Cypriot involvement in the million dollars fraud case

Auditing company appears to have approved accounts without any audit 

Continuing from our story a week ago on the 2,5 million dollars case that a Canadian investor submitted against Russians, 24h.com.cy researched on the Cypriot companies that are involved in the story and based on our results, a lot of questions arise on how the Cypriot audit firms are operating and whether ICPAC is aware of what is going on with some of their members, that are harming Cyprus reliability as an international business center.

The auditors that weren’t auditing…

Specifically, the audit firm C. Efstathiou Audit Ltd, which was responsible for Posparon Ltd and its subsidiary Wellinom Holdings Ltd, on April 2014 valued the net assets of Wellinom Holdings Ltd from 16 m. dollars to 24 million dollars. After this reply by the auditors, the Canadian investor side asked to be sent the financial statements of the Russian subsidiary Kompressor Komplex, which was in any case the company that had the bigger value, based on the terms that the Canadian investor decided to invest.

When the investor side asked to learn more information on the increase of the value of the company, one of the accountants replied that Kompressor Komplex had taken a long-term loan from the Russian bank Sberbank of 34 m. dollars, which was apparently owed to it by Agro, a company that had no other activity other than its participation in Kompressor Komplex. With this “triangle”, the Russian directors of the company Ilya Sokolov and Olga Katoraychik tried to increase “virtually” the value of the company according to the claim for liquidation of the company on the side of the Canadian Investor.

In addition, in the application it is mentioned that the investor is reserving his legal rights against C. Efstathiou Audit Ltd. Also, the Cypriot company submitted its accounts – as it should – only for 2013 on the Registrar of Companies and the Tax Director but not for 2014, because as it appears, the secretary of the company had reservations on the procedure to submit, as the Russian Directors of the company never co-signed any documents on the approval of the accounts for 2013.

The find of Ernst & Young was definitive

At the same time, the investor side went to the well-known and respected audit firm Ernst & Young to get a clear picture on the real value of the company and the financial statements that he already had in his hands for this complex of Russian and Cypriot companies. According to the liquidation application Ernst & Young found that the financial statements of the Cypriot company Posparon Ltd were not prepared according to the proper law on Companies chapter 113, and in addition the loan that Argo LLC got from the Joint Stock Company “Kompressor Komplex” should not have any effect on the value of the investments at the level of Wellinom Holdings Ltd and by extension Posparon Ltd. In short, according to Ernst & Young, the value of companies fell from 2013 to $ 24 million to just $ 2.7 million in 2014, to $ 1.4 million in 2015 and to 850 thousand dollars in 2016.

Ernst & Young also informed the Canadian investor that the financial statements submitted were materially incorrect, so the opinion of the original audit firm, namely C. Efstathiou Audit Ltd, should be negative and not confirm the claims of the Russians directors, Ilya Sokolov and Olga Katoraychik, to “inflate” the value of the business.

A forgery is also at the heart of the case

In the company’s application for liquidation, Posparon Ltd also refers to a suspected forgery, as in the company’s financial data for 2013 and in a document titled “Unanimous written decision of the Company’s shareholders”, it appears that the accountant of the Canadian Investor side has signed, without this ever having happened. A Special Graphologist has examined the documents in comparison with other original signatures of the Canadian investor’s accountant, who is the only person signing on his behalf, and has issued an expert’s report confirming that the signature on the above documents is not by the accountant but has been falsified.

This also confirmed the commission of a criminal offense, which was not investigated as due by the Russian directors of the company, as they tried to disguise it by calling for resolutions on the re-adoption of the financial statements for 2013 and 2014.