The Russians are Coming, the Russians are Coming!

           

          “It just goes to show ya, it’s always something!  If it’s not one thing, it’s another!”

                                                        - Roseanne Roseannadanna (Gilda Radner)

 

Some of you may remember that hilarious May, 1966 American film comedy spoof staring Carl Reiner, Eva Marie Saint, Jonathan Winters and Alan Arkin in which a hapless Russian submarine commander runs his craft aground while sightseeing along the Massachusetts coastline near the fictional small New England town of Gloucester Island.  The situation spins totally out of control and threatens WW III, all done tongue-in-cheek.

 

Into the vacuum created by the turmoil in real estate markets and the homeowners' consortium purchase of several homes at Fleur du Lac, stepped an unlikely, and ultimately unwelcome, new group.  Unlike the Russians in the 1966 film who crept ashore in the dead of night, the Russians who “invaded” Fleur du Lac in 1993 came right in through the front gates as new homeowners.

 

Opportunists “Invade” Fleur du Lac

Andrei Kozlenok, an unknown, but charming and dapper 30-year-old Russian entrepreneur, the CEO of a company called Golden ADA headquartered in San Francisco, came right through the gates that Fred Sahadi had built and purchased not one, but six homes at Fleur du Lac from the consortium or other homeowners. 

 

Kozlenok’s company was a diamond cutting, polishing and distribution company founded in 1991 and incorporated in 1992.  Golden ADA boasted the best asset a Russian company could have at the time, personal connections to high officials in the new Yeltsin government.  Young Kozlenok was a direct relative of Yeltsin’s Finance Minister Anatoly Golovaty.  The story of Andrei Kozlenok and the diamond cutting factory he established in San Francisco is mired in conspiracy theories and dark rumors of KGB involvement.  In a racket worthy of a James Bond villain, Kozlenok used millions in Russian Government funds to set up the diamond cutting plant in San Francisco in 1992, including the purchase of a headquarters building at 999 Brannon Street for $10 million ($20 million), when the owner had been asking only $6 million ($12 million).  He clearly had plenty of money to spend and wasn’t a bit shy in letting that be known.

 

The plan for Golden ADA, apparently approved at the highest governmental levels in Moscow, was to cut and polish raw diamonds sent from Moscow, and use the diamonds as collateral for a $500 million ($997 million) credit line from an American bank for the Russian Government, which at the time was desperate for foreign currency reserves, especially U. S. Dollars.  As of 1992, Russia extracted nearly 25% of all the world’s uncut diamonds.  But rather than market the diamonds directly, the Russians had a contract that required them to sell through the DeBeers diamond cartel.  Thus, the plan to ship some diamonds to San Francisco appears to have been a Russian government sponsored back-door plan for a way to allow Russia to circumvent the arrangement with the DeBeers diamond cartel and get much-needed U. S. Dollar foreign currency reserves. 

 

Golden ADA became a way not only to accomplish the Russian Government’s objectives, but was also a convenient way for connected Russian individuals to skim some assets as well.  These connected Russians knew that uncut diamonds are one of the most favored assets of smugglers and thieves around the world because of their very high value-to-weight ratio and an almost complete lack of traceability.

 

Under the plan, Golden received two shipments from Moscow, diamonds and gold of undetermined value in 1993, and a second shipment of uncut diamonds worth $88 million ($166 million) in 1994.  The company never paid for these shipments, and some would later speculate the total value of the shipments might have been as high as $350 million ($660 million) to $400 million ($754 million).  Soon, not only were rough cut diamonds being shipped to Golden ADA in San Francisco, but other gems, rare coins, gold by the ton, antique tableware, as well as a Faberge egg created for Czar Nicholas II and other miscellaneous jewelry arrived in later shipments as well.  The source of much of this was “The Closet” a location said to be deep in the Ural Mountains, where the former Soviet Union and later the Russian Federation stored its gold diamonds, emeralds, rare coins and other valuables.

 

Not surprisingly, the plan went awry.  Instead of selling the diamonds and other gems and establishing the foreign currency reserve account with a U. S. Bank as planned, Kozlenok and his two Armenian accomplices, brothers Ashot and David Shagirian, simply sold the diamonds and went on a $30 million ($57 million) spending spree that ultimately included nine speedboats, a $377,000 ($710,000) Rolls Royce automobile, a $20 million ($38 million) Gulfstream jet, two helicopters, as well as other luxury property in San Francisco and the Bay Area.  Additional funds from the diamond and gems sales most likely went into the accounts of bureaucrats in charge of “The Closet” back in Russia to maintain silence.  Some of the money was used to benefit stateside “friends” as well, including a $20,000 ($37,800) donation to the Kathleen Brown gubernatorial campaign in 1994, funds to many other California and San Francisco politicians, and even an attempt to gain favor with the San Francisco Police Department by donating one of the helicopters purchased with stolen funds to the Department.

