(Bloomberg) — Tucked below news of the Vienna zoo’s newborn orangutan, Austria’s top-selling newspaper carried a notice in June this year that would have been easy to miss.
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The announcement on page 17 of Kronen Zeitung, however, wasn’t for everyone. It was aimed at just one man: the Egg King of Ukraine, Oleg Bakhmatyuk.
“Gramercy Funds Management LLC and related funds and accounts claim that Oleg Bakhmatyuk and others committed fraud that affected Gramercy as the largest bondholder in UkrLandFarming and Avangardco,” it read.
The plainly-worded text in German and Ukrainian in a box under the picture of the baby ape was the latest twist in a sprawling battle that’s touched the Mediterranean island of Cyprus and the corn fields of Ukraine and is likely headed for a courtroom in the US’s least-populous state.
Gramercy, the emerging markets focused investment firm chaired by Mohamed El-Erian, alleges that Bakhmatyuk and his accomplices used complex schemes to siphon off almost $1 billion in assets from UkrLandFarming Plc to Cyprus and Wyoming, keeping them out of the reach of bondholders.
Bakhmatyuk, the 48-year-old owner of UkrLandFarming — one of the largest egg producers in Europe — filed a motion to dismiss the case, his first public acknowledgment of the proceedings.
The motion was rejected this month, and Gramercy also succeeded on Sept. 19 in getting a Cypriot court to grant a worldwide freeze-order on the assets. That potentially sets up a court battle in Cheyenne, Wyoming, between one of Ukraine’s most controversial oligarchs and the Greenwich, Connecticut-based money manager.
The case comes against the backdrop of a bloody war, with Ukraine — the breadbasket of Europe and a vital cog in global food supply — struggling to cope with disruptions in its agricultural production after Russia’s invasion. Several UkrLandFarming managers have been killed in Sumy in northern Ukraine and in Kyiv, a company spokesperson said in March.
The Bakhmatyuk side in an emailed response to questions said Gramercy was seeking to use vulture-fund tactics by going after the company that has been ravaged by war, noting that the fund was trying to jump ahead of other secured and unsecured creditors. Bakhmatyuk last week filed an appeal with the US Court of Appeals for the Tenth Circuit, arguing that the case was without merit and attempting to bring an end to the litigation.
‘Down with Sytnyk!’
Gramercy’s notice was placed in an Austrian newspaper because Bakhmatyuk moved to Vienna from Ukraine after being accused of embezzling 1.2 billion hryvnia ($32.8 million) in stabilization loans provided for VAB Bank, a lender he owned.
He has said those charges are politically motivated, with a press release from his company in April last year noting that they were fueled by the desire for “personal revenge” by Artem Sytnyk, then director of Ukraine’s anti-corruption bureau. UkrLandFarming accused Sytnyk of hurting its business through forced closures. For Easter last year, UkrLandFarming said it would send a billion eggs to supermarkets with the slogan “Down with Sytnyk!.”
Bakhmatyuk’s troubles with Gramercy, meanwhile, are rooted in Russia’s 2014 annexation of Crimea. That conflict complicated operations for Ukrainian agricultural companies that had Crimean units. UkrLandFarming’s subsidiary, Avangardco, was hit by the fighting in Crimea, where it had farms.
Before Russia’s annexation of Crimea, UkrLandFarming was Ukraine’s biggest farm company, managing an area the size of Delaware, and on the cusp of an initial public offering. The annexation of Crimea and the subsequent devaluation of the Ukrainian currency caused Bakhmatyuk’s companies to lose half their value, according to the defendants’ statements. Russia’s invasion this year resulted in the loss of millions of chickens at one of Avangardco’s poultry farms, the largest in Europe, the Wall Street Journal reported.
Gramercy, which has about $5.4 billion in funds under management, started buying bonds in Bakhmatyuk’s companies in 2011, and six years later held more than 41% of Avangardco notes and 28% of UkrLandFarming’s. The face value of the notes and unpaid interest, issued with a maturity date of 2018, is more than $360 million, the money manager said in its suit.
Gramercy’s complaint is that in the years after 2014, assets were transferred from UkrLandFarming to shell companies in Wyoming and Cyprus. In the asset manager’s telling, around 66% of the company’s assets were moved out of the entities that issued bonds and into Wyoming trusts. When Gramercy went to claim its collateral after not being paid back by the company, it found there was little there, the fund said.
Unusually for a battle between debt holders and issuers, Gramercy is suing Bakhmatyuk in Wyoming under the Racketeer Influenced and Corrupt Organizations, or RICO, Act.
The law was passed in 1970 to deal with organized crime, and has been used to indict Italian-American mobsters, bond trader Michael Milken and several people affiliated with FIFA, the governing body of world soccer. In the Gramercy case, the defendants argue that it’s a garden variety business dispute that belongs in the London Court of International Arbitration instead of Wyoming.
So why the Cowboy State?
Sparsely populated, Wyoming — with fewer than 600,000 people — is in the Mountain West region of the US known for its wide open spaces, rugged terrain and geysers. License plates in the state feature a rider struggling with one hand to stay on a bucking horse while his cowboy hat is raised in the other.
A lesser-known fact, however, is that Wyoming has a curious company-structure legislation that allows corporate entities to obscure their ownership.
The “Cowboy Cocktail”, as the International Consortium of Investigative Journalists dubbed it in an article last December, is an arrangement of company and trust structures that help to cover up the true ownership of assets. A dozen clients who created Wyoming trusts were identified in the leaked Pandora Papers, according to the ICIJ.
Also named in Gramercy’s suit is a Cody, Wyoming-based businessman named Nicholas Piazza. The website for his firm, SP Capital Management, notes he was “included on the Kyiv Post’s list of Wealthiest and Most Influential Expats in 2012 and was named one of the Top 25 Trailblazing Business Leaders in Ukraine in 2016.” Part of his business is dedicated to using Wyoming’s company laws to help Ukrainians move assets to the state with near-total anonymity.
“Wyoming prides itself on its corporate protection and those structures have been used by American citizens for years,” Piazza said by telephone. “We find it kind of funny that Gramercy, based out of the Cayman Islands, is somehow directing shade at us for operating in Wyoming.”
While Gramercy’s headquarters are in Greenwich, a number of its investment structures named in the Wyoming suit are based in the Cayman Islands.
In the suit from Gramercy, Piazza is described as integral to Bakhmatyuk’s scheme and a longtime associate. The fund alleges that the two men conspired to rip assets out of UkrLandFarming and Avangardco, placing subsidiaries into a Cypriot group called Maltofex and Piazza’s TNA Corporate Solutions LLC in Wyoming.
“The defendants expropriated assets worth millions of dollars from UkrLandFarming for their personal benefit and thought they could hide them behind a veil of secrecy in Wyoming,” the asset manager’s suit says. “Gramercy intends to use the full force of the law to expose the wrongdoing of Bakhmatyuk and his accomplices.”
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