The story of how Estonian businessmen wanted to buy land on the coast of the Caspian Sea near the Azerbaijani capital to convert it into profit 11 years ago seemingly refuses to come to an end. Now, the Estonian prosecution is investigating possible fraud in bankruptcy process while a lawsuit in Baku is seeking registration of the acquired land.
The prosecution is claimed to be investigating the actions of creditors who invested in the Caspian coast based on a report of criminal offense. The complainant asked the prosecution to investigate whether primary creditors have not misled the trustee in bankruptcy as concerns bankruptcy assets; in other words, whether assets were worth more than what was shown.
The primary creditors were Marcel Vichmann with four million euros and major owner of Ekspress Group Hans H. Luik with three million euros.
The saga began in the summer of 2007 when real estate developers Erki Piirsalu and Harles Liiv wanted to buy plots on the Caspian shore near Baku, develop them and sell them at a premium. The company created for that purpose, Seaside Residence Baku (SRB), needed investments which came from Gild FAS through an issue of debt instrument.
Nearly 30 predominantly Estonian investors bought bonds in hopes of obtaining the rights to 147 hectares of land and invested a total of over €12 million. However, it soon turned out that the Azerbaijani defense ministry decided to keep the land and offered investors the chance to acquire 52 hectares of seaside property in another location, still close to the capital.
Rent and purchase and sale contracts were signed by SRB’s Azerbaijani subsidiary Delta Land LLC the expenses of which are estimated to have amounted to €5 million. Erki Piirsalu claims that the rest of the money was paid to brokers, while creditors believe it has disappeared or been stolen.
Years of skirmishes
Investors asked why they should agree to buy a third of the land for the same money and wanted to know where their money had disappeared to. It is known that some of the money ended up with Azerbaijani landowners, some was used to pay state fees and a part allegedly went to local real estate agents.
However, Delta Land did not manage to register the land. The Estonian prosecution launched an investigation into alleged investment fraud and investors sued the real estate developers and Gild FAS.
Harju County Court convicted Gild FAS of investment fraud in 2014 and sentenced Erki Piirsalu, Harles Liiv and Tõnis Haavel to jail. The court based the ruling on having found that the persons involved acted in a “partially coordinated manner in presenting false data”.
However, the circuit court found in October that same year that the men will not have to serve time and handed them conditional sentences with a three-year probationary period. The men and Gild FAS were also ordered to compensate investors in full. The Supreme Court rejected the defendants’ appeals in cassation and the ruling entered into force.
By 2010, SRB was out of money and had two options: to ask investors for more money (which they did not agree to) or file for bankruptcy. Seven core investors, including M. Vichmann and H. H. Luik, formed a company called Võlakirjainvestorite OÜ to handle SRB’s bankruptcy process.
Some small shareholders who talked to Postimees said they were not invited to participate. The current head of Delta Land, Henn Ruubel, was also the manager of Võlakirjainvestorite OÜ and claimed he did not have the power to invite anyone. “It was not up to me as I did not create that company. The people who founded the company simply put me at its head,” Ruubel said.
He assured Postimees that Delta Land’s contracts of purchase and sale were invalid, its rental contracts expired in 2010, and that Delta Land does not own any property in Azerbaijan.
SRB’s bankruptcy assets were made up of Delta Land that handled the purchase of land in Azerbaijan and is still seeking its registration in Baku; Võlakirjainvestorite OÜ was the only auction participant. Henn Ruubel, former SRB board member Aivo Kuldmäe and Hans H. Luik said in court that Delta Land was worthless as it owns no land or assets.
They were basing their claims on Azerbaijani lawyer Namik Alekberov’s opinion, according to which the contracts were invalid as it would have been necessary to sell them at auction. Alekberov also said the right to demand return of expenses made to acquire the land, like states fees, had expired.
In truth, the auction requirement became valid in April of 2008, while contracts of purchase and sale were signed in December of 2007 and January 2008.
