The lawsuit alleges that the defendants created a complex network of shell companies to evade taxes on the production, refining, and sale of oil and oil products. These shell companies were registered in territories with preferential tax treatment to enable them to receive special tax exemptions in order to minimize Yukos’ tax liability. Yukos maintained managerial control over the operations of these companies, and the action alleges that it should have recognized the full amount of the receipts associated with these transactions for its own tax purposes. It was not entitled to the preferential tax treatment these shell companies were granted. Accordingly, Yukos’ tax liability was materially understated and its earnings were materially overstated in violation of GAAP. The Russian government has made similar allegations, and is currently prosecuting the company and its executives.

The defendants’ tax avoidance scheme began to unravel in October 2003 when Russian authorities arrested the company’s largest shareholder and CEO, defendant Mikhail Khodorkovsky, and charged him with fraud, embezzlement, and evading taxes on hundreds of millions of dollars that was owed to the government. At the time of his arrest, the Russian authorities announced that they would also pursue criminal prosecutions against other senior Yukos officials.

Ultimately, Yukos will be required to pay approximately $3.3 billion for FY 2000 alone due to its understatement of its tax liability, including interest and penalties. The Tax Ministry has announced that it now intends to audit Yukos’ books for 2001-2003. The tab could ultimately be as high as $10 billion, owing to the Tax Ministry for the defendants’ involvement in the illegal tax evasion scheme. As a result of the revelation of the defendants’ wrongdoing, investors have suffered massive damages as the price of Yukos’ securities plummeted.

If you purchased securities issued by Yukos Oil Company during the applicable period, you may request appointment by the court as a lead plaintiff if you do so by August 31, 2004. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the court must determine that your claim is typical of the claims of other class members, and that you will adequately represent the class. Under certain circumstances, one or more class members may together serve as lead plaintiffs. Your ability to share in any recovery is not affected by the decision whether or not to serve as a lead plaintiff. You may retain any counsel of your choice to serve you in this action, or you may choose to do nothing, and remain in the class as a silent member.