Red Notice: A True Story of High Finance, Murder, and One Man's Fight for Justice

In December 1995, things aren’t going well in Russia: the economy struggles, and an upcoming election could turn the presidency away from pro-business Boris Yeltsin and over to communist candidate Gennady Zyuganov, an opponent of privatization. Browder flies to Davos, Switzerland, where his friend, investment banker Marc Holtzman, arranges a dinner for two dozen billionaires and CEOs, with featured guest Zyuganov.

At a Davos hotel popular with Russians, Browder glimpses a cluster of Russian oligarchs talking intensely in the lobby. He later realizes this is the famous “Deal with the Devil” conspiracy to get Yeltsin re-elected in exchange for ownership of the industries yet to be privatized.

At the dinner, Zyuganov reassures the wealthy guests: “A process of private property has started in Russia that cannot be reversed” (93). Browder is elated—“regardless of who won the election, I was back in business”—but Safra’s right-hand man, Sandy Koifman, is unimpressed: “If I believed everything politicians said to me, Safra would be broke by now” (93).

Sabrina is pregnant and suffers severe morning sickness, so she stays behind when Browder flies to Moscow to set up shop. Safra still hasn’t made good on his promise of $25 million, so Browder must make do with $100,000 in working capital. He finds a small office space down the hall from Marc Holtzman. The building manager “wanted $4,000 a month, making this one of the most expensive office spaces in Moscow per square foot” (96). Soviet life discouraged good work habits, so competent employees are hard to find; Browder gets lucky and hires three Western-trained workers recently laid off from a bankrupt brokerage.

Because “in Russia there was no public information on companies and the only way of getting any was by going to the company and asking” (98), Browder must visit every firm he wants to vet. He finds that most companies issue both preferred shares, which pay big dividends, and ordinary shares, which pay out nothing. For some reason, the preferred shares trade at a 95% discount to the ordinaries, “and the ordinary shares were trading between a 90 and 99 percent discount to the shares of comparable Western companies” (100).

Browder informs Sandy, and suddenly $2 million gets released for investing in Russian preferred shares. As Yeltsin’s chances improve, Browder’s Hermitage portfolio gains value, and Sandy wires $3 million more to invest. Shortly, Browder’s stock picks are up 40%, “which in the world of hedge fund investing would have been an amazing year—only we had made it in three weeks!” (102). Unbidden, Sandy wires $5 million more.

In May 1996, Browder marries Sabrina in a London wedding attended by 250 guests; the raucous reception features an Israeli band. They must postpone their honeymoon while Browder prepares for the upcoming Russian election and its effect on the markets. Browder writes that “[b]y the second week of June, only a week before the presidential election, Safra had invested the entire $25 million he had committed” (102). Hermitage Fund has increased in value by 65%.

On June 16, Yeltsin gets more votes than any other candidate—the communist candidate, Zyuganov, comes in second—but not a majority, so a runoff is held July 3, which Yeltsin wins outright: “The markets went wild, and the fund was up 125 percent since we launched” (103).

Browder learns of a Siberian oil company, Sidanco, with a block of stocks available at a discount. His researcher, Clive, calls around, but nobody knows anything about the company. Finally he learns that the oil company is wildly underpriced: “Sidanco was trading at $0.15 per barrel of oil reserves in the ground, which was crazy because at the time the market price for a barrel of oil was $20” (108).

More information proves hard to obtain; oil executives are tight-lipped. Browder finally gets the information he needs from an American source. As near as he can tell, Sidanco is cheaper than other Russian oil companies simply because it is not well-known. Hermitage buys 1.2% of the company for $11 million. “It was the largest single investment decision I had ever been involved with in my life” (112). Even Safra gets onboard, investing for his own account outside of the original Hermitage contract.

Sidanco stock barely moves for months, and Browder gets nervous. Then, in October 1997, British Petroleum takes a 10% stake in Sidanco “for a 600 percent premium to the price we had paid a year earlier. It was a home run” (113).

Browder’s son, David, is born in November 1996. For the next year, he and Sabrina live in Moscow. Browder writes that “[e]ven though she made […] efforts, Moscow didn’t gel for her” (114), and within a year, Sabrina and David are back in London.

