Russia to defy Yukos ruling Core unit's sale set for Sunday

Oil giant Yukos appears headed for the auction block Sunday after Russia said it would defy a U.S. bankruptcy court's order halting the sale.

The Russian government on Friday refused to recognize a Houston judge's order blocking the state-ordered auction of Yukos' core production asset this weekend, setting the stage for the company's breakup.

U.S. Bankruptcy Judge Letitia Clark's ruling "has no legal status in Russia," the Russian Foreign Ministry said in a prepared statement. "It is somewhat hard to understand on what grounds this court has taken the job to assess actions of Russian authorities from the standpoint of Russian law."

Yukos, the second-largest oil company in Russia and a target of President Vladimir Putin, filed for bankruptcy protection in Houston on Wednesday. Gazprom, which holds a monopoly on Russian gas sales and is allied with Putin, wants to purchase the bulk of Yukos' assets.

"At the present time, no one has changed the decision of our founding firm, Gazprom, and we will take part in the auction," Alexander Stepanenko, a spokesman for the company, told The Associated Press.

"If the auction goes forward, our attorneys would be in court Monday morning," responded Mike Lake, a spokesman for Yukos.

Lake said Yukos' lawyers would press the judge to cite Gazprom for contempt if it bids at the auction.

On the surface, Gazprom would appear insulated from a finding of contempt of court. Judges can punish contempt by imposing heavy fines or even jailing offenders, but Gazprom does little if any business in the U.S. and its executives are safely situated in Russia.

Gazprom sells massive amounts of gas to Europe, however, and has business interests in Germany.

Bruce Leonard, a bankruptcy lawyer and chairman of the International Insolvency Institute, said Clark could ask her European counterparts to impose any ruling against Gazprom and likely win cooperation from judges there.

"There have been cases where European courts have been quite happy to recognize U.S. bankruptcy cases," Leonard said.

He also said that under international legal conventions Gazprom recognized the authority of U.S. law when its attorney appeared in Clark's courtroom on Wednesday.

"You have to be very careful about what court you set foot in," Leonard said.

The breakup of Yukos and sale to Gazprom apparently won't be financed by a consortium of international banks that includes J.P. Morgan Chase & Co. Reports circulated Friday that the banks had suspended their participation in the deal, as ordered by the judge.

A spokeswoman for J.P. Morgan did not respond to calls for comment. A spokesman for Deutsche Bank in Germany said, "We do not comment on this affair."

The Russian news agency Itar-Tass quoted several top Russian bank executives as saying Gazprom might be able to find financing through Russian state-owned banks instead.

Yukos said Russian authorities had even agreed to allow Gazprom to bid Sunday and come up with the money later.

The dispute over Yukos is as much political as it is financial.

Former Yukos Chief Executive Mikhail Khodorkovsky is on trial in Moscow on tax fraud charges. Observers say he was jailed for showing too little deference to the Kremlin.

Khodorkovsky's investment firm, Group Menatap, said Friday that it will sue Gazprom for $50 billion if it succeeds in gutting Yukos.

The Russian government maintains Yukos owes $28 billion in back taxes, but it has never explained how it arrived at that number.

That a Russian petroleum company should seek refuge in a Texas court at first struck many industry analysts as bizarre. Court records show the company has just $8 million in U.S. assets, and most of that money was paid to retain lawyers.

But there is little barrier to a foreign business seeking bankruptcy here. "The mere presence of a bank account is sufficient," said Aaron Hammer, a Chicago bankruptcy lawyer.

Yukos' chief financial officer, Bruce Misamore, is an American now living in Houston. He says he has been warned not to return to Russia.

Bloomberg News reported Friday that Russian prosecutors arrested the head of human resources at Yukos on a charge of money laundering. Authorities also arrested a lawyer in the company's legal department and searched its main office in Moscow.

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