Suit accuses former Mason County alloy plant owner of racketeering

By Lawrence Smith | Oct 9, 2006

As Felman Production, the new owners of the ferroalloys plant in New Haven, makes improvements to the facility, it is pursing legal action against the previous owner, Israeli industrialist Boris Bannai. Felman alleges the Mason County plant, along with many other properties Bannai owned around the world, were part of Bannai's attempt to defraud Felman it its attempt to purchase those properties.

Vlad Mikheyev, a Felman Production consultant, served as translator for Sergey Maximenko, vice-chairman for Private Intertrading and chief of Felman's ferro-alloys division, during a recent press conference at the Mason County plant.

HUNTINGTON – Though New Haven, W. Va., might not be found on many maps of the world, a lawsuit in federal district court says the Big Bend-area hamlet factors prominently into an international racketeering conspiracy.

On Aug. 17, Felman Production, owners of the ferroalloys plant in New Haven, filed suit against the previous owner, Boris Bannai (Felman Production, et. al v. Boris Bannai, et. al., U.S. District Court for the Southern District of West Virginia, Case No. 06-0644). Felman, the American subsidiary of the Ukrainian-based Privat Intertrading Group, purchased the 55-year old facility from Bannai out of U.S. Bankruptcy court for $20 million on Jan. 20.

In its complaint, Felman, along with Bonham Business Group, Warren Steel Holdings, Steel Rolling Holdings, Plama Limited and Stalmag alleges they were "victims of a multi-year racketeering scheme perpetrated by Defendants, masterminded by Boris Bannai in transactions in West Virginia, Michigan, Ohio and Poland, utilizing various corporate vehicles, including those in West Virginia, Ohio, the Bahamas and Cyprus." The suit names David Biniashvili, American Steel and Alloys and Moskotree Investments Limited as co-defendants.

The scheme, Felman alleges in the suit, started three years ago when Igor Kolomoisky, one of Felman's owners, met with Bannai to discuss a business deal involving each other's interest in alloy plants and manganese or quarries around the world. Instead, Felman alleges, the meeting was nothing more than "an illegal scheme and artifice…which was intended to defraud Plaintiffs."

Accused of reneging on deal

According to court records, the Bannai and Kolomoisky met in Geneva, Switzerland to discuss Bannai selling his interest in two manganese ore quarries in Africa, and two ferroalloy plants, one in Poland and the other in New Haven to Kolomoisky. The deal involved Bannai "sell[ing] the two ferroalloy plants to Kolomoisky for between $40 - $50 million and subsequently creat[ing] a joint venture company consisting of both plants contributed by Kolomoisky and the two quarries contributed by Bannai."

The deal fell though when Bannai failed to provide documentation of his ownership claim of the quarries. However, court records show, the pair went forward with the purchase of the Polish and New Haven plants.

According to court records, Kolomoisky's purchase of the plants was predicated on a $4.3 million advance payment to Moskotree Investments Limited, "a company wholly owned by Bannai, for ore from quarries which Bannai allegedly controlled in South Africa and Namibia." In its complaint, Felman alleges that Moskotree Investments, which is located in Cyprus, was managed by David Biniashvili, an apparent relative of Bannai's who kept the family's original name.

Born in the former Soviet Union, Bannai, 48, immigrated in Israel in 1973.

In its complaint, Felman further alleges that Bannai "was not authorized to act on behalf of the company when the contract was signed and did not intend to honor the contract when made."

According to court records, Bannai has failed to provide the ore, and has returned the $4.3 million. The payment was made by Stalmag, "a company associated with Kolomoisky," located in Poland.

Likewise, Felman alleges "a material factor in the purchase was that Bannai would supply ore to the New Haven plant." According to court records, Bonham Business Corp., an "affiliate company" of Felman located in Belize, "made a $1 million advance payment to a Bannai company in November 2005, the ore was never supplied and the payment has never been returned."

Attempts a 'fraud'

About this time, court records show, "Kolomoisky agreed to permit Bannai to manage the restarting of a steel plant and equipment in Warren, Ohio owned by plaintiffs Warren Steel Holdings and Plama Limited. Warren and Plama, which is located in Michigan, are "beneficially owned one third each by Kolomoisky, Vadim Shulman and Gennady Bogolubov."

In its complaint, Felman alleges Bannai again perpetuated a fraud when he, through his company American Steel and Alloys, "falsely represented to suppliers, potential customers and the trade media that he owned 50 percent of the Warren Plant in order to obtain credits and deferred payment terms and created $2 million of debt for which Warrren or Plama may become liable."

Furthermore, Felman alleges Bannai via ASA "secretly entered into contracts that usurped Warren's opportunities, including the purchase of a water treatment and electrical substation necessary for the plant's operation, which should have been purchased in Warren's name."

According to court records, Bannai never restarted the Warren plant.

Earlier this year, court records show Bannai via ASA purchased the assets of Steel Rolling Holdings, a non-operating steel company near Detroit, Michigan. According to court records, SRH is a company controlled by Kolomoisky.

The interest Bannai purchased in SRH, Felman alleges, was another attempt by Bannai to "falsely represent he had an interest in this venture as well." In its complaint Felman alleges it was at this time Kolomoisky uncovered "Bannai's false representations about the ownership of the Warren Plant and the Detroit facility, as well as his failure to restart the Warren plant, Bannai's overall scheme become clear.

According to court records, the total losses incurred by plaintiffs by Bannai's alleged scheme totals $10 million.

Both sides gain victories

Since the suit was filed, Felman was won some minor victories in its suit. According to court records, Judge Robert C. "Chuck" Chambers on Sept. 15 granted a temporary restraining order prohibiting the disbursement of funds to Bannai and his creditors from his bankruptcy proceeding (U.S. Bankruptcy Court for the Southern District of West Virginia, Case No. 05-30516), and interference by the defendants with the water treatment plant at the Warren plant.

The temporary restraining order was granted pending an Oct. 11 hearing on Felman's motion for a preliminary injunction, court records show.

In the course of granting the temporary restraining order, Chambers directed Bannai "to advise Plaintiff's counsel of his location and availability for deposition in a timely manner." According to court records, Felman's legal counsel was scheduled to depose Bannai Oct. 4.

According to court records, Bruce S. Marks, Gene M. Burd, Thomas Sullivan and Alisa Shver of the Philadelphia, Pennsylvania law firm of Marks and Sokolov represent the plaintiffs. Serving as local counsel are Edward D. McDevitt and Courtney A. Kirtley of the Charleston law firm of Bowles, Rice, McDavid, Graff and Love.

Since February 2003 when workers at the New Haven plant walked off the job to stage an "informational picket" protesting his handling of plant affairs, Bannai has rarely been seen in West Virginia. According to court records, Bannai's deposition was "to be video-recorded… at a mutually convenient location."

Also in its notice of deposition, the plaintiffs requested Bannai produce documents related to the Polish and West Virginia ore agreements and those related to the Warren plant. On Sept. 29, Chambers granted a partial victory to Bannai when it granted a motion by his legal counsel to quash the subpoena for the Polish ore agreements.

According to court records, the plaintiffs will only have access to the Warren plant documents.

Representing the defendants are Michael D. Almsassin, Matthew J. Boettcher, George M. Head and David Lerner of Plunkett and Clooney with offices in Grand Rapids and Bloomfield Hill, Michigan. Mark Ferguson, of the Charleston law firm of Sprouse and Ferguson, serves as local counsel.

Ferguson was not immediately available for a comment, and Kirtley declined to comment beyond what was already part of the court file.

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