A Wizard On The Run

He Gazes Out From The Pages Of Fortune, Forbes and Business Week. Viktor Kozeny is advertising the company he owns--Harvard Capital & Consulting. The firm invests in the emerging markets of the Czech and Slovak republics, and Kozeny evokes an image of thoughtfulness and prudence. The trouble is that Kozeny, who pitches "Old Tradition" and "New Thinking," is 82 years old. And even in the one country where he is a household name --his native Czech Republic-no one quite seems to know who this fellow is.

To some, Kozeny is a certified hero of the capitalist revolution sweeping the former Soviet bloc: he's an ambitious, smart young man who returned to his homeland to play a critical role in the economic transformation of his country. By luck, pluck and design, he made a sudden killing and accumulated enormous power along the way. To be sure, Kozeny's company-which today owns roughly 10 percent of the Czech stock market-wields tremendous influence in the most well run of all the former communist countries. Yet today, Kozeny lives in the offshore banking haven of the Bahamas, in self-imposed exile. Last week the Czech Republic government confirmed that if he again sets foot in his native country, Kozeny could be arrested in connection with a scandal over secret police files.

Viktor Kozeny's painful history with his home country started in 1980. He was a year-old handball player on a trip to France when his mother and stepfather sold their country cottage for a beat-up Fiat and defected from communist Czechoslovakia. Kozeny joined his parents in Germany. Within two years he moved to the United States to study at Harvard. In 1989 he headed to London, where he had signed on as an investment banker at the venerable firm of Robert Fleming. There he watched as the peaceful Velvet Revolution unfolded in his native Czechoslovakia. Convinced there was money to be made, he left the bank and returned home.

In Prague, armed only with an Italian suit and a few thousand dollars, Kozeny saw his future. The radical scheme of the then finance minister Vaclav Klaus to privatize the state-run economy could make the right people rich. Kozeny was one of the few Czech speakers with Western financial savvy. He set up a consulting company and won contracts to value the government assets. "Basically the bureaucrats were lazy, so they gave the reports to us to write," says Kozeny.

The Czechs were preparing to transform their economy almost overnight. The government had decided to offer voucher books to every citizen for the equivalent of about $85. When privatization took place, the vouchers could then be exchanged for shares in companies to be traded on the newly formed Prague stock market. Klaus, a free marketeer whose idols include Margaret Thatcher, was finance minister at the time. He was also running for prime minister in the 1992 elections. And his name was on the voucher books. "Every book was an invitation to vote for his party," recalls former Czech prime minister Petr Pithart.

But Klaus had a problem. The average Czech thought the privatization scheme was "just another tax the government wanted to collect," says Kozeny. A government TV ad campaign promoting the plan did little to stir interest. Suddenly, with the election looming, the prospect of a failure was real. That's when Viktor Kozeny stepped in. The Harvard Funds made a very simple, but risky, offer: let us invest your vouchers in stocks. In a year's time, we will pay 10 times the initial purchase price of the vouchers to anyone who wants to cash out. That way, Kozeny didn't have to pay any money up front. Kozeny reckoned the Czech government was effectively auctioning off the country - billions of dollars worth of property-for $850 million, and he wanted to cash in. "There wasn't a decent company on the Frankfurt Stock Exchange you could have for that money," he says.

The voucher books poured in, and today his funds own $1 billion worth of stock in Czech companies. Klaus won the election, and Kozeny is now said to be worth $200 million. The government was relieved--but "we were also very worried," says Tomas Jezek, who ran the privatization pro-gram. This wasn't, after all, Goldman Sachs saying it would make good on the vouchers. That's why, at the moment of his triumph, the questions about Kozeny began to mount. Kozeny wasn't required to disclose whether he had the money to buy out "all those goat farmers who gave him the vouchers," as one Western investment banker puts it. But the possibility of massive defaults by Harvard gave the new government vertigo. It asked Kozeny to show whether he had enough assets, but he refused. Klaus then commissioned Wall Street's pre-eminent private detectives, Kroll Associates, to root out every corner of Kozeny's history. And the Kroll report remains one of Prague's most tightly held documents.

Kozeny, as it turned out, kept his promise--the vouchers were worth exactly what Kozeny said they'd be valued at after the first year. But the speculation about how Kozeny had pulled it off intensified. Kozeny, it was rumored, was a tool of the CIA, which got a big Czech bank to back him. A leading opposition politician in Prague recently told NEWSWEEK that Kozeny was laundering drug money--fronting for "the Colombian narco-mafia." The wild charges have never been substantiated. However, Kozeny had become a lightning rod. Today he dismisses it all as "jealousy and provincialism" and insists that his firm bore the risk he had taken on -roughly $800 million in vouchers --by itself. Still, Kozeny became more of a target as his influence grew, and for that he had only himself to blame. From the start, Kozeny hired a number of former employees of the secret police under the communist regime. There was nothing illegal in that. And it made business sense: they were well connected. But so soon after communism's demise, the connections to the former regime only increased suspicions about Kozeny. Then, in mid-1992, he began meeting a Czechoslovak agent named Vaclav Wallis. Wallis says Kozeny offered to pay for secret government files on his firm and on top government officials. Kozeny denies that, claiming he was set up: Wallis threatened to make public secret police files on Kozeny unless Kozeny paid him off.

Whatever the truth -- and Kozeny did eventually report the incident to the police--he relocated to the Bahamas, where he lives now next to one of his idols, the legendary investor John Templeton. These days, Kozeny frequently wakes up at 8 each morning to help run the company he owns half a world away, staying in touch by phone and fax with his firm's managers in Prague. Last week a government prosecutor confirmed to NEWSWEEK "it is possible" that if Kozeny returned home, he could be arrested-possibly in connection with the Wallis affair. That's what keeps him away, Kozeny concedes. "As the father of three children. . . why risk it," he says.

In his high-profile ad campaign, Kozeny still gushes about the Czech Republic. But he admits that he has no idea when he'll go home again. In countries where vast personal wealth is a new phenomenon, sudden success can unleash ferocious resentments, particularly if it acquires the taint of the oppressive past. It's a lesson Viktor Kozeny has now learned-at a very young age.