The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Lyford Cay financier, Viktor Kozeny, has suffered a reversal in the New York state courts that potentially paves the way for the Czech authorities to seize $22 million of his assets.

The New York State Supreme Court’s appeals division, in documents obtained by Tribune Business, last month overturned a lower court verdict that threw out a bid to seize the proceeds generated from the sale of Mr Kozeny’s Colorado home.

The funds were said to belong to Landlocked Shipping, a Turks & Caicos company that had purchased the luxury house in Aspen for $19.75 million in July 1997.

However, the appeals court ruled that the Czech authorities and Harvard Holdings, the entity Mr Kozeny was found guilty of asset stripping in the mid-1990s, had proven that Landlocked Shipping and the controversial financier were “alter egos’.

Most significantly, the New York appeals court ruled that an ‘attachment motion’, which would allow the Czech to seize the $22 million as part compensation for a $410 million judgment rendered against Mr Kozeny in his homeland, should be granted. The funds are currently frozen in a Wells Fargo bank account in New York.

Mr Kozeny could not be reached for comment by Tribune Business yesterday, but Landlocked Shipping’s attorneys are already promising to appeal the verdict.

They are also opposing the Czech authorities’ request to the New York State Supreme Court that the ‘attachment motion’ be granted in their favour.

In an April 16, 2014, letter to Judge Ellen Coin, attorney James Nesland argued that the ‘attachment’ demand was “premature”.

He said this should be filed by a formal motion, would allow Landlocked Shipping to respond with a counter-proposal.

Mr Nesland also added: “I also note that Landlocked intends to invoke its statutory right to seek re-argument and/or permission to appeal from the appellate division’s decision.”

Describing the appeal court’s ruling as “incomplete”, Mr Nesland said it had failed to consider the grounds upon which the lower court found in Landlocked’s favour.

In its ruling, the New York state appeal court backed the Czech authorities’ argument that Mr Kozeny was a ‘shadow’ owner of Landlocked Shipping, owning none of its shares but acting as its ‘managing mind’, and directing all its operations through third parties.

“Plaintiff has amassed sufficient evidence to demonstrate that Kozeny and Landlocked are alter egos of each other. Thus, they may be treated as one and the same for the purpose of enforcing the judgment,” the court ruled.

Landlocked had also argued that the $410 million judgment obtained by the Czech authorities was not enforceable as a fine or financial penalty, because it was rendered by a criminal - not civil court.

Setting out the background to the action, the New York state appeals court ruled: “This controversy has its origins in the privatisation of formerly state-owned companies in the Czech Republic. In the early 1990s, Czech citizens were issued voucher points that could be used to purchase shares in designated firms or assigned to one of many investment privatisation funds (IPFs) that would purchase and manage a portfolio of shares on their behalf.

“The judgment of the Municipal Court in Prague, rendered July 9, 2010, states that Viktor Kozeny utilised Harvard Capital and Consulting to solicit investors through its six Harvard investment funds, one of which ultimately became plaintiff Harvardsky Prumyslovy Holding.”

It added: “As the authorised representative of Harvard Capital, Kozeny then looted the [funds[, diverting the funds of many Czech investors to a series of shell companies in Cyprus.

“Kozeny, who had relocated to the Bahamas, was prosecuted in absentia after the Bahamian government refused extradition. He was found guilty of gross fraud and sentenced to a term of 10 years. Harvardsky, with approximately 250,000 shareholders, joined in the action as the injured party, and Kozeny was directed to pay compensation in the sum of approximately $410 million to the company.”

The Czech authorities alleged that the funds used to purchase the Colorado home, and millions of dollars spent on upgrades, had come from Mr Kozeny’s alleged fraud.

“Landlocked sold the house for $22 million in November 2001, and deposited the proceeds into its account at Wells Fargo Bank. It is asserted that Kozeny is the sole beneficial owner of the funds,” the New York state appeal court added.

It ruled that Landlocked had failed to supply a single example of where judgment enforcement was not enforced because it came from a criminal court.

“There is no merit to Landlocked’s position that this matter is governed by the doctrine of ‘reverse piercing’ (where a plaintiff seeks to hold a company liable for the debts of its shareowner), rather than ‘traditional’ piercing {where a plaintiff seeks to hold a shareowner liable for the debts of the company),” the New York state appeal court said.

In her initial verdict that threw out the action, Judge Coin said the action had been doomed” by the defective service of court documents on Mr Kozeny in the Bahamas.

She said that to “convert” the Czech judgment into US law and obtain an Order ‘attaching’ it to the $22 million, the Czech government had to ‘personally serve’ Mr Kozeny with the relevant documents.

And proof of service had to be supplied to the US court within 120 days of the complaint against Mr Kozeny being filed - something that was also not complied with.

“The only proof of service filed with the court is an affidavit of service of plaintiff’s order to show cause on Kozeny by overnight mail to an address in the Bahamas,” Judge Coin’s ruling found.

“The record is otherwise lacking any indication that service of the summons and complaint was effected upon Kozeny, nor is the court aware of any authority that the requirement of service of the summons and complaint is satisfied by service of a separate motion.

“Since this defect would render the summons and complaint a nullity as against Kozeny, and effectively doom the possibility of domesticating the Czech judgment on default.”