 

Unfortunately, this is where Fleur du Lac enters the picture as well.  Part of Kozlenok’s spending spree was to purchase 6 homes at Fleur du Lac from the homeowners' consortium discussed earlier, or from individual homeowners.  Golden ADA and another entity created by Kozlenok, Shako Real Estate Management, paid cash for the homes, two of which had not yet been constructed.  Other real estate included in the spending spree included several houses on Happy Valley Road in Orinda, California as well as some miscellaneous real estate in downtown San Francisco.

 

Sleazy Underworld Businessmen, Politicians, Russian Kleptocrats and the KGB   When Russia cut off shipments to Golden ADA in late 1994, Kozlenok recruited two well-connected San Francisco politicians to help rescue the company; it turns out that the Russians and Armenians weren’t the only sleazy characters involved.  In January 1995, Jack Immendorf, a San Francisco private detective, the then current President of the San Francisco City Recreation and Parks Commission and the former campaign finance chief for the recently elected San Francisco Mayor Frank Jordan, was named Chief Executive Officer of Golden.  At the same time Kozlenok recruited California State Senator Quintin Kopp to became the company’s General Counsel, and Kopp hired two of his law firm partners to be employees at Golden.  One of the first things Immendorf did was to appeal directly to Yeltsin in a personal letter, warning Yeltsin that Golden ADA would fail miserably if diamond shipments from Russia did not resume.  When that letter failed to generate a response, both Immendorf and Kopp flew to Moscow in February 1995 to try to negotiate a resumption of shipments to San Francisco in person.

 

For its part, Russia sent a mysterious figure named Andrei Cherukhin, who according to a Russian newspaper was a well-known “cleaner”, someone sent by shadowy, often mob-related figures to pressure a client who had gotten out of control.  Other press accounts speculated that Cherukhin was a KGB operative.  Cherukhin was immediately named to the Golden ADA Board of Directors, where he ultimately replaced the entire management.  How he did that is still under debate.  The Shagirian brothers said Cherukhin made them an offer they couldn’t refuse: walk away with $5 million ($9.2 million) each, or take a bullet in the head.  Kozlenok says he was kidnapped, taken to Mexico and forced to resign, at which point he fled back to Russia.  In their places Cherukhin installed an obscure Indian businessman, Rajiv Gosain, as CEO and CFO of Golden ADA.  Gosain’s connections to the Russian government were unknown. 

 

Meanwhile, Immendorf and Kopp say they broke from the firm in June, 1995 after unsuccessfully attempting to help the company, but just in time to avoid being caught up in an U. S. Internal Revenue Service raid as we will see.  Immendorf said of his time at Golden ADA: “If any organized crime, Russian or here, was involved, I think we would have known about it.  There wasn’t even a hint.”  If he were asked that today he would undoubtedly say “that theory has been totally debunked,” the stand-by line for all scoundrel politicians caught in an act of malfeasance.

 

It didn’t take long for the wheels to come off at Golden ADA as the IRS raided ADA headquarters on November 8, 1995, and later filed a tax lien for $63,092,111 ($116,085,015) for unpaid business taxes in tax years 1993 and 1994.  Interestingly, it was rumored in some quarters that the IRS raid was actually a way to cover up the more sinister criminal corruption of Russian and U. S. Government figures by turning the whole episode into a tax case rather than a corruption case.  The raid effectively shut down Golden ADA in the United States and the company went into bankruptcy.

 

Long time players in the diamond business said “When you looked at who they brought in to run the company, they never selected anyone who knew anything about the diamond business or had any contacts or relationships in the business”.  How could the Russian government possibly have sent as much as $400 million ($754 million) worth of State assets to an obscure company in California without any security or pre-payment?  A saga with overtones of a Hollywood thriller, the case of Golden ADA presented federal regulators with a murky trail to investigate, obscured by the labyrinth-nature of the international diamond trade, back-room dealings of the Russian Government and the always mysterious KGB, as well as speculation about possible Russian underworld involvement.

 

Taking Advantage of Turmoil in Russia          

To understand how it could have been possible that the Russian Government sent nearly $1 billion in State assets to a 30-year-old living 10 time zones away from Moscow with no security arrangements or collateral, it is important to recognize the state of Russia at the time of the shipments.

 

The Soviet Union fell on December 26, 1991.  Boris Yeltsin was elected the first President of the Russian Federation having resigned from the Communist Politburo only a few months earlier; he would serve as President from 1991 to 1999.  Russia was in a terrible state of disarray.  Near bankruptcy, the new leaders of Russia needed to try to root out the corruption and the old power structure from its Communist days.  But in reality, the situation was like an unguarded candy store for kleptocrats as the corrupt bureaucrats from the Soviet era were now joined by the corrupt bureaucrats of the new Russian Federation era, all trying to get their own personal slices of the country’s wealth at the expense of the struggling Russian population.  And the corruption existed at the very top of the Russian Government.  Yeltsin would have 8 prime ministers during his term as President, including one that was removed for corruption and later returned to the office.  His last Prime Minister was Vladimir Putin.

