Russian Roulette: Anarchy Rules in ‘Emerging’ Stock Market : Investment: Blatant violations of shareholder rights are eroding confidence, but there are signs that things may be changing in the former Soviet republic.

MOSCOW — Market talk in Russia is not for the faint-hearted.

The latest horror story going around Russian financial markets is about a privatized copper processing plant that tried to ditch its shareholders.

Russia, a turbulent mix of bureaucrats, politicians and company managers, is losing its fizz as “the world’s ultimate emerging market” amid reports of dilutions of shareholdings and crude violations of shareholder rights.

Money managers are watching, bewildered, as a bitter power struggle waged by rival interest groups for control over privatized firms takes its toll on market confidence.

How did the Komineft oil giant manage to issue an extra 23 million shares of stock without telling its foreign investors?

Who were those Russian directors who “borrowed” billions of rubles in stock without anyone noticing?

Where is London-based trader Trans-World’s 20% stake in a huge aluminum company that “disappeared”?

And what happens to a money manager with stock that has been erased, literally, off the books?

“You’re dead in the water,” said Miljenko Horvat, head of Citicorp in Russia.

Added Maarten Pronk, general manager of ING Bank in Moscow: “What do you do? Hire a lawyer for $300 an hour? High-class fund managers don’t shout and scream. They just take their losses and run for the exit.”

Komineft shocked Western investors when it was learned that it had secretly issued millions of dollars worth of stock nine months ago without telling its new shareholders, which include the investment bank CS First Boston.

Russian stock is registered by book entry, which requires physically listing the owner’s name on the register. The only proof of stock ownership is “extracts”--copies of registers.

Under Russian law, stock in companies with more than 1,000 shareholders must be held by independent registrars. But most registers are controlled by Soviet-era directors hostile to outside investors. Too often, many do not work properly simply because they lack basic facilities.

“Once we had extracts not corresponding to our records,” recalled Konstantin Melnikov of Russia’s Rinako Plus brokers. “We found out the register didn’t even have a computer. There was this old woman sitting there, typing up these extracts.”

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Worse, in some cases, is that when foreigners want to get out, they discover that they don’t actually own their shares because they have yet to be registered by the brokers who sold them.

“People don’t know what they’re letting themselves into,” said ING’s Pronk. “Russia is not comparable to any other emerging market in the world. There aren’t any rules here.”

But there are signs that things might be changing, albeit slowly.

Russia’s Securities Exchange Commission is working on a U.S.-aided project to set up an independent central registrar with on-line branches in major Russian trading centers.

The central registrar, which will be able to handle at least 5 million shareholders representing 90 to 100 major enterprises, is expected to go live by mid-1995.

Bank of New York and the European Bank for Reconstruction and Development are expected to take stakes in the central registrar, expected to be capitalized at $10 million.

But the central registrar will face an uphill task in a country that has no capital markets law defining the rights of shareholders, registers, brokers and investors.