Over the course of a decade, Ukrainian tycoon Ihor Kolomoyskiy and a business partner built a U.S. steel business worth about half a billion dollars.
By early 2017, they were trying desperately to save it.
They did not succeed -- and an investigation by RFE/RL indicates that the U.S. government, intentionally or not, may have played a key role in the loss of assets ranging from hot-rolled steel bar maker KES in Ashland, Kentucky, to cold-finish steel bar producer Corey in Cicero, Illinois, as well as plants in Indiana, Michigan, and Texas.
The blow to Kolomoyskiy came at a bad time for the billionaire, whose economic fortunes and political influence in Ukraine have taken some sharp turns in the past few years -- and have been intertwined with what Western governments and international institutions say is a crucial but sometimes seemingly star-crossed reform process in the former Soviet republic.
Optima Specialty Steel, the steel holding that Kolomoyskiy and partner Hennadiy Boholyubov put together in the United States, comprised seven plants in five states with a capacity of nearly 1 million tons of steel products a year.
It filed for bankruptcy in December 2016 -- but in an amended restructuring agreement submitted to a court in the state of Delaware on June 1, 2017, the billionaires promised to inject $200 million in equity by August to keep ownership of the business.
After contributing $25 million by June 1, however, Kolomoyskiy and Boholyubov never came up with the remaining $175 million. They lost Optima Specialty Steel in the autumn, completely wiping out the more than $200 million they had pumped into the business since 2008.
That’s where the U.S. government comes in -- or, more precisely, where it didn’t come through with the go-ahead for a sale that would almost certainly have kept the steel assets in the hands of the two Ukrainians.
As an August deadline for the payment approached, Kolomoyskiy and Boholyubov tried to speed up U.S. approval for the sale of a Kentucky-based alloy plant to a Russia-affiliated firm, a deal that could have raised roughly the exact sum they needed.
The billionaires had purchased the plant, CC Metals & Alloys, in 2011 for $188 million, according to court records.
But the sale required approval from the Committee on Foreign Investment in the United States (CFIUS), which seeks to ensure that proposed sales of U.S. companies to foreigners do not jeopardize national security interests. It consists of nine agencies including the departments of the Treasury, Defense, and Justice.
And in this case the Justice Department had questions about the sellers -- not about the Russian-affiliated buyer, which is almost always the hurdle to CFIUS approval -- causing the deal’s government review to stretch well beyond the normal time frame and into the autumn, according to a source familiar with the case. The source spoke on condition of anonymity due to the sensitivity of the subject.
A spokesman for Kolomoyskiy’s U.S. partners, who oversaw the business from Miami, declined to comment on any connection between the delay in a government decision on the proposed alloy-plant sale and the loss of the steel business.
But the dates and sums involved closely coincide.
And the slow pace of the approval process may have been the first sign that the Justice Department was looking into the U.S. business interests of Kolomoyskiy, one of Ukraine’s richest and most powerful tycoons.
Kolomoyskiy fled Ukraine in the midst of the effort to sell CC Metals & Alloys, in June 2017 -- months after PrivatBank, his main funding vehicle and the largest commercial bank in Ukraine, was nationalized over a $5.5 billion hole caused by what state banking regulators said was reckless lending to entities connected to him and Boholyubov.
PrivatBank launched a lawsuit against the tycoons and their two American partners, Mordechai Korf and Uriel Laber, in a Delaware court in May 2019. In an updated complaint filed in July 2020, PrivatBank accuses them of funneling $660 million of fraudulent loans to the United States to buy assets, including steel and alloy plants as well as real estate, in a plot it called the “Optima Schemes.”
The tycoons became the largest commercial real-estate holders in Cleveland, Ohio, by the early 2010s, having scooped up some of the most recognizable buildings in the Midwestern city. The FBI on August 4 raided the Cleveland headquarters of Optima Management Group, which oversees their local real estate, as well as the Miami office from where their U.S. assets are run.
FBI Special Agent Vicki Anderson-Gregg of the Cleveland office declined to say who is being investigated and why, adding the case is still under seal.
The FBI has been investigating Kolomoyskiy for financial crimes in a “wide-ranging” probe that has been going on “for quite some time,” the Daily Beast reported in April 2019, citing unidentified sources. BuzzFeed in May reported two sources as saying that Kolomoyskiy is under investigation by a U.S. federal grand jury for money laundering.
Kolomoyskiy returned to Ukraine in May 2019 after Volodymyr Zelenskiy, a comic and television star who ran for president with the informal backing of the tycoon’s media firm, beat incumbent Petro Poroshenko by a landslide in a runoff vote a month earlier.
Kolomoyskiy’s 1+1 channel aired the series in which Zelenskiy played a history teacher who accidentally becomes president, and the comedian announced his intention to run for the real presidency live on the station. Poroshenko, who clashed with Kolomoyskiy, accused the tycoon of using his media assets to trash him.
The billionaire’s close ties to Zelenskiy, who was a political novice when he ran for the top office, have raised concerns in Ukraine, including among anti-corruption crusaders.
They have also raised alarm among Western governments and international institutions, whose financial or diplomatic backing is conditioned in part on Kyiv taking steps to reduce the power and influence of “oligarchs.”
Kolomoyskiy has sought to regain control of his bank, contending the nationalization was illegal. He and his American associates, Korf and Laber, call the lawsuits filed against them politically motivated.
