Police Probes deals by Tartu Consumers Cooperative

Photo: Margus Ansu

Police and Southern District Prosecutor’s Office have launched criminal proceedings into deals in Tartu Consumers Cooperative (TTK); the latter’s press representative says no suspects have been named. Thus, no official suspicions and accusations can be claimed.

Simply put, the issue is: have the TTK managers taken private control, via their companies, of the cooperative’s most valuable asset? The cooperative itself consists of some 40,000 members (partners); board members Tarmo Punger, Madis Suiste, Kaire Krevald and Enn Pokk, as well as council composed of Aavo Mölder, Albert Saunanen, Tõnu Sooaru and Väino Kull – these would classify as managers.

We are talking about the so called Old Department Store at Tartu, Riia St 2 – the buildings, the parking lot... quite an area in central Tartu, comparable to Viru Centre location in Tallinn. Something really sweet and juicy, in the very heart of town.

For TTK, this is The Main Asset. Land register says that two years back, in January 2011, the registered immovable changed hands, from TTK to a company called TTK Investeeringud (Investments). 

Tricky statutes

The deal was moneyless; a consideration other than cash occurred, TTK increasing its holding in TTK Investeeringud by €16,400. Percentage wise, the cooperative’s holding in TTK Investeeringud rose from 98 per cent to 98.5 per cent, approximately, as the real estate was moved.

Looks like no big deal – an enterprise moves an asset into another company under its control. So what... Things get interesting, however, as we sneak a peek at who stand behind the remaining 1.5 per cent of TTK Investeeringud owners. This will be a private liability company called SEN Kinnisvara (Real Estate). Checking the commercial register, we find out its managers and owners: Punger, Suiste, Sooaru, Pokk, Saunanen, Krevald, Mölder and a couple of others. Corresponding to the cooperative’s management – almost a hundred per cent.

Surely one may say, again: so what? it is only 1.5 per cent, no more. Why worry if the cooperative’s managers moved a valuable real estate into another company where they, as private persons, own sole little holding – all counted, the 1.5 per cent being insignificant, having no real effect. Also, wise words might be spoken about motivating and rewarding managers.

And, should the cooperative’s 40,000 members think deal like that unethical, they may vote the leaders out, elect new ones and totally eliminate the current managers’ impact. 98.5 per cent will trump 1.5 per cent, easy.

Still, the scheme hides in it a trick. A trick so intriguing that the whole picture is turned upside down. Let us take a look at TTK Investeeringud statutes, clause 6.9.

Statutes, as they come, tend to be boring reading – the same old conventional sentences adorn them all. To that background, clause 6.9 shines as special. Namely, it says that all important decisions (like dividing up profits, electing the council, increase/reduction of share capital, transformation of private liability company etc) have to be taken by votes of 100 per cent of partners. The words hundred per cent even printed in «bold». 

What meaneth this? This, of course, meaneth that the 1.5 per cent – initially looking innocent and insignificant – have veto power over all things important. (Let me interject: the clause has not been in the statutes, from the beginning; it appeared years ago when SEN Kinnisvara i.e. cooperative managers’ private company first entered the ownership circle.)

Thus, the question arises. Is TTK, with its 98.5 per cent ownership in TTK Investeeringud, really in control of the company? Is TTK really in control of its most important asset – the old department store immovable?

Maybe the above scheme hold nothing illegal, maybe police will find nothing at all... still the thing feels weird. The way the deal was done also reeking of possible attempts by participants to conceal it.

Namely, as also mentioned above: the immovable moved – from TTK to TTK Investeeringud – in January 2011. Nevertheless, the TTK 2011 annual report (approved in mid-2012) does not make any mention of it at all. All it says about the old department store is that «no significant developments occurred».

For advice, I addressed Mati Nõmmiste, sworn auditor and deputy president of the Estonian Board of Auditors. In our conversations, he did not know the companies and deals involved: I was asking about companies A, B and C. Surely, Mr Nõmmiste cannot here provide an official assessment; as admitted by him, for that, documents should be read and details delved into. Generally, however, he sees many a question mark over the scheme.

