The Numismatic Bibliomania Society



The E-Sylum: Volume 26, Number 31, July 30, 2023, Article 31


Pablo Hoffman passed along this great Delancey Place piece about privatization vouchers issued in post-Soviet Union Russia. -Editor

  1992 Russian privatization voucher

In the early 1990s, Bill Browder traveled to Moscow for Salomon Brothers to buy Russian companies for very low prices. The country was in shambles and had only the most primitive financial and payment systems, including the physical vouchers the government had distributed to its people, for free, as it transitioned to a market economy:

Once I arrived in Moscow, I set up a makeshift office in a room at the Baltschug Kempinski Hotel on the south bank of the Moscow River, across from Saint Basil's Cathedral. The first step was to get the money to Russia, which meant we needed somebody who could receive the cash and help us buy the vouchers. Fortunately, we found a Russian bank that was owned by a relative of an employee at Salo­mon. Bobby thought that would be better than wiring our money into an unknown Russian bank, so he had someone from the back office organize the paperwork, and authorized the transfer of $1 million for a trial run.

Ten days later we began purchasing vouchers. The first step was to collect the cash at the bank. I watched as the clerks withdrew the cash from the vault in crisp $100 bills and loaded it into a canvas sack the size of a gym bag. This was the first time I had ever seen a million dollars in cash, and it was strangely unimpressive. From there, a team of security guards took it by armored car to the voucher exchange.

The Moscow voucher exchange was in a dusty, old Soviet con­vention hall across from the GUM department store several blocks from Red Square. It was organized in a series of concentric rings of picnic tables under an electronic trading board hanging from the ceil­ing. All transactions were done in cash, and, since it was completely open to the public, anyone could walk in with vouchers or cash and transact business. There was no security, so the bank kept its guards around at all times.

The way these vouchers found their way to Moscow was a story in itself. The Russian people had no idea what to do with the vouchers when they received them for free from the state and, in most cases, were happy to trade them for a $7 bottle of vodka or a few slabs of pork. A few enterprising individuals would buy up blocks of vouch­ers in small villages and sell them for $12 each to a consolidator in larger towns. The consolidator might then travel to Moscow and sell a package of a thousand or two thousand vouchers at one of the picnic tables on the periphery of the exchange for $18 each. Finally, an even bigger dealer would consolidate them into bundles of twenty-five thousand vouchers or more and sell them for $20 each at the center tables. Sometimes individuals would bypass the whole process and lurk around the outskirts of the exchange, trying to find good prices on small lots. In this profusion of cash and paper, there were hustlers, businessmen, bankers, crooks, armed guards, brokers, Muscovites, buyers and sellers from the provinces -- all of them cowboys on a new frontier.

Our first bid was $19.85 per voucher for ten thousand. After we announced our bid, there was a commotion on the floor and a man raised a card with the number 12 printed on it. I followed the bank employees and guards to a picnic table with 12 displayed on it, where our team presented the cash and the people at the table presented the vouchers. The sellers took our $10,000 bricks of hundreds and put them one by one into the dollar counter. The machine whirred until it stopped at $198,500. At the same time, two people from our side inspected the vouchers, looking for forgeries. After about thirty min­utes, the deal was concluded. We took the vouchers to our armored car and dealer number 12 took the cash to his.

This exercise was repeated over and over for a number of weeks until Salomon had bought $25 million worth of vouchers -- but this was only half the battle. After that, we needed to get the vouchers invested in shares of Russian companies, which was done at so-called voucher auctions. These auctions were unlike any other, since the buyers didn't know the price they were paying until the auction concluded. If only one person showed up with a single voucher, then the entire block of shares being auctioned would be exchanged for that one voucher. On the other hand, if the whole population of Moscow showed up with all of their vouchers, then that block of shares would be evenly divided among every single voucher that was submitted at that auction.

The scenario was ripe for abuse, and many companies whose shares were being sold would do things to prevent people from attend­ing the voucher auctions so that insiders could buy the shares cheaply.

Because these auctions were so bizarre and hard to analyze, few people participated -- least of all Westerners. This resulted in an acute lack of demand, which meant that the prices were remarkably low, even by Russian standards. Although Salomon was effectively bid­ding blind at each auction, I'd carefully analyzed every major voucher auction in the past, and in each case the price of the shares started trading at a significant premium to the price paid in the auction­ -- sometimes double or triple. Unless something changed, the firm was essentially guaranteed to make a sizable return just for participating in the auctions.

Once we started accumulating vouchers, I watched the govern­ment's announcements of auctions like a hawk. In the end, I rec­ommended to Bobby that we participate in a half dozen auctions, including the sale of Lukoil, a Russian oil company; Unified Energy System (UES), the national electricity company; and Rostelecom, the national phone company.

By the time we were done, Salomon Brothers had used these auc­tions to become the owner of $25 million worth of the most under­valued shares that had ever been offered anywhere in history. Bobby and I were convinced that Salomon would make a fortune. We just needed to wait.

And we didn't have to wait long. In May 1994, the Economist published an article entitled ‘Time to Bet on Russia?' This laid out in simple terms the same math regarding the valuation of Russian com­panies that I had learned on my first trip to Moscow. In the following days billionaires, hedge fund managers, and other speculators started calling their brokers asking them to look into Russian stocks. This caused the nascent Russian market to move, and move dramatically.

In a short time our $25 million portfolio was transformed into $125 million. We had made $100 million!

Ah, the joys of a free market. Is this how the oligarchs got their mitts on so much Russian wealth? -Editor

Pablo adds:

"A different kind of paper money; although vast quantities must have been printed, I've never seen one of these Russian notes."

Have any of our readers seen one of the physical vouchers? Are any in museum collections? The illustration may be taken from the quoted book, Red Notice by Bill Browder, 2015.

The closest event in recent U.S. history that I'm aware of was the first wireless spectrum auction. The story is well told in a book called Wireless Nation: The Frenzied Launch of the Cellular Revolution in America by James B. Murray, Jr.

"...the cell phone business became the biggest Federal giveaway since the Oklahoma Land Rush - and the most misguided one in history. From 1985 on, the U.S. government essentially ran a casino, awarding valuable spectrum licenses - the coveted permits needed to run cell phone systems - via lottery. Anyone could win, regardless of whether they'd ever run a business, or even seen a cell phone. Hucksters pedaled applications to anyone who would buy, and all over America random golddiggers and sincere hopefuls tried their luck. When the lottery drum stopped twirling, truckdrivers, nurses, deep-sea divers and preachers found themselves newly minted cell phone entrepreneurs."

The Craig McCaws of the business world happily drove coast to coast with lawyers and bankers in tow, buying up these permits from the lucky winners. And that's how hairstylists, pig farmers and insomniacs watching late-night infomercials helped build the mobile phone industry we rely on today. -Editor

To read the complete article, see:
LOOTING MOSCOW -- 7/25/23 (

Wayne Homren, Editor

NBS ( Web

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