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"The Getaway"

September, 2000

By Susan McRae. Emerging.

Back in Moscow, officials expelled Alexandre Konanykhine from the university for being too capitalistic. His solution then was simply to move 100 kilometer away and begin anew.

By age 25, Konanykhine had amassed $300 million with his groundbreaking entry into the Soviet banking and brokerage business. He has a knack for starting over.

Now, after a wild flight from his homeland in the wake of the collapsing Russian economy-pursued by mobsters and the KGB (former Russian secret police and intelligence agency) from Budapest to Washington, D.C., only to spend 13 ½ months in a U.S. immigration jail fighting extradition - the 34-year old techno whiz is on the move again. This time, he's turned his talents to cutting edge Web graphics.

"All experiences can be useful, and you can learn from all of them," Konanykhine says wryly. "But I would gladly skip part of the excitement."

(Konanykhine, by the way, not only won his immigration case, but the judge awarded him $100,000 toward paying his pro bono counsel and ordered an investigation of the Justice Department. The Russian entrepreneur subsequently won multimillion dollar libel judgments against two Russian newspapers.) These days, safely ensconced in his 49th floor Empire State Building office, headquarters of KMGI.com Inc.,Konanykhine (pronounced Koh-nen EE-kin) reflects on his latest venture and the future he foresees for it, which includes moving to California.

"I don't want to spend another summer in New York City," he says in his heavy Russian accent. Right now, his sights are set on San Francisco, to be near the tech-heavy Silicon Valley. The company already has established a branch office in the Orange County town of Irvine to take advantage of the nearby Hollywood movie industry business.

A little more than a year old, KMGl.com Inc. specializes in producing a new type of advertising on the Internet, called "Webmercials." The process, described in the company's online brochure, combines "the interactivity of Web pages with the audiovisual stimulation of television commercials to create the most innovative new medium since the advent of the cathode ray tube." To see samples, log on to www.kmgi.com.

Konanykhine teamed with his wife, Elena Gratcheva, and old friend Nikolai Mentchoukov, who developed and ran the first private advertising agency in the reforming U.S.S.R, to form the new corporation. Starting out as a Russian- language advertising agency, KMGl.com Inc. (the initials of their last names) quickly shifted focus during the trio's search for more dynamic ways to create Web sites for their clients.

Using flash graphics software created by Macromedia Mentchoukov, the agency's chief creative officer, fiddled until he came up with a way to replace the traditional pixel- based images, found on GlFs and Jpegs, with vector based graphics. By contrast to pixels, which take up large amounts of bandwidth and take a long time to download, vectors occupy very little bandwidth and take almost no download time.

In other words, "instead of downloading the whole cake in pixel, in vector you download the recipe for the cake," Eric Kavanagh, KMGl.com Inc.'s senior vice president, explains. "You explain to the computer how to create the image instead of downloading the whole Image. The result is more dynamic, faster and saves space."

So impressed was Kavanagh with the process, which he encountered while Internet surfing, that he packed up his New Orleans pubic relations business and volunteered to work for free for several months until KMGI.com Inc. could pay him.

"When I stumbled on KMGl.com, I almost fell off my chair," Kavanagh says. "I realized what a significant development it is and couldn't resist getting in on the ground floor, not to mention the fantastic story behind the owners."

That story began in 1983 back in the U.S.S.R when Konanykhine, a 17 yearold student at the Moscow Physics and Technical Institute, turned a school project renovating real properties into a profitable venture. In fact, it became so profitable that school officials expelled him the following year for engaging in capitalist activities.

The action effectively blacklisted him from becoming a teacher or physicist, which had been his original goal. It also made it impossible for him to continue working in Moscow. So he moved about 100 kilometers away and started afresh. Real estate was cheap, and he encountered no competition.

During the next five years, Konanykhine turned his business acumen to high finance and politics. He helped fund Boris Yeltsin's rise to power and founded the Russian Exchange Bank to trade foreign currency. He also established the only high technology network of commodities exchanges.

By age 25, Konanykhine had amassed $300 million dozens of cars, 600 employees, several mansions and 200 bodyguards. He hired Mentchoukov, a budding commercials director with his own agency, to do his advertising. He also hired his future wife, Gratcheva as his executive assistant.

But by 1992, the business and political climate drastically had altered. KGB officials consolidated powers with the Russian Mafia and started taking over private business. Mobsters frequented his bank, demanding assistance in billion dollar, foreign investment scams, which he says he refused, and hundreds of bankers were being murdered.

Fearing for their lives, Konanykhine and his wife moved their business to Budapest, Hungary. But before long, they were ambushed by Russian mob assassins, who threatened to kill them unless Konanykhine signed over his businesses. The couple managed to give them the slip, retrieve money and business visas they had stashed and flee to the United States.

In America Konanykhine began a letter campaign to newspapers and officials, including Yeltsin, demanding an investigation. Instead, Russian officials dogged him here, and with the apparent cooperation of the U.S. government, Immigration and Naturalization Service agents stormed his Watergate condominium in Washington, D.C., and arrested him and his wife for allegedly falsifying their visas.

Authorities deemed Gratcheva not a flight risk and released her. But Konanykhine spent more than a year in an immigration jail fighting extradition to stand trial in Russia accused of embezzling $8 million from his bank-a charge he claimed the KGB fabricated because he exposed its scheme to smuggle millions of dollars out of Russia.

