Portion of profits from Chetrit’s Flatotel will be frozen pending money laundering allegations

Two Kazakh bigwigs who allegedly participated in an international money laundering scheme by stashing money in a Chetrit Group project won’t be able to access their money until the accusations against them have been resolved in court.

Viktor Khrapunov, the former mayor of Almaty, the largest city in Kazakhstan, and Mukhtar Ablyazov, the former chairman of Kazakh bank BTA, will be barred from pulling up to $21 million they invested in Chetrit’s Flatotel condo conversion, after a New York State Supreme Court judge ordered a court-appointed monitor to oversee distribution of the funds.

The city government of Almaty and BTA Bank JSC accused the duo of stealing over $4 billion through embezzlement and corrupt deals and then fleeing the Central Asian nation. They allegedly attempted to launder $40 million of those funds through a shell company by investing in Chetrit’s Flatotel project at 135 West 52nd Street and the company’s redevelopment of the Cabrini Medical Center in Gramercy at 227 East 19th Street. A separate suit alleging Chetrit was complicit in the laundering was settled last year.

Viktor Khrapunov and Mukhtar Ablyazov

After Ablyazov and Khrapunov learned Kazakh authorities were tracing the stolen assets to the U.S., they allegedly arranged for Chetrit to buy them out of their stakes in Flatotel for $21 million, a sizable discount, according to court papers. When Chetrit failed to pay up, claiming lack of funds, the duo asked a judge to place the property in receivership, which would have ensured they would get paid, court papers state. The pair obtained a judgement against Chetrit for $10.5 million earlier this year. Two other judgments are pending.

Now, that money will be held in escrow until a federal judge overseeing the larger embezzlement case decides who is entitled to the money.

A representative for Chetrit said sales at the condo would proceed as normal. An attorney for Ablyazov and Khrapunov was not immediately available.

“It is almost as if Bill Gates came in here and said, ‘You know what, Judge, I don’t have any money,” one of the attorneys representing Ablyazov and Khrapunov said of Chetrit during a recent court date, court transcripts show. “These are the kinds of people we are talking about.”

Chetrit has a $100 million equity stake in the project, according to court papers. The developer, along with Almaty and BTA Bank, argued against the appointment of a receiver, saying prospective condo buyers at Flatotel may perceive it as a sign that the property was in distress, and would allow Ablyazov and Khrapunov to access their money and move it out of jurisdiction.

“The uniform perception of the marketplace, regardless of the exact details of the receivership, will be that the project is experiencing extreme financial distress,” Lee Eichen, a consultant for Chetrit, said in court papers. “This will lead to strong hesitation by prospective buyers (and the broker community at large), who will be reluctant to become involved in a project that they perceive may ultimately fail.”

There are still 22 unsold units at the 109-unit Flatotel condo conversion, representing an expected $148 million in revenue, or roughly 40 percent of the condo’s total projected revenue, court papers show. Most of the remaining units are on the upper floors and range in price from $8 million to $16 million.

Chetrit was particularly wary of bad press surrounding project given current conditions in the luxury market.

“The market for such units has softened over the past several months, with more inventory becoming available and prices beginning to slump,” Eichen said.

In another signal that the luxury market is softening, Chetrit recently pulled the plug on the conversion of the Sony Building at 550 Madison Avenue into luxury condos.