 

In the United States, it was Bill Clinton’s first term as President, and both Clinton and Vice President Al Gore were doing everything they could to support the Yeltsin government in order to avoid Russia backsliding into Communist control.  Both Clinton, and especially Gore, were willing to look the other way to protect Yeltsin at all costs.  Yeltsin was having a very difficult time because the bureaucracies had basically become one large criminal enterprise.

 

Gore had been assigned to be the point man for U. S. relations with the new Russian Federation and his main contact, Russian Prime Minister Viktor Chernomyrdin, was suspected of being corrupt according to U. S. intelligence.  In fact, he was removed by Yeltsin once for corruption, only to be temporarily reinstated a short while later.  Gore apparently steadfastly refused to demand his contact’s replacement since, apparently, he was not at all sure he could do any better with a new contact.  Several other top level “reformers” in Yeltsin’s government including Finance Minister Boris Fyodorov and former Prime Minister Yegor Gaidar were also implicated in the Golden ADA episode according to the Russian newspaper Obshchaya Gazeta.  The Russian head of the State Committee on Precious Gems at the time of the Golden ADA affair was later fired by Yeltsin and arrested for corruption.

 

Despite all this, the pressure was on for Clinton and Gore to save their man Yeltsin in the upcoming 1996 elections where he faced strong competition from both nationalistic and communist candidates.  If the Golden ADA story got too much press coverage or, heaven forbid, Yeltsin was implicated, Russia could fall back into Communist rule.

 

International Skirmishes Over the Golden ADA Spoils

The IRS had already filed a tax lien for $63 million ($116 million) that would be first in line for any funds recovered from Golden ADA.  As further protection, the IRS lien also listed Shako Real Estate Management Co, Inc., Shako Air Russia Inc, and Shako Energy Inc. as related companies.

 

Golden ADA was also sued in U. S. federal court by the Russian Federation on Precious Metals and Gems, seeking more than $150 million ($276 million), alleging the involvement of two San Francisco politicians, State Senator Quintin Kopp and city Recreation and Parks Commission President Jack Immendorf, on the basis of their travel to Russia in February, 1995 to renegotiate repayment of Golden ADA debt to its Russian suppliers.  The Federation suit also claimed the involvement of a San Francisco police lieutenant, Willis Garriott, who allegedly worked for Golden ADA.  The Federation claimed that after receiving the shipments of gems, Golden ADA sold them without permission and embarked on a buying spree for the personal gain of Golden ADA management and owners.

 

Golden ADA then made a bankruptcy claim to preserve any assets that could be located.  The bankruptcy court appointed Charles E. Simms as the Chapter 7 Trustee for Golden ADA, Shako Real Estate Management, and Shako Energy Inc.  The homes at Fleur du Lac were owned by Shako Real Estate Management.  As the cases wound through the courts, one attorney put it: “Everybody that ever was involved in this case is dead, fled, or has taken the Fifth.”

 

Meanwhile, Back at Fleur du Lac: Big Guys in Brown Suits with Heavy Accents

Four large, burly guys in brown suits with thick Russian accents lived in one of the homes at Fleur du Lac and regularly strolled the grounds providing security for the Russians only.  This was in addition to regular 24-hour Fleur du Lac security.  Some owners now frankly admit that the Russian security men, while polite, made them more than a little bit nervous.  Other owners admitted to coming to their homes at Fleur du Lac less often than they would have because of the Russians’ presence.  One family even admitted that because they owned the home next-door to one of the Russian-owned homes, they were approached by the FBI to use their home as a wiretapping staging area during the federal investigation.

 

As of the end of 1995, Golden ADA and Shako Real Estate Management owned 6 homes at Fleur du Lac, but had not paid any Association dues for several months.  The Association suspended privileges for the Russian properties and filed a lien for non-payment of dues.  The stability for Fleur du Lac that had seemed so close with the consortium deal now seemed to be slipping further into the future.

 

The stalemate continued until 1999 when a settlement agreement with the bankruptcy Trustee and the Association was agreed that allowed the Association to collect most of the delinquent dues.  The Trustee then proceeded to place the former Shako homes on the market to be sold to, hopefully, much less exotic people.  The dapper young man who had started it all at Fleur du Lac, Andrei Kozlenok, had returned to Russia, fled to Belgium, then to Greece, and was finally extradited to Russia where he disappeared.  Perhaps best of all, the burly guys in brown suits were gone, and Fleur du Lac was reverting to its normally tranquil state.

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