From 2006 to 2014, Kolomoyskiy and Boholyubov spent more than $1 billion acquiring assets in the U.S. steel, alloy, and real-estate sectors, according to purchase prices mentioned in lawsuits -- including nearly $500 million for steel assets, more than $200 million for alloy plants, and more than $300 million for real estate. They took on debt, including from private investors, to stoke the spree.
Kolomoyskiy and Boholyubov wrapped four of the U.S. steel companies into Optima Specialty Steel, while their U.S. alloy companies -- CC Metals & Alloys and Felman Production -- were eventually moved into a holding called Georgian American Alloys.
Korf was named CEO of both Optima Specialty Steel and Georgian American Alloys and owned a stake in both companies, court documents show. Laber sat on the board of Optima Steel and owned a stake in Georgian American Alloys.
Profits at Optima Specialty Steel, which sold much of its output to the energy industry, tumbled when oil and gas prices collapsed starting in the second half of 2014. The company struggled to pay its debts and filed for bankruptcy protection on December 15, 2016.
The owners said at the time they wanted to keep 100 percent of Optima Specialty Steel, describing the assets as good and predicting the specialty steel market would soon turn around.
Three days later, on December 18, Ukraine nationalized PrivatBank after its owners failed to inject enough cash into the struggling lender to meet central bank requirements, cutting off any access the tycoons had to its pot of money. Meanwhile, Western banks may have backed away from working with the pair amid allegations of money laundering leveled against them by Ukrainian officials.
Kolomoyskiy and Boholyubov filed an amended reorganization agreement for Optima Specialty Steel with the court on June 1, promising to come up with the $200 million by August to save their ownership.
Between late April and June 1, they paid $25 million of that sum as a “goodwill” gesture to show they intended to complete the investment, court records show.
Russians To The Rescue?
A week prior to the first payment, Douglas Anderson, general counsel at Indiana-based Russian Ferro Alloys, registered a company called American Acquisition Alloy.
Russian Ferro Alloys, a U.S. importer of Russian alloys, is owned by Sergei Antipov, son of Yury Antipov, who owns half of ChEMK, a Russian alloy giant based in the Ural Mountains city of Chelyabinsk.
Kolomoyskiy’s CC Metals & Alloys helped initiate a U.S. antidumping investigation targeting imports of Russian alloys to the United States in 2013, but the Commerce Department found no wrongdoing.
On July 7, 2017, Kolomoyskiy’s Georgian American Alloys announced it had agreed to sell CC Metals & Alloys to American Alloy Acquisition for an undisclosed sum -- but the deal needed a thumbs up from CFIUS before it could be completed.
The committee at the time had a policy of reviewing deals within 30 days. If any of the nine agencies with a say had concerns, CFIUS would launch a 45-day investigation, after which a final decision would be made.
Nearly three out of four foreign investment deals brought before CFIUS in 2017 entered the investigative stage, and many took longer than the 75 days allotted due to a surge in submissions.
The person familiar with the case said the proposed sale of CC Metals & Alloys to the Russian-affiliated entity was submitted to CFIUS for approval in April, which coincides with the registration of American Alloy Acquisition.
It had not been approved by late August, more than 100 days later, when the remaining $175 million payment was due. Kolomoyskiy’s companies then sought the help of U.S. Congress members from Kentucky, where CC Metals & Alloys is based.
U.S. representatives Hal Rogers and James Comer, both Republicans, signed a one-paragraph cover letter to Treasury Secretary Steven Mnuchin on August 23 requesting an “expeditious resolution” of the case, though not asking for any particular outcome.
The congressmen said the CC Metals & Alloys sale had a completion deadline of August 31, the same day the bankruptcy reorganization of Optima Specialty Steel was to be finalized.
The sale of CC Metals & Alloys, the source said, was being held up by the Justice Department, “which was asking a lot of questions about the sellers’ other business activities.”
When reached by RFE/RL, a spokesperson for Korf and Laber declined to comment on whether the Justice Department had held up the sale.
The Justice Department did not respond to RFE/RL questions for comment. Antipov and Anderson of Russian Ferro Alloys did not respond to calls or e-mails.
The Justice Department inquiry seemed to go beyond the purpose of a CFIUS investigation, the source said, and the Ukrainian sellers reached a point where “they were not going to answer any more questions.”
Lobbying disclosure forms indicate that Georgian American Alloys, the parent of CC Metals & Alloys, hired lobbyists to reach out not only to the Treasury Department, which chairs CFIUS, but also the Justice Department, potentially supporting the source’s account.
The lobbying effort may have extended into the fourth quarter of 2017, when the loss of Optima Specialty Steel was finalized in court, the forms show.
The Ukrainian tycoons sought court approval to extend the time frame for making the $175 million payment that was due in August.
Show Me The Money
During a September 14 bankruptcy hearing, Mark Chehi, a lawyer representing Optima’s owners, told the court they remained “committed to funding and consummating the confirmed plan as soon as possible.”
Meanwhile, a lawyer for the creditors said they had not “closed the door” to the Ukrainians’ funding plan.
Still, the creditors submitted a new reorganization plan to the court on September 21 that would wipe out the tycoons’ ownership within two months and hand control over to DDJ Capital Management, a Massachusetts-based investment manager.
A spokesperson for Korf and Laber said they eventually withdrew their CFIUS request “due to the extensive delay,” but did not give a date.
“While there was a time that the sale [of CC Metals & Alloys] made sense, the market conditions and other considerations changed that analysis,” the spokesperson said.
Georgian American Alloys still owns CC Metals & Alloys. The plant shut down at the start of July amid weak demand due to the coronavirus pandemic.
The spokesperson said the company currently does not have plans to sell CC Metals & Alloys.