Why Should Delaware Care?
Besides the sheer intrigue, the lawsuit highlights Delaware’s frequent role as an arbiter of high-dollar business disputes around the world – even those involving shadowy figures. It also highlights how alleged wrongdoing often is tied to Delaware companies.
For the past six years, a Delaware court has been home to a lawsuit replete with the features of a Hollywood movie: An oligarch with a pet shark, links to politicians, and allegations of theft from what once was one of Eastern Europe’s largest banks.
It also involves one Ukrainian tycoon suing two others on claims they carried out a massive money laundering scheme that ended with the bankruptcy of a Rust Belt steel mill.
On Monday, lawyers for the two sides appeared in a courtroom in Wilmington to argue whether the case should go on. During the motion to dismiss hearing, the judge – Vice Chancellor Nathan Cook – only directed questions to the plaintiff’s side, though he did not make it clear whether he would toss the case.
Cook scrutinized the plaintiffs after hearing their claims, including that Ihor Kolomoisky – a once-powerful businessman and former ally to Ukrainian President Volodymyr Zelenskyy – stole nearly $60 million from his business partner, Vadim Shulman, more than a decade ago.
Kolomoisky allegedly did so along with another powerful businessman, Gennadiy Bogolyubov.
Like Shulman and Kolomoisky, Bogolyubov has been described in past news reports as a Ukrainian billionaire.
Shulman’s lawsuit, filed in 2019, highlights Delaware’s frequent role as an arbiter of high-dollar business disputes around the world – even those involving shadowy figures.
Politico reported in 2019 that Kolomoisky kept a shark in his office, which he reportedly fed during meetings to intimidate others.
In Monday’s arguments, Shulman’s attorney said his client two decades ago transferred money in several installments to Kolomoisky, as part of a joint venture to purchase and operate a steel mill in Warren, Ohio.
Shulman thought at the time that it was an above-board business venture to rehabilitate the Rust Belt factory, according to his lawyers. But they claim Kolomoisky instead was using the asset as a money-laundering factory in an effort to embezzle hundreds of millions more from what once was Ukrainian largest bank, PrivatBank.
“What we know now is that Warren Steel was a front for money laundering.” Shulman’s attorney Kendall Coffey said during the Monday hearing.
Coffey described the steel mill – with big sums of money regularly flowing in and out – as an ideal vehicle for money laundering, saying that a “seemingly legitimate U.S. front company is exactly what the doctor ordered.”
In the 1990s, Coffey served as the U.S. Attorney for the Southern District of Florida.
Shulman’s case and a parallel claim brought by Privatbank, which also is ongoing in Delaware, allege the embezzlement of money out of the bank was aided not only by the Warren steel mill but also by several other Delaware LLCs.
The Ohio steel mill closed in 2016, and subsequently laid off more than 150 people.
In July, a court in the United Kingdom found Kolomoisky and Bogolyubov liable in a separate lawsuit for nearly $2 billion in fraud related to their past control of PrivatBank.
A steel mill in Ohio – and in Claymont
The asserted facts in Shulman’s claim begin more than 20 years ago when Kolomoisky, Shulman and Bogolyubov, formed a partnership to purchase the struggling steel mill in Warren, Ohio.
To do so, they formed a Delaware company, called Warren Steel Holdings, LLC.
Coffey said Shulman had reason to trust Kolomoisky and Bogolyubov because they had done deals in the past and had ongoing partnerships.
Among those was their joint ownership of several Ukrainian factories. In 2007, they sold those factories to Evraz Group – a company that at the time also owned a steel mill in Claymont.
In exchange, Evraz’s controlling official, Roman Abramovich, gave Kolomoisky a mixture of cash and shares in his company, according to documents filed in Shulman’s lawsuit.
The deal presumably made Kolomoisky a part owner in the Claymont steel mill for several years.
But Shulman has claimed in court documents that Kolomoisky didn’t give him his cut of the deal.
By 2009, Kolomoiksy told Shulman that he would use money he had received from the Evraz deal to reinvest in their Ohio steel venture, according to court documents.
Shulman’s attorneys now say that never happened.
Kolomoisky in Guiliani’s crosshairs
On Tuesday, attorneys representing the defendants argued principally that Shulman’s claims had surpassed their statute of limitations, saying he had learned of the alleged wrongdoing more than a decade ago.
“They’ve been on notice regarding the underlying nature of their claims since 2012,” Bogolyubov’s attorney Matt Nicholson said.
Coffey countered that, while Shulman had concerns in the past about being squeezed out of the steel mill venture, he didn’t know that his partner was conducting what he called a “massive money laundering scheme.”
Coffey said Shulman learned of those details in 2019 when PrivatBank filed a lawsuit in Delaware court, claiming Kolomoisky and Bogolyubov brazenly stole hundreds of millions of dollars from the bank.
The lawsuit claimed they then laundered the money into real estate in Cleveland, as well as factories across the Midwest, using more than a dozen anonymously owned Delaware companies.
Among the attorneys who filed the lawsuit on behalf of PrivatBank was William Burck, who had previously represented at least six aides to President Donald Trump during his first term in office.
Separately, in a curious development that occurred three days before PrivatBank filed its suit, Rudy Giuliani – then an aide to Trump – launched public attacks against Kolomoisky, calling him a “notorious oligarch” who should be prosecuted for an unspecified threat.
This is a test for the Pres.-elect.He already has surrounded himself with some people that are enemies of Pres.Trump. Now this notorious oligarch is said to also have people around him. Kolomoisky should be prosecuted for the threat. Let’s see?It will tell us a lot about control?
— Rudy W. Giuliani (@RudyGiuliani) May 18, 2019
It was not clear what sparked Giuliani’s scorn toward Kolomoisky then, but it occurred just as he sought information from the Ukrainian government in a quest to find dirt that could tarnish then-presidential candidate Joe Biden.
While the Delaware lawsuits from PrivatBank and from Shulman both allege a coordinated scheme to commit fraud, attorneys for the defendants on Monday refuted the idea, saying instead that Shulman alleged only discreet instances of potential wrongdoing.
Finally, the defense argued that Shulman’s lawsuit is just the latest in nearly identical claims he filed and lost in other jurisdictions, including the British Virgin Islands.
They said that the facts of the claim amounted to a shareholder derivative claim in the British Virgin Islands where the parent company of Shulman’s investment vehicle is domiciled.
The judge, Cook, now must decide whether to grant the defendant’s motion to dismiss the case. He did not indicate on Monday when he might rule.