While vacationing in South Africa with Sabrina and David in December 1997, Browder gets word that Sidanco will make a new offering that will dilute the value of all shares, including Hermitage’s. Browder reasons that the oil company’s majority owners, headed by oligarch Vladimir Potanin, resent foreign investors enough to damage their own holdings as long as it ruins the outsiders.

Browder recalls an apt Russian folk tale about a poor villager who finds a magic fish. The fish promises him anything he wants, but his neighbor will get twice as much: “Without skipping a beat, the villager says, ‘In that case, please poke one of my eyes out’” (116).

Searching for a solution, Browder arranges a meeting with Potanin’s lawyer, Leonid Rozhetskin, who bluntly informs him that the Sidanco stock offering is intended to hurt the foreign investors: “‘You’re deliberately trying to screw us?’ He blinked. ‘Yes’” (119).

Browder tells Rozhetskin he’ll go to war over this. Rozhetskin shrugs. Browder calls Safra and offers to fight the oligarchs. Safra is skeptical: “‘You’re in Russia. You’ll be killed’” (120). He insists he cannot have any part in it.

The next day, at his new, larger Moscow offices, Browder finds a dozen armed guards sent by Safra. Browder gathers his team and they get to work planning their strategy.

Browder’s team contacts Potanin’s western investment partners and describes what the oligarch is doing: “If you don’t stop him, you could be next” (122). The investors call Potanin to complain, but “[a]ll he did was escalate” (122). Sabrina is upset: “How can you be so selfish? You’re a father and a husband. These people will kill you!” (123) Browder explains that his investors trust him to keep their money safe, and he must fight to protect them.

Potanin sends his financial advisor, Boris Jordan, to warn Browder that he’s “not playing by the rules” (124). Browder responds, “Boris, if you think I’m not playing by the rules now, wait until you see what I’m about to do to you next.” (124).

Browder meets with Financial Times Moscow bureau chief Chrystia Freeland and spills the whole story. Freeland calls Potanin, who responds by accusing Browder of incompetence. Freeland files the story, which gets picked up by major international news outlets. Recalling a story about another American financier, Paul Tatum—who in 1996 publicly accuses his Russian partner of cheating and a few days later is shot dead in the street—Browder accepts increased round-the-clock protection from his guards.

The Hermitage team files a 200-page complaint against Potanin at the Russian securities commission; Chairman Dmitry Vasiliev opens an investigation, then blocks the Sidanco gambit. Browder’s team has won: “I’d learned how to fight the Russians, who weren’t as invincible as they wanted to appear” (130).

In 1997, the Hermitage Fund “was ranked the best-performing fund in the world, up 235 percent for the year and 718 percent from inception” with over $1 billion under management (131). Browder is wined and dined, and it all goes a bit to his head: “In hindsight, I should probably have been a little more circumspect” (131). Early in 1998, investors, fearing a Russian financial meltdown, begin pulling out of the country. The interest Russia must pay on its bonds skyrockets. By the end of May, Hermitage is down 50% for the year.

The International Monetary Fund (IMF) steps in and bails out the Russian government. At first, this benefits Hermitage, but then oligarchs raid the cash infusion, using it to convert their own assets to dollars, effectively ruining the bailout.

Meanwhile, Browder’s marriage struggles. He agrees to a vacation at Lake Como, Italy, where he relaxes somewhat and spends time bonding with his toddler son. Then he learns that Russia will no longer support its currency, the ruble, which has gone into free fall. When the smoke clears, Hermitage holdings have lost 90% of their value.

Many of Browder’s investors had also bought heavily in Russian bonds, but the bonds become nearly worthless. Beny and Safra get hit hard and pull out of Hermitage. Browder, though, is determined to save his company.

In August 1999, Sabrina tells Browder she wants a divorce. Though he had tried diligently to protect the marriage, he relents: “In a way, I was oddly thankful that she had the guts to end it when I didn’t” (140).

In December 1999, Edmond Safra, who lately suffers from Parkinson’s Disease, dies in a fire set by one of his attendants.