process.

“I think it s a positive thing, although the negative side is obvious – it could lead to a wave of court cases. But it is necessary in order to create a legal tradition upholding shareholder rights,” Art said.