BILL BROWDER: In 1997 the Asian currency started to devalue,
Asian markets
started to go down, the Russian government had a huge debt
burden, it
was rolling on a three-month basis with hedge funds and rich
guys and
they couldn't roll it over.
Russia defaulted, devalued, the stock market went down 80
percent, my
1 billion went down to a hundred million.
There was no more yacht invitations after that.
>>
BILL B.: But then I discovered something far more disturbing
than
losing 90 percent of your money which was that the companies
I had
invested in which were basically oil and gas companies in
Russia were
run by people who you've now -- who are now sort of properly
immortalized.
The Russian oligarchs.
This small group of about 22 guys basically owned a majority
of all
these companies.
And they used to behave a little bit when they thought that
they had
access to western capital, when the western capital markets
were open.
But after the Russian economy defaulted and devalued, and
went to
hell, there was no more western investors in any case and so
they no
longer had any need to behave themselves.
And so in 1998 and 1999 the Russian oligarchs embarked on an
orgy of
stealing that's been unprecedented in the history of
business.
I mean, it's just remarkable every type of scam you could
ever
imagine, they were trying to do.
Asset stripping, transfer pricing, delusion, embezzlement,
you name
it, they were doing it.
And I was owning one or 2 percent of these companies and
just watching
all the money that the companies had just disappearing.
And so I had to decide something.
I was either gonna stay there and just put up with all this
stuff or I
was gonna have to -- I mean, basically there was really only
two
choices.
You could either leave or you could fight.
I could not just watch it happen.
And so we decided to fight.
And the most famous fight involved Gazprom.
Gazprom was a company that nobody had really heard of in the
west
until, like, ten years ago.
And Gazprom, it's biggest gas company in the world.
It's about ten times the size of Exxon in terms of
hydrocarbon
reserves.
And Gazprom, in 1999, was trading at a 99.7 percent discount
to BP or
Exxon per barrel of hydrocarbon reserves.
Why was it at such a big discount in because everybody
thought that
everything was being stolen out of Gazprom.
So I looked at this thing and I said to myself, could they
really be
stealing everything out of Gazprom?
That would be just the most remarkable thing.
A company ten times the size of Exxon everything being
stolen.
So I got together with my team and I said, let's do a
stealing
analysis of Gazprom.
And they looked at me, how do you do a stealing analysis?
>>
BILL B.: So we started thinking, well, how to you do a
stealing
analysis?
And in the introduction they didn't teach me this at
Stanford Business
School.
You couldn't go to the company and say, "How much are you
stealing" --
BILL B.: -- because they wouldn't tell you.
That might do worse things. You couldn't go to the brokers
because
the brokers are so busy preening themselves in front of
Gazprom to get
corporate finance work that the last thing they would do was
tell
anybody how much stealing was going on.
But I learned something as a consultant at the Boston
Consulting Group
which was if you wanna find out the answer to something
where it's not
written down somewhere, you just go and interview people.
That's what the consultants do for any of you who are
thinking about
consulting. And so I said, let's make a list of all the
people who
know about stealing at Gazprom and just ask them to
breakfast, lunch,
dinner, tea, coffee, and see what we can learn from
interviewing them.
We didn't know whether anyone would accept our invitations
or tell us
anything but why not try?
So we set up about 40 of these meals and most people
accepted the
invitation.
Why not?
And we discovered something very interesting is that in the
communist
days the itchest person in Russia was maybe ten times richer
than the
poorest person. But by 1999, the richest person in Russia
was, like,
250,000 times richer than the poorest person.
And that just poisoned the whole environment of the country.
Everyone hated everybody else, they just hated the rich
people, they
hated the people that stole.
And so people were in these meetings were spilling these
guts out to
us about all the different scams they knew about.
We were filling up notebooks with all these different
allegations of
scams.
It was interesting, really interesting stuff that people
were telling
us.
Writing it all down.
We filled up a whole notebook with these allegations but how
do you
know any of the stuff is true?
A lot of sour grapes.
Now, Russia has one other great, interesting anomaly which
is it's got
to be the most bureaucratic country in the world.
Everything that ever happens in Russia get filed in
quadruplicate in
four different ministries.
If you go to the bathroom you write it down, some ministry,
like,
registers it.
And so -- and what's interesting is that you can go and just
ask for
the information.
It's just a question of going to the ministry.
And so one of my guys, one of the guys who works for me, my
head of
research, started going around to different ministries
picking up
databases on different things and we were able to take these
databases
we got from the ministries and cross reference them with all
the stuff
we learned in these breakfasts, lunches, and dinners, and we
learned
exactly how much had been stolen from Gazprom, by who, in
what way.
And basically what we learned was that nine individuals from
management of Gazprom had stolen an oil company the size of
Exxon out
of Gazprom.
That's pretty dramatic.
That's the size of Kuwait.
The oil reserves the size of Kuwait had been stolen out of
Gazprom.
But we also learned that the oil company the size of Kuwait
is only
9 percent of Gazprom's reserves.
91 percent was still there.
So what do you do if the market's pricing as if there's 99.
97 percent
discount and you've just discovered that really there should
only be a
10 percent discount?
You go and buy the hell out of the thing.
And that's what we did.
We made Gazprom our single largest investment.
That's usually where a fund manager would stop but we said
to
ourselves, this is just so morally outrageous what these
guys is done
and it's so obvious.
Let's share this information with the world.
>>
BILL B.: And so we did.
We broke it into seven chapters.
I gave a chapter to the Financial Times, a chapter to Wall
Street
Journal, a chapter to the New York Times, Business Week, and
each of
them wrote a story, and boy did that set the Moscow night on
fire.