Pressure on the trustee
Alekberov is Delta Land’s counsel in Baku where the company is demanding the registration of the land in court. Postimees interviewed Henn Ruubel in front of the Baku courthouse in late May and asked a tall local man who was with him for a comment. He claimed not to be Alekberov, and Ruubel also shook his head.
However, Erki Piirsalu said that the man on photographs taken in front of the courthouse is definitely Namik Alekberov. One person’s word against another’s. Delta Land’s assets were valuated based on the Azerbaijani lawyer’s claim, not an assessment by international consultants Currie & Brown, according to which the land is worth $34 million if owned and $23.5 million under right of use.
The SRB bankruptcy file reveals that the bankruptcy committee and the general meeting of creditors pressured trustee Toomas Saarma to hold the auction as quickly as possible.
Delta Land’s holding was sold to Võlakirjainvestorite OÜ for €100,000 following a decision by the committee and the general meeting, whereas the trustee canceled several auctions before the sale over complaints that the starting bid was too low.
One of the canceled auctions saw the notice of sale published in a national Azerbaijani newspaper.
When the trustee in bankruptcy also wanted to issue a notice of the last auction, he was told not to by the general meeting. Bankruptcy assets should be sold under the best possible conditions, and the more people are notified, the better the chance of a good price.
Court materials reveal that the bankruptcy committee was unhappy with Saarma’s delays in holding the auction. Major investor Marcel Vichmann expressed his displeasure quite clearly in an email where he fruitlessly asks H. H. Luik for help with media coverage.
Postimees asked the trustee whether he was pressured during the process, but Toomas Saarma refused to answer questions, pointing to a criminal investigation concerning the purchase of land in Estonia.
“It is not appropriate for the trustee to answer these questions or comment on the matter without written consent from the prosecution,” Saarma said.
The Estonian prosecution is investigating SRB bankruptcy proceedings based on a report filed by a small shareholder in 2016. They suspect fraud in the process.
There was a criminal investigation of potential investment fraud in Azerbaijan and the court sentenced a local real estate broker to jail in connection with a different purchase of land.
Delta Land is currently seeking registration of land in Azerbaijan’s national real estate register based on contracts of purchase and sale with the Kyrdahany local government from 2007 and 2008 in Baku’s administrative court.
The court has so far satisfied the plaintiff’s other request and prohibited the defendant and third persons from making any kind of transactions with the land that swallowed Estonians’ investments until such time as the action has been thoroughly heard in a regulation from December 2017.
Because the trial is underway, it is possible the court does not consider the action entirely without merit.
Ruubel denies involvement
It would be logical to presume that even if the court does not satisfy the claim seeking the registration of the land, Delta Land will retain the right to demand return of expenses on purchase of land that, according to Ruubel, amount to €5 million. That is considerably more than nothing.
Võlakirjainvestorite OÜ has been liquidated by today and Delta Land’s 60-percent holding moved into the hands of a company called Vincent Oakfield Ltd. in Cyprus.
The remaining 40 percent of the company is owned by Indrek Aasna. A person by the same name was wanted by the Swedish police as a suspect in a bank robbery in 1999. The names of the shareholders of Vincent Oakfield are mentioned in a data entry in the Azerbaijani business register from April 6, 2017.
Manager of Delta Land, Henn Ruubel, told Postimees it is the first time he hears of the Cypriot company. No one agreed to shed light on the background of the company. Determining the true beneficiaries of the firm is very difficult due to the peculiarity of Cypriot legislation.
The drive from Baku to the Caspian shore takes about 40 minutes. There are private residences on both sides of the highway, some even have three stories. Marbled balconies offer a view of the sea. Between these buildings is an almost empty sandy and overgrown piece of land that swallowed millions of investors’ money.
There remains a theoretical possibility of a positive development in Azerbaijan. The past 11 years have only yielded confusion, actions, criminal cases and some punishments.