Firstly, the same old issue: is TTK really in control of TTK Investeeringud? Should the holding stand at 98.5 per cent, control could be claimed to exist: one being the other’s subsidiary, the two possibly viewed as a group; even so, the 1.5 per cent wielding veto power – this changes the game. One result possibly being that TTK, up to now treating TTK Investeeringud as subsidiary and  filing annual reports as a group, might not do that anymore.

Secondly, Mr Nõmmiste points out that the weighty real estate deal is not reflected in the report. Perhaps, legally, no error occurs; but, as pointed out by the sworn advocate, this no good practice – far from it. Formally, this would make for an accounting debate over what is and isn’t allowed.

To Postimees’ knowledge, the police was initially reluctant to investigate the issue – why take the trouble, if one company has 98.5 per cent control over the other; that would be an in-house deal; so – no conflict. Police interest was sparked only after the 1.5 per cent veto right was pointed out. The thing boiling down to this: have the TTK managers moved cooperative assets into private company control – or not?

Among those definitely smelling foul play is Eiko Keeman, a rank and file TTK partner, now a leading opposition figure trying to rally others against the management. At his application, in all probability, police kicked into action. Also, he claims to have launched civil action over the matter.

The way Mr Keeman puts it, there have been dark deals before. Still, people are talking about the Tartu Eeden Centre sales, with the abovementioned SEN Kinnisvara – private company owned by TTK managers – popping up as minor holder next to TTK, pocketing pretty money on Eeden Centre sales.

Punger parries arrows of accusation

Or, remembering an article by Nils Niitra, in Postimees, two years ago: on how TTK had given a big loan to real estate developer Vikerkaare Majad to build a housing area at Tartu’s edge. Back then, the issue was whether it was right for a cooperative to loan money as decided by managers, rank and file totally in the dark.

Already then, Postimees pointed out the vulnerability of cooperatives; the members being many, but most of these passive – so, in reality, the managing few may command the company as it were their private property. The author of the said story, however, knew not what afterwards transpired with the Vikerkaare Majad real estate development.

Today, peeking into Land Register, we behold the following: in March, this year (2013), in that very Vikerkaare housing development, seven immovables have moved into SEN Kinnisvara ownership; which, as mentioned above, is a private company owned by the cooperative managers. Thus: cooperative managers loan cooperative money to develop real estate; in a couple of years, the cooperative managers are real estate owners, via a private company of theirs, in that very development...

This story, however, revolves around the old department store real estate deal. All of the above being, first and foremost, the way accusers see things. Definitely, at the moment, it cannot be claimed if laws have been violated. Let the police and prosecutors do their job, and let the courts decide.

It also needs to be mentioned that TTK, lead by its head Mr Punger, has filed a civil action against Mr Keeman, accusing the latter in defamation. According to Mr Punger, this is an old story and, for a year and a half, he has had to listen to the accusation by Mr Keeman.

According to the TTK chief, accusations are groundless. «Both essentially and legally, it is all correct,» said he. «TTK has earned well on all of these deals, our equity capital has been constantly increasing, out deals have been audited, we are open and we welcome the investigations by police.»

Regarding the loan given to Vikerkaare Majad, for instance, Mr Punger says it was paid back to the cooperative in a timely manner, the latter earning decent interests. The fact that he and other cooperative managers later purchased lots in the selfsame development – that has no ties, whatsoever, to the loan provided earlier.

Several people with knowledge of the TTK dealings verity affirm that, in some ways, Mr Punger has managed the cooperative well. On the other hand, they point to the abovementioned risk: at a certain point in time, long-time managers (Mr Punger having been at the helm for 15 years) may become overly self-willed and irreplaceable – especially with a mass of passive and ignorant partners. That may open doors for conflicts of interests, oversized incentives or simply doing one’s own thing.