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Houston Judge Blocks Banks From Yukos Auction

Associated Press
Friday, December 17, 2004; Page E02

HOUSTON -- A bankruptcy judge yesterday granted Russian oil giant Yukos's request for a temporary injunction to block this weekend's auction in Moscow of its main production subsidiary.

In issuing the injunction, U.S. Bankruptcy Judge Letitia Z. Clark also accepted jurisdiction of Yukos's Chapter 11 bankruptcy protection case filed in Houston on Tuesday. The company had called the filing its last resort to seek an emergency order canceling the auction of Yuganskneftegaz planned for Sunday in Moscow.

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Putin and the Oligarchs

The injunction applies to a consortium of international banks, including Deutsche Bank, which are putting together a multibillion-dollar loan to finance a bid in the auction according to Mike Lake, a spokesman for the Houston law firm representing Yukos.

Lake said the Russian government could go forward with the auction, but the top bidder wouldn't have the financing for the opening $8.6 billion bid if the banks withdraw. Yukos's lawyers have said that bid is to be made by Russian natural gas giant Gazprom at the Russian government's instruction.

Lawyers representing Gazprom and Deutsche Bank did not immediately respond to calls seeking comment on the ruling.

The injunction Clark issued emerged from the first U.S. court action stemming from the company's fight against what has been called a Kremlin-sponsored breakup.

Russian president Vladimir Putin has characterized the effort as a crackdown on corruption and dubious accounting.

Russian authorities say Yukos owes $27.8 billion in taxes and scheduled the auction to pay part of that bill. Yuganskneftegaz produces about 60 percent of Yukos' oil.

The company claims that the Russian government's conduct "in connection with its tax assessments against Yukos is not in keeping with Russian law or international norms."

A key question was whether the bankruptcy was properly filed in Houston instead of Russia, but Clark sided with Yukos.

Yukos Chief Financial Officer Bruce K. Misamore said the filing was proper because he operated out of his home office in Houston after getting an "informed message" two weeks ago advising him not to return to Russia.

Under cross-examination by lawyers representing Gazprom, Misamore acknowledged that "substantially all" of Yukos' assets are in Russia. And when asked how many of the company's 100,000 employees are in the United States, Misamore replied, "As of this time, one," referring to himself.

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