Representing himself through much of the process, Konanykhine managed to convince an immigration judge of an alleged INS and KGB conspiracy and cover-up. Following the court's admonishment, the INS agreed to drop all charges and also pay $100,000 in legal fees to Konanykhine's pro bono counsel, the Washington, D.C., firm of Arent Fox Kintner Plotkin & Kahn. Marc L. Fleischaker, the firm's executive committee chair, now serves as general counsel to KMGl.com Inc.

The judge also ordered an investigation of the Justice Department. In separate actions, Konanykhine subsequently won multimillion dollar libel judgments against two Russian newspapers A $100 million lawsuit against the Justice Department is pending, alleging perjury, fraud, torture and witness tampering by U.S government officers on behalf of the Russian Mafia.

In contrast to his lavish living in Russia, Konanykhine's lifestyle in New York is somewhat more modest, but it's clear he's on the rebound, from his comfortable upper westside apartment to his new BMW.

In 18 months, Konanykhine has increased his staff to 48 employees, half of whom handle sales, and quadrupled his office space. From a small four room suite a year ago, KMGl.com Inc. now occupies two side by side suites, comprising seven offices and two conference rooms, plus a separate production studio.

He estimates the company's net worth for last year at $3 million, but that's just the beginning. Already, he's predicting he'll see his first billion dollars in three years.

Besides himself, Kavanagh, Mentchoukov and Fleischaker, other officers include Roger Paul Mosconi, who has won numerous awards for his work on ads for Coca Cola, General Electric and Pepsi, and Mike Becker, who spent 26 years as a Young & Rubicam executive.

Konanykhine says he modeled KMGl.com Inc. after Hollywood movie studios, employing sound editors, special effects experts, writers and storyboard designers.

All creative concepts are conceived in America to cut production costs, Konanykhine then e mails the storyboards to artists and animators in Russia, where labor is cheaper. They return the work to a project editor in New York for final assembly.

So far, he says, he's managed to finance and develop new business "the old fashioned way," without resorting to initial public offerings.

"The only challenge is to grow fast enough to seize the largest market share possible," Konanykhine says. "I think we don't actually need venture capital. Of course, at some time, we might have a project that requires more financing."

That time may come with his move to the West Coast, anticipated next spring. Besides basic advertising, he foresees partnering with large California firms to provide interactive TV ventures and play stations he's in negotiations with a major educational institution to put its courses online. California- based Macromedia, an early client, potentially has a lot more work for the company. He's also looking forward to supplying his products to major movie studios.

Not surprisingly, Konanykhine's American hero is Bill Gates, whom he admires greatly.

"Bill Gates broke all records on speed in reacting to market change," Konanykhine says. "I think I can learn a lot from him, not to mention how to be the richest man in the world," he adds with a laugh.

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More News...

Media About Alex

Washington Post:
Konanykhin, one of the first Russian millionaires after the fall of the commies, left in 1992 and was granted asylum here in 1999. He's built a very successful Web advertising business in New York City. He had been chosen "New York Businessman of the Year." "As such, you will be honored and presented with your award," NRCC chairman Thomas M. Reynolds (R-N.Y.) said, at a "special ceremony" April 1. " President Bush and Governor Arnold Schwarzenegger are our special invited guests.
CNN:
Alex Konanykhin controlled Russia's largest commercial bank in the 1990s
Wall Street Journal:
Mr. Konanykhin was a whiz-kid physics student who became a pioneering Russian capitalist in early 1990s, building a banking and investment empire valued at an estimated $300 million all by his mid-20s. He was a member of President Boris Yeltsin's inner circle.
The Baltimore Sun:
Business whiz kid.
WJLA TV / ABC:
Russian Bill Gates.
The Times:
By the time he was 25 he was one of the most important figures in post-Communist Russia. But in 1992, while on a business trip to Hungary, Alex Konanykhine was kidnapped.
The New York Times:
The Federal Bureau of Investigation notified Konanykhin that Russian organized crime figures had paid to have him killed.
CBS "60 Minutes":
Alex Konanykhin didn't only have KGB after him… He had the FBI, the Justice Department, even the CIA all on his case, as a favor to the Russians, part of a deal to allow the FBI to keep a bureau in Moscow.
Los Angeles Daily Journal:
Representing himself through much of the process, Konanykhin managed to convince an immigration judge of an alleged INS and KGB conspiracy and cover-up. Following the court's admonishment, the INS agreed to drop all charges and also pay $100,000..The judge also ordered an investigation of the Justice Department. In separate actions, Konanykhine subsequently won multimillion dollar libel judgments against two Russian newspapers. A $100 million lawsuit against the Justice Department is pending, alleging perjury, fraud, torture and witness tampering by U.S government officers on behalf of the Russian Mafia.
Profit Magazine:
Imagine you are a teenage physics genius who quickly amasses a $300 million empire of real estate and banking ventures, has dozens of cars, six hundred employees, several mansions and two hundred bodyguards—but you are nonetheless kidnapped by those you trusted, threatened with torture and death, and have your entire empire stolen from you one dark night in Budapest. You escape with your life by racing through Eastern-block countries and flying to New York on stashed-away passports—only to have the KGB and Russian Mafia hell-bent on your hide and the U.S. government jailing you and conspiring to serve you up into their clutches. All this before your 29th birthday. Sound like a Tom Clancy thriller? No. . . just a slice in the life of Alexander Konanykhine.