Russian courts freeze shares of jailed YUKOS boss

Russia blocked jailed tycoon Mikhail Khodorkovsky from selling his controlling stake in oil giant YUKOS yesterday in a dramatic escalation of a confrontation between the Kremlin and big business.

The scale of the drama, unprecedented since Russia's switch to capitalism from communism nearly 12 years ago, sent financial markets skidding and sparked concerns that investors would pull money out of the country.

There was no immediate comment from the Kremlin or President Vladimir Putin who met leading investment bankers shortly after the YUKOS bombshell was announced.

The move by state prosecutors stops Khodorkovsky, Russia's richest man, and his allies from cashing in their controlling interest in the country's biggest oil company.

YUKOS spokesman, Alexander Shadrin, told Reuters the state had blocked 44 per cent of the company's shares owned by Khodorkovshy and his allies although they retain rights to vote and dividends.

"This is unalloyed bad news... This puts a question mark over corporate governance in the Russian market as a whole. We are hearing a number of big foreign investment funds are starting to take out money," said Paul Luke, head of emerging market specialist Convivo Asset Management.

Even Russian officials were worried the prosecutors were going too far.

"I do believe the methods are absolutely wrong - the way they were arrested, put in jail and so on," a senior Russian diplomat told Reuters. YUKOS has been the target since early July of legal action by the Russian justice authorities in what many see as a move by the Kremlin to curb the political ambitions of Khodorkovsky who is believed to have his long-term sights on the presidency.

The saga took on dramatic proportions on Saturday when Khodorkovsky, 40 and recently ranked the world's 26th wealthiest person, was arrested at gunpoint, thrown into a Moscow jail and charged with tax evasion and massive fraud.

The blocking of the shares came just as the company awarded its shareholders a whopping $2 billion in dividends, more than $700 million of it to Khodorkovsky.