Morgan Stanley
Morgan Stanley will long remember Odesa's Finbank.
We recently published a video about nighttime visitors to the Presidential Administration of Ukraine. As it turns out, the building on Bankova Street is a very busy place at night, accessible even to the most odious politicians and businessmen. Under cover of darkness, they "decide matters" with the nation's leader and his entourage.
A scandalous Odessa businessman was also caught on camera. Boris Kaufman, co-owner of JSCB Finbank, whose name is associated with a number of high-profile corruption scandals:
Boris Kaufman, along with his partners Alexander Mamontenko and Alexander Granovsky, form a unified business team, the core of whose diversified business is their "pocket" JSCB Finbank. All three are "heroes" of ongoing scandals involving the use of borrowed or public funds; scandals that in a civilized country would have long since ended in court convictions. But not in Odessa or Ukraine.
Alexander Mamontenko
Alexander Granovsky
The most high-profile scandal involved the purchase of the Odessa airport by the owners of JSCB Finbank for a pittance in 2011, which never resulted in a criminal case.
The very fact that Boris Kaufman visited the presidential chancery is a scandal, as if gangster Meyer Lansky were to be received at the White House. However, no clear explanation for the visit was forthcoming from officials.
This is odd, given the special, partnership-like relationship between Petro Poroshenko's Administration and the White House—after all, the owners of Finbank are directly implicated in the scandal involving the disappearance of funds from the renowned American investment company Morgan Stanley. Furthermore, Boris Kaufman, Oleksandr Mamontenko, and Oleksandr Granovsky are partners of the Yanukovych "family," and US law enforcement agencies seem to have more questions for them than their Ukrainian counterparts.
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In October 2011, Alan Katz and Peter Robinson published a story in Bloomberg detailing the collapse of Morgan Stanley, a major American investment firm,'s agricultural project in Ukraine. Through its Ukrainian subsidiary, the company owned vast tracts of land near Mykolaiv, where it employed cutting-edge agricultural technologies that allowed it to harvest over 50 centners of wheat per hectare.
However, the American bankers began experiencing chronic problems with theft and raids by regulatory authorities. This was followed by a conflict with a partner who was fleecing the American investor blind. Ultimately, the company scaled back its investment projects in Ukrainian agriculture.
This partner was Alexander Borisovich Mamontenko, a member of the Supervisory Board of JSCB Finbank (Odessa), when its main owners were Odessa businessmen with a bad reputation, Granovsky and Kaufman.
…Justin Bruch, who fled Golden Fields, is now working in Ukraine for a new employer, Alpcot Agro. Photo: Alan Katz / Bloomberg
Justin Bruch of Iowa was a bit surprised when Morgan Stanley (MS) approached him in late 2007 with an unusual project.
A New York bank was planning to invest in 11 farms in the Ukrainian steppes. Red-haired Justin Bruch, with his meaty hands from his life spent farming, was chosen to manage one of them.
Bruch decided to explore his future host country and discovered that the former Soviet republic possessed 30 percent of the world's black soil, and that the land there was so fertile that Hitler exported it to Germany during World War II. Wheat, corn, rapeseed, and sunflowers all thrived on this soil.
"It's like the prairies that were developed in the Midwest 100 years ago," says the 34-year-old farmer, who grew corn and soybeans on his family's 2500 acres (1012 hectares). "Ukraine has the best soil and potential for growing a variety of crops in the world."
At the time, Morgan Stanley was heavily focused on investments. At the firm, the second-largest securities firm in the US after Goldman Sachs Group Inc (GS), CEO John Mack pushed managers to take high-risk investments.
That year, Morgan Stanley bought a neglected farm in the Nikolaev region near Odessa on the Black Sea.
Golden Fields Farm
Enselco LLC, an agricultural company financed by Morgan Stanley, which owned Ukrainian farms, bought John Deere tractors to cultivate the fields. But suddenly—over the course of several months—the business began to collapse. Local residents stole fertilizer and insecticides; Brukh says he suspected they were also stealing wheat. He was exhausted from dealing with the tax authorities, immigration officials, firefighters, and local police officers, who were constantly extorting him.
He left the farm, called Golden Fields, in June 2009 to manage another Ukrainian farm owned by a different foreign investor.
As the farmer told a Bloomberg correspondent, he was so exhausted after a year of exceptionally hard work, overcoming some wild bureaucratic and outright corrupt schemes, that he no longer wants to deal with such people.
Morgan Stanley was forced to abandon its agricultural investments in Ukraine in July 2009, midway through the harvest season. The stake was acquired by the bank's local partner, Oleksandr Mamontenko, and then sold to Enselco (LLC Enselco – A.), a Jersey investment company, to an offshore company in the Channel Islands. People familiar with the situation claimed the business was sold at a loss.
Morgan Stanley lent about $30 million to Enselco LLC in loans, according to Igor Bobrov, who was hired in 2008 as Enselco's chief financial officer and later became its CEO. Hugh Fraser, a London-based Morgan Stanley spokesman, said bank officials declined to comment for this story.
