C. S. Fondy a.s.

C.S. Fondy a.s. is the best known symbol of tunnelling during the period of privatisation.^[1] Over the course of a few days, the company – at first a normally operating business – was cannibalised by its owners, Pavel Tykač's Motoinvest.^[2] The stakeholders in the fund were thus robbed of a total of CZK 1.23 billion.^[3]

How it happened

Between 7 and 12 March 1997, representatives of Motoinvest sold off nearly all the assets of C. S. Fondy, allegedly because they wanted "cash to pay out to stakeholders".^[4] Then they "reconsidered" however and sold the right to manage this whole sum to the unknown company Austel Enterprises Ltd.^[5] based in Cyprus for an amount that has remained secret to date. From this company the property rights were transferred to the Prague-based brokerage company Crassus (Tomáš Roith), which then sold them to the Russian company KosMos Ltd. on 3 March 1997.^[6]

The company's board of directors, fund stakeholders and management only learned of the change of owner on 3 March 1997, when Prague notary Robert Hochman certified the new owner of C. S. Fondy, which was the enigmatic Moscow-based company KosMos, Ltd., represented by businessman Nikolai Trofimov. As part of the same notarial deed, representatives of KosMos Ltd. had three Czech citizens registered as the new statutory representatives of C. S. Fondy. One of them, a twenty-one-year-old unemployed youth named Václav Franta from Chrastava u Liberce, received signatory rights and power of attorney to conduct the company's transactions. The same day he made full use of it: he entered Plzeňská banka, where the fund's money was deposited, presented his newly acquired power of attorney from the representatives of KosMos Ltd. and issued an order for CZK 1.3 billion, i.e. the whole assets of C. S. Fondy, to be transferred to the account of the UK-based Ltd Swirlglen for the purchase of practically worthless shares in Příšovice poultry farms, which were not even publicly tradable.^[7]

The money travelled through the brokerage company Umana (the transaction was brokered by Umana brokers Josef Matoulek and Vladislav Naď) to the Prague bank Girocredit to the account of a company called Swirlglen. From there it was to be sent abroad. Girocredit found the operation so suspicious that it requested an investigation by the Finance Ministry's Financial Analytic Unit (FAU), the only body with the right to halt the transfers.^[8]

Yet on 11 March 1997 FAU Director Jiří Kudlík approved the transfer abroad after having been visited by two representatives of Swirlglen.^[9] Thus on 12 March 1997 practically the entire assets of C. S. Fondy definitively disappeared into bank accounts in Switzerland, Liechtenstein, Gibraltar and the USA.^[10]

Court prosecution

The stakeholders of C. S. Fondy were not satisfied with the loss of their money and submitted a number of court actions for damages.^[11] In January 2001, Municipal Court in Prague Judge Hana Hubáčková sentenced four men who took part in the billion-crown theft of C. S. Fondy to 5 to 10 years in prison.^[12] In September 2003, however, Judge Pavel Zelenka of the High Court in Prague returned the case to the "city" with a demand for more evidence. His main criticism was that the municipal court had used as evidence a Russian interrogation of Trofimov that the defence could not take part in.^[13]

In March 2002 the clients of C. S. Fondy won a case against Plzeňská banka, which as the depositary of the funds should not have carried out the suspicious transaction.^[14]

Two executives of the company Crassus, Petr Müller and Jaromír Florián, were charged in mid-1999 for "creating", through several financial transactions, the worthless shares in Drůbež Příšovice a.s.^[15] that were sold to KosMos, Ltd. for more than a billion CZK.^[16]

At the end of February 2003 a further important judgment in the case of the cannibalised C. S. Fondy was handed down. Judge Hronová of the District Court for Prague 4 ruled that the Finance Ministry must pay CZK 88 000 in damages to one of the stakeholders in the company's fund,^[17] Zdeněk Řepka of Hradec Králové, as well as the court costs. The ruling was a piece of good news for the other stakeholders in the fund, being the first such lawsuit on compensation for damages that the Finance Ministry had ever lost.^[18]

In October 2007 the police proposed to the state prosecutor's office that it should also charge Pavel Tykač for the billion-crown tunnelling of C. S. Fondy. At first this request was refused due to an alleged dearth of evidence,^[19] but on 7 January 2013 the High Court in Prague decided to re-open the case.^[20] The case had already been re-opened in 2012, when entrepreneur František Chobot (who later changed his name to Bušek) announced that he had helped Tykač clean out C. S. Fondy. The statement was made at a court hearing where a decision was to be made on the guilt of a former Finance Ministry official and executive of a company that was also involved in the trades with fund shares.^[21]

Thanks to Bušek's testimony, the public prosecutor's office requested that proceedings on the case of Tykač and C. S. Fondy be re-opened. The Municipal Court in Prague stated that the suspension of prosecution by the prosecutor in 2007 was, in light of the new information, premature.^[22] In the past courts dealt out prison sentences of four to eight years^[23] to four people involved in the tunnelling of C. S. Fondy. According to the Municipal Court these were merely puppets in the hands of someone else.^[24]

References

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