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Prokhorov's business dealings in pariah Zimbabwe provoke requested federal investigation that could throw a wrench into pending Nets deal

It's not over 'til it's over, apparently.

The formal transfer of the New Jersey Nets to a new majority owner, Russian billionaire Mikhail Prokhorov, has been delayed from the previously-announced mid-April date because the state does not have "vacant possession" of the part of the Atlantic Yards site needed for the initial phase.

But there's a much bigger potential wrench into the deal. A New Jersey Congressman's request for an investigation of Prokhorov's business dealings in international pariah Zimbabwe, according to a New York Post exclusive, "could blow up the $200 million team deal."

That's hardly clear; we must see what the Treasury Department, which oversees sanctions regarding Zimbabwe, has to say.

Rep. Bill Pascrell has previously asked the National Basketball Association (NBA) to investigate Prokhorov's fitness to buy the Nets, but the NBA found nothing amiss. Of course, the NBA has reason to welcome a deep-pocketed owner who can help internationalize the game.

Note that the deal is worth much more than the $200 million cash the Prokhorov has offered, since he agreed to absorb a significant slice of the team's losses and debts.

The first delay

Note that residents and tenants have not left the Atlantic Yards site, though title has transferred to the Empire State Development Corporation, or ESDC.

Despite a letter from the ESDC requesting that those occupants leave as of April 3--and claims, via the NetsDaily site, that they "ignored" an order to leave--a lawyer for those condemnees wrote that a good faith advance payment was required, as was a date set by a condemnation court.

The Zimbabwe issue

Though the Post article doesn't have a link to information about the Treasury Department sanctions, it looks like they could apply to Prokhorov. (Note that they don't apply to all business in Zimbabwe, just with certain persons and entities, apparently those involved in the economic forum mentioned below.)

A summary states:
PROHIBITED TRANSACTIONS - Executive Order 13391 prohibits U.S. persons, wherever located, or anyone in the United States from engaging in any transactions with any person, entity or organization found to: 1.) be undermining democratic institutions and processes in Zimbabwe; 2.) have materially assisted, sponsored, or provided financial, material, or technological support to these entities; 3.) be or have been an immediate family member of a sanctions target; or 4.) be owned, controlled or acting on behalf of a sanctions target. Persons, entities and organizations referenced in Annex A of the Executive Order are all incorporated into OFAC's list of Specially Designated Nationals (SDNs). Prohibited transactions include, but are not limited to, exports (direct and indirect), imports (direct and indirect), trade brokering, financing and facilitation, as well as most financial transactions.
What about a firm based in Russia?
Foreign branches and representative offices of U.S. companies, as well as U.S. branches and representative offices of foreign companies are considered U.S. persons for purposes of these prohibitions.
(Emphasis added)

$146 million in federal savings"

The Post reports:
[Pascrell] said the project received tax-exempt bonds.

"It's being financed partly by the taxpayer, and the public has a right to know," he said.
To be clear, $511 million in triple (federal/state/city) tax-exempt bonds were issued in December.

The New York City Independent Budget Office (IBO), in a September 2009 report that presumed $678 million in tax-exempt arena bonds, estimated that the federal tax break was worth $194 million. A commensurate percentage would make the federal tax break on $511 million worth $146.2 million.

Interests in Zimbabwe

The Post reports:
Prokhorov's Renaissance Capital investment bank has interests in the Zimbabwean stock exchange, banks, a cellphone company, mining and a swanky, private big-game reserve. The company is intertwined with Onexim, the $25 billion Prokhorov-controlled investment fund behind the deal to bring the struggling NBA team to Brooklyn.
According to a 6/5/09 announcement, Renaissance Group and Prokhorov's ONEXIM Group completed "ONEXIM’s $500 million equity investment in Renaissance Financial Holdings Limited (hereafter Renaissance Capital), the leading investment bank in the CIS and African markets," representing a stake worth 50% less one‐half of one share.

One of the two people announcing the deal was Dmitry Razumov, Chief Executive Officer of ONEXIM, who has participated actively in the Nets transaction.

Sanctions busting?

The Post reports:
According to its Web site, Renaissance Capital has offices in Manhattan and was the financial sponsor of an economic forum in the Zimbabwean capital of Harare that provided foreign investors special access to government ministers in June 2009 -- which experts say is a violation of the sanctions.

In February, the company's Africa-based CEO, Andrew Lowe, participated in a business panel with a Zimbabwean official banned from entering the United States.

"Looks like sanctions-busting to me," said Usha Haley, an expert on US sanctions at the Economic Policy Institute.
NBA thoroughness?

While the Post quoted an NBA source as saying that Prokhorov "went through a very extensive and stringent vetting process," a spokesman for Renaissance Capital in Moscow told the newspaper that the Zimbabwe issue was never raised.

In a 60 Minutes profile of Prokhorov last month, the one mildly tense moment came when correspondent Steve Kroft asked NBA Commissioner David Stern, "Do you think he's a man of character?"

"I think he's a man who's passed a very tight security check," Stern replied deliberately, "and nobody has come up with any reason why he shouldn't be an NBA owner."

Risks heightened

The boilerplate in a March 31 financial announcement from Forest City Enterprises is put into some relief:
The Proposed Transaction With an Affiliate of Onexim Group to Create a Strategic Partnership for our Brooklyn Atlantic Yards Project May Not Close, Which Could Subject Us to Liquidity Risks.

The purchase agreement that we executed with an affiliate of Onexim Group requires certain consents and is subject to the satisfaction of various conditions. Both parties continue to negotiate reasonably and in good faith to obtain the consents, including consent from the NBA, and satisfy the conditions. However, the proposed transaction may not close and the strategic partnership for the Brooklyn Atlantic Yards project may not be realized. If the strategic partnership is not formed and the $200 million investment is not received, we could have heightened exposure to the development risks associated with the Brooklyn Atlantic Yards project...

In addition, if the proposed transaction does not close, we could also have heightened exposure to the risks associated with our investment in the Nets.


  1. From Zimbalist to Zimbabwe, Brooklyn has been beset by people opposed to transparency, truth, and property. But somewhere, one of our Founding Fathers (whether Washington or MLK) must have pointed out that the truth will always prevail in the end. And when it does, no politician will want to be within striking distance of this 3rd World Theater of Corruption. Cut your losses now, Bloomberg and Paterson. The Russian with the kalisnikov was bad enough; now you've got Mugabe mixed up in this thing. Did I mention Barclays? Gheez. SHUT IT DOWN!

  2. The jackpot may have been struck in terms in forcing the Russians out of the ownership group. However, I don't know how this news would stop Atlantic Yards from proceeding, eventually. It'll be cold comfort for some.

    I just wish that it didn't take a New Jersey congresscritter to help expose this. All the unnecessary accusations of having an interest in this Nets soap opera are sure to follow.

  3. The current ownership group, led by Bruce Ratner, wants and plans to sell the team, so Prokhorov's role is key. Should he not be able to buy the team--and it's far too soon to tell--it would be a very significant blow, but not necessarily a final one.


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