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  Putin’s henchmen arrested and jailed Khodorkovsky in October 2003; drew up a host of tax evasion, fraud, and embezzlement charges against him; ran sympathetic witnesses out of the country; and won multiple convictions. Vlast. Khodorkovsky was sentenced to nine years in prison, while Russian prosecutors were already drawing up new charges. The new Putin/siloviki axis, according to the former Yukos attorney turned London-based economics professor Dmitry Gololobov, “functions in two main directions: the control of all the profitable business and direct confiscation from those who are not loyal.” Khodorkovsky’s imprisonment and ruin were only an amuse-bouche. Putin meant to swallow all that Khodorkovsky had built, that big, beautiful, now $36 billion oil-producing enterprise—for Mother Russia. It was cute what Mikhail tried with selling pieces of Yukos to minority shareholders, adorable with the Western-style financial transparency. Free-market competition on fair terms was really a lovely idea. But not really Vladimir’s type.

  Team Putin began with a series of audits of Yukos in the weeks after Khodorkovsky’s arrest. By the time the federation’s tax accounting department was done, Yukos had received bills for back taxes—including interest and penalties—totaling $27.5 billion. This would have been a difficult bill to settle in the best of circumstances, but because Putin’s government had also frozen the corporation’s liquid assets and crippled its production operations, Yukos found it impossible to pay. Putin’s Russian Federal Property Fund provided a solution, though. The fund auctioned off Yukos’s key subsidiary, Yuganskneftegaz, which accounted for 60 percent of its annual oil production and an even greater percentage of its $36 billion valuation.

  The auction, which took place on December 19, 2004, lasted in the neighborhood of six minutes. The winning bid was a highly discounted $9.3 billion. The only real surprise was the successful bidder, a corporation nobody in Moscow had ever heard of—the Baikalfinansgrup. When journalists got hold of the group’s registration documents, they discovered Baikalfinans was just two weeks old and had been incorporated with an initial capitalization of $300. Its “offices” were above a vodka bar in a small building in the remote medieval town of Tver, three hours from Moscow. The address was claimed as corporate headquarters by 150 other companies, according to Masha Gessen, “none of which appeared to have any physical assets.”

  The mystery of how a $300 company housed above a saloon bought Russia’s most capable oil company for $9.3 billion didn’t last long. A few days after the auction, the state-owned oil company, Rosneft, tapped government funds to relieve the $9,300,000,300 Baikalfinansgrup of its single asset, Yuganskneftegaz. Rosneft, with a lot of help from Putin and a few other surprising sources, would sweep in the rest of Yukos’s discounted assets over the next few years. “The acquisition of Yukos triples the size of Rosneft,” Thane Gustafson explained, “and what had been a very minor and no-account company suddenly becomes the largest oil company in Russia.”

  It was flat-out state-sponsored theft of a legitimate company: the Kremlin just shoplifting a capitalist something that might have otherwise actually succeeded on its own merits. A shiv in the supposed meritocracy of capitalist competition. And it had a big Western helper. We can now appreciate just how important this help was, thanks to some serious reporting by a team of Bloomberg reporters. Here’s what they turned up: Rosneft’s greatest non-Putin abettor in its campaign to devour every last bone and feather of Yukos turned out to be the American investment banking titan Morgan Stanley. Morgan Stanley had been doing business out of its office in Moscow since 1994, when Boris Yeltsin was beginning to goose the pace of privatization. When other Western financial institutions fled Moscow as the Russian economy collapsed, Morgan Stanley held firm. It kept its Moscow office fully staffed and hired a Russian economist named Rair Simonyan to run it. Simonyan’s previous job was vice president of international investment for Rosneft. Among Morgan Stanley’s crucial business operations in Moscow over the next five years was rescuing Rosneft from extinction.

