Estonian business elite loses big money in investment fraud

Photo: Peeter Langovits

Alleged investment fraud by Gild robbed Estonian and Lithuanian entrepreneurs of €12m, extremely unlikely to be returned.

On Tuesday, Harju County Court delved into alleged investment fraud case related to investment group Gild, with majority of the accused pleading not guilty.

The investment scheme lead by Gild brought a €12m loss to investors. Prosecutors accuse Erki Piirsalu in investment fraud; Tõnis Haavel, Harles Liiv, Šarunas Skyrius and AS Gild Financial Advisory Services (Gild FAS) stand accused of being accessories to the fraud.

Mr Piirsalu said in court yesterday, that he leaves judgement of his guilt to prosecutors and court. Mr Haavel, Mr Liiv and Mr Skyrius, as well as representative of AS Gild FAS, denied guilt.

Lucrative future

Mr Haavel and his partners promised investors, in 2007, that by purchasing land in Azerbaijan, the money invested would produce a 70 per cent yield. After that, the investors lost all sight of their money. The main investors were Hans H. Luik and Marcel Vichmann, plus many other respectable Estonian and Lithuanian entrepreneurs, who could hardly be considered naïve simpletons.

Looking at the Haavel-Liiv-Piirsalu scheme in hindsight, it would probably be discarded at once. The idea was to purchase 147 hectares of land in vicinity of Baku, build an entire residential district and exit the business in a couple of years, with huge profit. In 2007, however, no-one doubted. Due to the fact, obviously, of Mr Haavel being a respected banker, founder of Hansapank and still gracing the LHV bank logo with his last initial. By then, he had indeed left LHV and was doing business with Rain Tamm in a new investment business called Gild.

The third Gild partner Skyrius being a Lithuanian, a whole bunch of fooled Lithuanian businessmen are also linked to the case. The court case files repeatedly state that the businessmen trusted the Baku project’s bonds due to it being linked to such a professional investment company as Gild. No matter that, when it came down to signing the bonds, the alleged villains managed to arrange companies belonging to Mr Piirsalu to sell the bonds.

According to prosecutor Steven-Hristo Evestus, the investigations were launched at Mr Piirsalu’s request, Mr Piirsalu himself filing the report of criminal offence. In court, yesterday, Mr Piirsalu preferred to be silent. Even if court materials seem to point rather to Mr Haavel and Mr Liiv as the brains behind the scheme, it is still Mr Piirsalu who is investigated as organiser of the fraud, others being his aides.

«Somebody needs to stand responsible for the disappearance of a large sum of money!» demanded the prosecutor Mr Evestus.

Where the investors’ €12m disappeared, can only be traced partially. A part of the money moved to Mr Haavel’s and Mr Liiv’s real estate projects in Bulgaria. However, very large amounts were withdrawn in cash.

«The money was hauled to a Gild’s project in Bulgaria, and some other projects to buy assets from Turkey and China; huge sums were drawn out in cash and disappeared who knows where,» the Ekspress Grupp majority owner Hans H. Luik told Postimees.

Mr Luik added that the defence lawyers, trying to prove in court that no fraud has been committed, are probably being paid with the investors’ money.

«Of course Erki Piirsalu didn’t invent the scheme himself. Indeed, in his report to the prosecutor, he has confessed to having been influenced by Tõnis Haavel and other organisers of the bond issue. A telling detail: as it became apparent that the seaside plot had not been purchased and the money had disappeared, the «trusted bankers» proved remarkably ignorant. They became different men altogether, compared to the ones who lured the investors,» said Mr Luik.

Personal charm

In his speech, the prosecutor underlined that as it was Mr Haavel who directed the compilation of bond issue prospectus and communicated with the investors, it was his personality that ensured the investors’ huge interest towards the bonds.

As stated, in July 2007, Estonian business elite purchased €12m worth of OÜ Seaside Residence Baku bonds. The issue was organised by Gild. Even though the issue contained a number of preconditions, the organisers disregarded those and let the money into use before the conditions were met. The conditions included verification by a local advocate’s law office of absence of legal problems, and an Azerbaijani bank’s guarantee for construction to commence. These were never received. Also, the organisers of the issue deceived the businessmen, promising to personally buy 20 per cent of the bonds. This they did, indeed – however, using the money already handed in by investors.

Gild’s defence lawyer Margus Mugu, however, said in court yesterday, that there was no basis for accusation as the bond issue was not a public one. According to Mr Mugu, the investment fraud paragraph only concerns public bond issues, Seaside Residence Baku bonds, however, being offered by way of targeted issue a.k.a. placing. And, in proper boom-time-manner, the sale was underlined to be urgent, the investment being so favourable and lucrative that bonds would soon run out.

Cheated businessmen

Private limited Company Seaside Residence Baku bonds were purchased, in July 2007, by a number of prominent businessmen, either as private persons or via companies.

Largest investors:

•    Marcel Vichmann     €4m

•    Hans H. Luik     €3m

•    Kristjan-Thor Vähi     €600,000

•    Aivo Kuldmäe     €700,000

•    Hannes Allik     €678,000

•    Eve Urbas     €300,000

•    Peeter Kukk     €250,000

•   AB FMI Finasta clients     €222,000

•    Veljo Madiberg     €300,000

•    Enn Veskimägi     €300,000

•    Veikko Toomere     €640,000

•    Maido Kiviorg     €200,000

•    Hede Truusa     €100,000