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Russian-Canadian businessman Michael Shtaif.Fernando Morales/The Globe and Mail

Michael Shtaif, a former Russian oil executive locked in a legal battle over a failed joint venture with Alex Shnaider, told a courtroom on Tuesday that he was conned into misinforming the Toronto billionaire that millions from another investor had arrived in March, 2006.

"I was misled, yes, by a con artist. I believed him. My mistake. And I misinformed Mr. Shnaider," Mr. Shtaif told a Toronto courtroom on Tuesday, adding that he was feeling "eurphoric" because he believed investors were finally committing to his company.

Mr. Shnaider, whose Midland Resources Holding Ltd. empire is based on Eastern European steel mills but has since branched out into real estate and other sectors, is suing Mr. Shtaif. The Russian-born Toronto billionaire alleges that Mr. Shtaif and a group of co-defendants defrauded him into sinking $50-million into a joint venture aimed at buying up undervalued Russian oil and gas properties.

Mr. Shtaif, who now lives in Calgary, denies the allegations, and alleges that Mr. Shnaider tried to force him out of the joint venture, bribed Russian police and prompted them to launch a "spurious" investigation of him that forced him to flee Russia. Mr. Shnaider denies the allegations. A trial has been under way since February. Both sides have demanded hundreds of millions in damages.

Under questioning by Kenneth Prehogan, a lawyer for Mr. Shnaider, Mr. Shtaif denied deceiving the billionaire, despite taking responsibility for a March 31, 2006, e-mail that appears to tell him that a $70-million investment had been deposited in the joint venture's bank account – news that allegedly induced Mr. Shnaider to deposit his own $50-million. Court has heard the Mr. Shnaider had previously sent an e-mail agreeing to invest $50-million if other investors put up at least $70-million, but Mr. Shtaif testified that Mr. Shnaider did not insist on this condition.

That other $70-million investment would never materialize. Court has heard that Mr. Shtaif was expecting a $10-million instalment of the $70-million from a shell company controlled by a man calling himself John Howard, but who is allegedly Irwin Boock, a Toronto man convicted of fraud.

Mr. Shtaif told court he would never have done business with the man had he known he was a convicted fraudster using an alias.

But under cross-examination, Mr. Shtaif acknowledged failing to receive any hard proof, such as a wire transfer or a bank statement, from Mr. Howard or his associates that the promised money was in the bank. And Mr. Shtaif told court that he could not himself yet access the new joint venture's own Toronto bank account at the time.

Mr. Shtaif told court that he had told Mr. Shnaider and his partner in Midland, Eduard Shyfrin, that the money had not arrived by April 7, 2006 – but he acknowledged he did not have any written documents that confirm this.

Mr. Prehogan charged that Mr. Shtaif knew all along that the investment would never come, despite what he told Mr. Shnaider: "You knew full well [Mr. Howard] didn't have any chance of raising money in this sham company."

Mr. Shtaif responded: "That's your position, Mr. Prehogan."

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