  When Rosneft began to gorge itself on Yukos in 2004, Morgan Stanley’s loyalty and friendship finally started to pay real dividends. With more than half of Yukos in Rosneft’s gaping maw, and the rest being crammed in as quickly as possible, Rosneft’s boss Igor Sechin was ready to embark on some serious growth plans. He was tired of playing second fiddle to Lukoil. Sechin and Rosneft had Putin’s blessing; he was head silovik among Putin’s siloviki and would make sure Rosneft’s success accrued to Putin’s advantage. But the Russian state banks were a little thin on rubles circa 2005, so Sechin needed a lot of new investment from the West, which meant he needed help from the likes of Morgan Stanley.

  Western investors were spooked by Putin’s gangster move on Yukos, and for good reason. An international arbitration court at The Hague would eventually find that Putin’s government had illegally confiscated tens of billions of dollars from Yukos and its shareholders. “It’s always wrong to handle stolen goods,” the international economist and former Russian Federation adviser Anders Åslund opined, “and Yukos was stolen goods.” But Morgan Stanley exhibited few qualms. “Rosneft was perceived as a world-class company that deserves respect,” the investment bank’s CEO later explained. And it was always nice to be able to count on elite whataboutism from select Russian specialists at high-end American universities. “What was Morgan Stanley supposed to know at the time?” the New York University history professor Yanni Kotsonis told the reporters from Bloomberg. “We knew that Russia was corrupt, but that applies to virtually any country producing oil nowadays.” Morgan Stanley ran Rosneft’s traveling roadshow through boardrooms in London and New York, serving as a character witness for the Russian oil giant. Sure, Khodorkovsky was living in a cage, but that’s because he was a crook. Look, you can tell he’s a crook, he’s in a cage!

  The tour was so successful that Sechin hired the troupe’s leader, a thirty-six-year-old American, to be Rosneft’s chief financial officer and to oversee what the company hoped would be a record-setting sale of public stock on the London Stock Exchange. “Peter O’Brien is living proof that the Kremlin is not what it used to be,” Institutional Investor wrote soon after his hiring. “Or, at least, that Vladimir Putin’s lieutenants are trying to learn how to charm investors.” Whatever O’Brien’s own charms, and despite Morgan Stanley’s energetic PR efforts, the initial public stock offering for Rosneft still faced headwinds from the West, from across the political spectrum. George Soros wrote an op-ed in the Financial Times about the dangers of investing in a company that would still be controlled by Putin’s government: “Rosneft is an instrument of state that will always serve the political objectives of Russia in preference to the interests of the shareholders.” Soros asserted that a successful IPO would legitimize the Yukos theft and, because Europe was so dependent on Russian oil and gas, increase Putin’s ability to wreak havoc there.

  When Vice President Dick Cheney started making essentially the same argument against the Rosneft IPO, it might have been the first time George Soros and Dick Cheney agreed on anything. But criticism from the unlikely Soros-Cheney alliance was about as effective as a painted-line speed bump, especially because—thanks to the smash and grab of most of Yukos—Rosneft would soon have oil reserves to match ExxonMobil, and the price of crude oil had doubled in less than five years and seemed headed toward $100 a barrel. “The world’s most prestigious investment bankers, lawyers and accountants are lining up to embrace the Rosneft offering,” the decorated business columnist Allan Sloan wrote in Newsweek. “But remember that financial markets (and financial professionals) are frequently blinded by money—and there’s enough money here to blind anyone.”

  J. P. Morgan joined Morgan Stanley as one of the four joint global coordinators and book runners while Goldman Sachs signed on as a senior co–lead manager. To put it bluntly, Rosneft’s IPO campaign ended up making the world complicit in Putin’s theft of Yukos and spread the shame of it around the globe. The markets knew the Ru
ssian government had ripped off that company and framed its leader, flat out stealing billions from Yukos shareholders. But Morgan Stanley and the markets and the investors in those markets chose to look the other way because the potential payoff was too enticing.

  Rosneft’s IPO raised more than $10 billion in cash on the London market. When the news first hit, the IPO ranked as the sixth largest in world history, and analysts thought it might jump past AT&T Wireless’s $10.6 billion take from 2000 when the final tallies were made. “Billions of dollars of investments are being made by major foreign partners,” Putin crowed on hearing the results. “I think this is absolutely correct. I am happy.”

