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Alleged fraud in Russian oil joint venture called ‘a myth’

Michael Shtaif leaves court during a break in the case involving former partner Alex Shnaider in this file photo.

Fernando Morales/The Globe and Mail

Fraud allegations levelled by Toronto billionaire Alex Shnaider against a former business partner involved in an ill-fated Russian oil joint venture are "creations after the fact" and not backed up by any evidence, a Toronto courtroom heard Tuesday.

Colin Stevenson, who is acting for former Russian oil executive Michael Shtaif – whose 2006 venture with Mr. Shnaider went sour – told court in his closing arguments that Mr. Shnaider's lawyers had failed to produce any proof for their claims that Mr. Shtaif was involved in any fraudulent scheme.

"It's a myth," Mr. Stevenson told the court.

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The case, which went to trial in February, centres on a joint venture set up by Mr. Shtaif and Mr. Shnaider in 2006 that was meant to find undervalued oil and gas properties in Russia. But it deteriorated into a series of lawsuits and allegations of fraud.

Mr. Shnaider alleges in a civil lawsuit that Mr. Shtaif and a group of co-defendants tried to defraud him and his partner in his Midland Group steel empire, Eduard Shyfrin, of their $50-million investment.

Mr. Shtaif alleges that the Russian-born Mr. Shnaider tried to force him out of the joint venture, bribed Russian police and made false allegations to Russian authorities that forced him to leave Russia. Both sides deny the allegations, which have not been proved.

"Mr. Shnaider has strong beliefs," Mr. Stevenson told court. "… When it was put to him there was no evidence, he refused to withdraw his belief, and he refused to withdraw the allegations."

Mr. Shnaider's lawyers have alleged that Mr. Shtaif and other co-defendants were "in league" with a man calling himself John Howard, who allegedly turned out to be convicted Toronto fraudster Irwin Boock, in a conspiracy to defraud Mr. Shnaider.

But Mr. Stevenson told court that no evidence was ever presented tying Mr. Shtaif to Mr. Boock's alleged schemes to create fraudulent companies, and Mr. Shtaif was never targeted in the probes of Mr. Boock's activities by securities regulators in the United States and Ontario.

"He was as disappointed as anyone, to put it mildly, when Howard turned out to be the crook that he was," Mr. Stevenson told court.

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Mr. Stevenson told court that Mr. Shnaider was aware of allegations that the vehicle being used for the joint venture was a "sham" company by May 26, 2006, despite initially claiming otherwise, and did nothing about it.

Mr. Stevenson said Mr. Shnaider did not raise his fraud allegations until after he had seized control of their joint venture in March 2007: "The allegations of fraud were creations after the fact."

Mr. Stevenson also told court that allegations his client was involved in an alleged fraud involving $6-million in promisary notes, which went missing after an unsuccessful attempt to buy a Russian oil field, were false, saying that Mr. Shtaif himself called Russian police about the incident.

Mr. Stevenson also raised the allegation that Mr. Shnaider and Mr. Shyfrin paid what Mr. Stevenson called a "bribe" to have police recover some missing promissary notes. He said while Mr. Shnaider says the $518,000 payment was paid to "forensic consultants," it was to be paid "without an invoice, without a contract, offshore" through a Lithuanian bank.

"It's symptomatic of the way Mr. Shnaider and Mr. Shyfrin do business," Mr. Stevenson alleged in court.

Earlier Tuesday, Mr. Shnaider's legal team finished their closing arguments aimed at Greg Roberts, a Toronto-area businessman and former lawyer who is a co-defendant in the lawsuit.

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Symon Zucker, a lawyer for Mr. Shnaider, alleged in court that Mr. Roberts was "not a credible witness," and that he had produced "doctored" notes on a board meeting – charges Mr. Roberts has denied.

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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