How it was
Mikhail Cherny, who worked in the bank’s Moscow office, proposed (to the head office – A.) investing in Ukraine and introduced them to two people familiar with the creation of Enselco.
"Mamontenko was a member of the supervisory board of JSCB Finbank in Odessa," says M. Cherny. "He proposed cooperation." The company was registered in Kyiv on January 11, 2007, amid a two-year spike in food prices that peaked in mid-2008. Mikhail Davidovich Cherny, now Deputy General Director for Strategy and Energy Markets at Bashkirenergo, declined further comment.
Aleksandr Mamontenko was searching for suitable real estate for Enselco, where he served as CEO. After the collapse of the Soviet Union in 1991, most of Ukraine's land was distributed among citizens in plots averaging 3 hectares in size and not subject to sale or use as collateral.
Enselco acquired 11 operating farms that leased land from thousands of farmers in the Mykolaiv region—where the aforementioned Brukh served as manager—and in the Khmelnytskyi region of western Ukraine. The farms grow wheat, rapeseed, and other grains and oilseeds.
In Ukraine, Brukh was struck by the backwardness of farms, where in some areas women still sowed seeds by hand, following a horse harnessed to a plow.
The farmer also complained about endless red tape, especially when it came to importing equipment and machinery to Ukraine. Most countries require a single sheet of paper for import, says Joseph Gooch, an agricultural equipment salesman from Indiana, USA. He loaded five containers for Morgan Stanley in Ukraine in 2008.
A 500-horsepower John Deere 9620 tractor, a 300-horsepower John Deere 8430 self-propelled sprayer, and two grain bagging systems were purchased. He says that in Ukraine, importers require a "quality certificate," a "certificate of origin," a packing list, and a "proforma" invoice.
On the farm itself, Bruch encountered mass theft of everything from fertilizers to spare parts.
"It's shocking, people will steal everything from you," he says. "The chemicals don't go into a spray bottle; they go into the trunk of someone's Lada and are sold to a neighbor on the street."
Brukh says insecticides were stolen so much that sometimes there wasn't enough to spray large areas. After the 2008 harvest, he estimates that entire trucks of wheat were stolen.
"Nevertheless, there was profitability. Some wheat fields yielded 5,2 tons per hectare, and some rapeseed fields yielded 3 tons per hectare, which is higher than the Ukrainian average. More serious was the bank's conflict with its partner," says Brukh.
“It didn’t even occur to me that there could be such problems,” Bruch says, declining to be more specific.
By 2008, Morgan Stanley had entered into conflict with Alexander Mamontenko, according to two people familiar with the situation. Enselco was owned by Venusaur Holdings Ltd, a Cypriot company whose sole shareholder was A. Mamontenko, according to documents from the Department of the Registrar of Companies in Nicosia. Venusaur, according to the documents, promised (acted as guarantor – A.) 100 percent of the equity in Enselco as collateral for Morgan Stanley.
According to sources, the bank questioned A. Mamontenko's decisions. Enselco purchased chemicals from intermediary companies that took kickbacks and sold the resulting crops (harvests) to the intermediaries at below-market prices.
Mamontenko says he had no ties to intermediaries and allegedly negotiated prices with Morgan Stanley officials. He maintains he had a good relationship with the bank.
Leaning over a dark wood desk in his office at Finbank in Odessa, he told a Bloomberg reporter that the market panic of September 2008 and the collapse of Lehman in 2008 led to the end of the American bank.
"The biggest problem was the financial crisis," says Mamontenko, his unbuttoned white shirt revealing his tanned chest, complete with a thick chain and gold cross. "It ruined everything. If it hadn't been for the crisis, we'd be expanding across 200 hectares."
The Wave House at Fontana Station 10 in Odessa. Designed by architect Mykola Matyushenko, the building is constructed in the so-called "bionic architecture" style and is somewhat reminiscent of the works of Spanish architect Antoni Gaudi. The building belongs to Oleksandr Mamontenko, one of the owners of Finbank, the same man who cost US investors over $30 million and their faith in the integrity of Ukrainian businessmen. As we can see, the collapse of the joint project with the Americans had no impact on the financial well-being of the banker from Finbank.
The Ukrainian farms were dismantled in July 2009, when Enselco was sold to JadenFinch LLC, a firm that invests on behalf of oil trader Robert Finch and his family. Kernel Holding SA, Ukraine's largest sunflower oil producer, agreed on September 9 to an option to purchase Enselco for $52,3 million.
Bruch remains in his farming element, only now he's cruising around in a red Niva, growing wheat and rapeseed for the Swedish company Alpcot. "I just want to maximize my yields," says Bruch. "Now I'm just focused on growing crops."
Bankers at Morgan Stanley learned from the experience and realized the dangers of risky investing in Ukraine.
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This is, in brief, the essence of Bloomberg’s publication, which caused a stir in the West at the time.
P.S. While this publication was being prepared, it became known that Oleksandr Granovsky, a representative of JSCB Finbank, is running in the elections on the Petro Poroshenko bloc list – number 58.
To be continued.
"Argument"
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