  Happy Putin could imagine the world lining up to pay respects at his doorstep, according to The New York Times, in spite of his gangster behavior and in spite of the fact that the Russian oil and gas industry he controlled was known for its “tumbledown” machinery and technological deficiencies. “President Vladimir V. Putin has elevated energy to a central position in Russia’s foreign policy,” the newspaper wrote in 2006, “giving Moscow influence and respect in world affairs not seen since the demise of the Soviet Union, as consuming nations court the Kremlin for access to ever scarcer energy.”

  Putin wanted more—more respect, more influence, more oil. And he got it with a little more help from his friends. In 2007, Morgan Stanley helped to arrange another round of financing that allowed Rosneft to hoover up the last of Yukos’s remaining assets. A State Department cable that year recorded O’Brien, the Russians’ young American front man, assuring a visiting U.S. undersecretary of state “that corporate governance at Rosneft and other major Russian companies, while not yet up to Western standards, has improved dramatically.”

  What Morgan Stanley won for all its efforts—aside from an estimated $360 million in fees in a ten-year span, according to the Bloomberg reporters—was the great goodwill of Vladimir Putin and Igor Sechin. The Russian president and his siloviki were learning to live with foreign mega-businesses such as Coca-Cola, General Electric, Toyota, and DaimlerChrysler doing business on Russia’s sovereign soil. But the Kremlin’s favorite American bank looked like a special case. Putin and Sechin privately feted Morgan Stanley’s CEO, John Mack, at the presidential estate outside Moscow. When the longtime head of Morgan Stanley’s Moscow office, Rair Simonyan, was presented with Russia’s Order of Honor in recognition of his work on Rosneft’s spectacular IPO, Mack was invited to attend the ceremony. Sechin also included Mack among the select for a dinner cruise down the Neva River that evening. “Sechin treated Mack well, and with respect,” Simonyan later recalled, according to the Bloomberg reporters who uncovered the long, queasy history of Morgan Stanley in Russia.

  Mack clearly understood the coins of the realm—loyalty and friendship—and just how important they were. He knew, for instance, that it would be good for business to make the long trip to Sochi, on the Russian coast of the Black Sea, to make nice at the annual International Investment Forum. CEOs from other American corporate giants were there to meet with Putin, in public, that day in Sochi. The Russian leader was respectful to each of them, but not particularly warm. “We would welcome the expansion of your company’s activity in Russia,” Putin told the head of a Texas-based investment group with a starter office in Moscow, “and hope that you will find new opportunities for investing your capitals and the capitals under management.”

  “We’ll be happy if you expand your presence in the Russian market and cooperate with Russian partners, which will result in business development and technology exchange,” he told GE’s Jeffrey Immelt.

  The way Putin addressed Mack was demonstrably different; the Morgan Stanley CEO had limboed deeply enough under the constraints of legal and financial decency to help build Putin his own major international oil concern, and that afforded Mack the warmth and special recognition due a loyal and respected friend. Praising Mack’s $55 billion worth of deals in the federation’s crucial energy industry, Putin said, “We hope that this work will continue for the benefit of both our partners and the Russian participants in these projects. For its part, the Russian Government will facilitate this business in every possible way.” Then Putin went positively gooey. “I am tempted to recall one of our late poets, Okudzhava,” Putin told Mack. “He was very popular, and remains so. He wrote once: ‘Let us join our hands my dear friends. We won’t get lost if we’re together.’ ”

  Mack didn’t lose a beat. “Indeed,” he answered, “we did not get lost because we joined hands.”

  For all the roughneck charisma and brute force and slapdash derring-do of the oil and gas industry, the central characters in its drama are often more the green-eyeshade types. There are a surprising number of accounting majors who really do end up right at the center of the action. With charisma of their own—in some cases, with quite a lot to spare.

  Aubrey McClendon could still remember the exact moment he decided for sure on a career in oil and gas, he once told a reporter from Rolling Stone, while sharing a $400 bottle of French Bordeaux from his personal cellar in the private dining room at one of his own restaurants in Oklahoma City. He was in his final year at Duke University in 1981, he explained, skimming articles in The Wall Street Journal as any aspiring accountant would, when a particular story caught his eye. It was a tale of two regular-guy independent wildcatters without much capital who happened to choose just the right spot in the Anadarko Basin, near where Aubrey had grown up. The well became a gusher—was maybe the biggest gusher in the history of the country, Aubrey remembered. (It wasn’t really, but that’s how he remembered it.) “They sold their stake to Washington Gas and Light and got a $100 million check,” he told the magazine writer. “I thought, ‘These are two dudes who just drilled a well and it happened to hit.’ So that really piqued my interest.”

  He was just past the age of fifty at the dinner that night, favored dark expensively tailored pin-striped suits and conservative-looking rimless spectacles. His shock of wavy hair had grayed all through. But there was a lot of Tom Sawyer still in Aubrey McClendon. Even with a serious journalist who might just check the facts, Aubrey was more likely to try to amuse and entertain, and even awe, than to accurately inform. Accuracy just never really captured the expansiveness of his vision, or the arc of a good story well told. Especially a story with Aubrey. It was doubtless a big part of his charm—and a big reason for his success—that people wanted to believe Aubrey. What he lacked in strict truthfulness, he made up for in boyish and enthusiastic sincerity.

  The reality of McClendon’s entry into oil and gas was maybe a bit more prosaic than the way he sometimes told it. He had actually grown up in the business, at a slight remove, but near enough to feel the pull of its centripetal force and to understand the power its storied practitioners could wield in the wider world.

  Aubrey McClendon’s great-uncle had been a founder of KerrMcGee, one of the nation’s premier Big Oil companies of mid-century America. Robert S. Kerr, a Southern Baptist farm boy from Ada, Oklahoma, had used the piles of cash he made in the oil business to swing open the door to politics. He was elected governor of Oklahoma for a single term in the 1940s and U.S. senator for three. Senator Kerr damn near bought himself the Democratic presidential nomination in 1952.

  Even ten years after his death, Old Bulls in the Senate still regarded Kerr as one of the most compelling forces they had seen in that body. (His biographical entry on official U.S. government websites refers to him as “the Uncrowned King of the Senate.”) What made him so effective was that he operated at a vital nexus of government and business. Senator Kerr was a consequential politician who served the interests of the most consequential industry in modern America. By the 1950s, oil and gas was the most able, most profitable, most outward-facing commercial enterprise in the most able and powerful and outward-facing country in the world. Like it or lump it, the oil and gas industry and the country had grown up together, in lockstep, and neither would have
risen to its improbable heights without the other.

  It didn’t take much effort for Robert S. Kerr to leverage his seat in the Senate, his place in the pantheon of oil and gas titans, and his vast personal resources to defend and protect what he regarded as the well-earned prerogatives of America’s signature industry. “I been meanin’ tuh give you this for the past six months,” Kerr would tell one of his colleagues on a trip in the subterranean railway that ran from the Senate office buildings to the Capitol, according to one young U.S. senator who liked to collect stories about earlier members. Then Kerr would hand over an envelope full of stock certificates for some recent oil venture. “I knew you’d want into this deal,” he’d say. “It’s a helluva deal. Just the kind you like. So I put you in for $3,000. Just call my secretary and arrange to give her a check.” The stocks would generally be worth ten times the purchase price by the time Kerr got around to distributing them, which made it very easy to write that check.

  The Senate mostly voted Kerr’s way on oil and gas interests, especially when it came to preserving the decades-old breaks written into the tax code to encourage oil-field production. “We could have taken a 5 or 10 percent figure,” an industry-friendly U.S. senator later said of the sweetheart tax relief passed back in the 1920s, “but we grabbed 27.5 percent because we were not only hogs but the odd figure made it appear as though it was scientifically arrived at.” Special tax favors for oil and gas producers have been in force since Woodrow Wilson’s first year in office and still stand today, seventeen presidential administrations later, as the longest-running welfare program in the nation’s history. Credit goes in no small part to Senator Kerr and his political brethren, Democrats and Republicans both, representing oil-producing states from coast to coast.