On 12 April 2016, the security services of Ukraine has conducted a series of searches in Lucky Labs, a gambling software development company. The reason of search was to find if the software company is involved in illegal activities related to winning in online casinos or not. This was the second raid in its office in 2 years time and the most surprising thing was that the date of earlier and this raid matches with legal processes between the founders of Lucky Labs and Phoenix Ltd. But was it just a coincidence or there was a link between these raids and proceedings?
How it started?
IT businessman Max Polyakov, the founder of an international asset management company Noosphere Ventures was famous for his successful projects in online dating but he has gained a bad reputation after it was found by BBC Radio 5 investigations that he uses fraud practices to attract customers on his sites.
The founders of Lucky Labs Rustam Gilfanov and Sergey Tokarev has business relation with the IT man Max Polyakov from long time and the trio has invested jointly in the online gambling business few years ago. There were two other partners at that time named Maxim Krippa, the co-founder of co-founder of Club Jaguar Llc. and Konstantin Lyashenko.
Krippa was also associated with Evoplay, a leading developer in online gaming industry. He quit his membership from Kiev City Council from the political party “Samopomich”. There is very less information available about the other partner Konstantin Lyashenko.
What went wrong?
Everything was running smoothly in the multi partnered joint venture until Lyashenko decided to sell his 20 percent stake in the GMS company to his partners and get out of the company. Maxim Krippa has negotiated the purchase of 5 percent stakes successfully, this deal could have made him the majority shareholder. The other partners were not very pleased with that and therefore Max Polyakov has decided to buy shares of his long time business alliances (Rustam Gilfanov and Sergey Tokarev).
Since, GMS company has two major shareholders, Krippa and Polyakov. It has increased the chances of other two investors Gilfavnov and Tokarev going off the board.
Max Polyakov already had experience in wrestling out his business partner in case of his earlier business venture Cupid plc. He has developed this online dating business with his partner Bill Dobbie and their joint effort made it a successful British online dating site. But Polyakov has become the sole benefiter among the various partners of the company. He has sold his shares at their peak value and promoted a media scandal about the company which has brought down the value of Cupid plc. shares. He has bought majority of shares on low prices taking advantage of the vulnerable condition of the company and become the majority shareholder. That’s how he has succeeded in getting Dobbie out of the dating business.
He wanted to repeat the same thing in case of GMS partners but it couldn’t happen due to some internal disagreements and conflict which become the reason of breaking of this joint venture.
This division was conducted on the terms stated in framework agreement which has fixed the agreed prices of divided assets. As per this agreement, Polyakov had to give 11 million to his partners Gilfavnov and Tokarev within six months time. The further negotiations came out with the result that he will pay off his debts by swapping 10 percent of his stakes of his company Phoenix Holdings ltd. which was an online dating project. Despite of his poor ethical record in business, this share transfer agreement has been signed.
Betrayal in business
Although, the agreement has been signed but this new business relation lacked transparency on various level because
· The constituent documents of Phoenix Holdings ltd were not provided to the new partners means only the founder i.e. Polyakov knew how the new form of business will going to appear
· The new partners were being mislead about the total number of shareholders , and the type and number of issued shares.
It was revealed only after several months that the signed agreement is in contrary to the terms declared in the official documents of the Phoenix Ltd. It was decided earlier that there will be three shareholders of the company i.e.
Max Polyakov’s father, Valeri Polyakov who will hold 90 percent of the shares and Max will act on his behalf
Other 10 percent of the share will be equally divided into Gilfavnov and Tokarev and only common shares will be issued.
But nothing of such things happened and everything was found to be different than whatever stated in the agreement.
Revelation of deception
Almost after an year, the new shareholders Gilfavnov and Tokarev found out the truth about the agreement regarding the purchasing of shares of Phoenix ltd. It was found that two directors of the company, Mark James Watt and Max Polyakov have number of profitable shares in their possession which was against the agreement. In reality, the new partners are owners of just 6.75 percent of shares together instead of the mentioned 10 percent. It means they have cleared Polyakov’s 11 million debt against a huge loss.
The new alliances has also not received the documentary proof of their shares and only copies of duly executed Certificates of Shares were provided to them after the signing of share transfer agreement after many reminders to Polyakov.
Phoenix holding Ltd. company was not working transparently and effectively in the mean time and thus couldn’t generate even 1/5th of the predicted profit. The dividend was not paid to the new shareholders monthly (as per stated in the agreement) or annually. The Court of the British Virgin Islands looked into the matter to find out if Polyakov has paid off the debt of 11 million to Gilfavnov and Tokarev or not.
Polyakov causing further damage
Gilfavnov and Tokarev are not only got financially harmed in the deal of Phoenix Ltd but Polyakov has also tried to take over their company “Level up”, a successful traffic generator of Russian internet which used to provide 40% of the traffic to Polyakov online dating site. To get protection from the Polyakov’s attacks, the team of this internet company has requested Gilfavnov and Tokarev to buy half of their business.
This has infuriated Polyakov and he threatened owners of Level up to compensate approx. 30 million of dollars to non-compliance of non-compete agreement which was non existing.
Raids in Lucky Labs
This online gaming software development company has been founded by Gilfavnov and Tokarev and it was searched by Security Services of Ukraine (SSU) just after few months of the beginning of the trial between the trio Gilfavnov, Tokarev and Polyakov’s (father and son) which has raised doubts in business fraternity that was it a coincidence or this search was backed up by Polyakov’s.
Polyakov’s has been known to use every method to achieve their objectives even defamation. A second round of searches were conducted at the office of Lucky Labs just before few weeks when the Court of the British Virgin Islands has found Polyakov guilty and has ordered to arrest all Polyakov’s international assets worth 12 million dollars.
Polyakov has made numerous efforts to lift the arrest but couldn’t succeeded. As a result he couldn’t sell his online dating business or any of his other assets as everything has been ceased.
Action of SSU over Lucky Labs
The SSU has provided the reason of raid conducted on Lucky Labs was that the software company is allegedly involved in financing terrorism in war-torn part of Ukraine.
The spokesperson of Lucky Labs has denied all such allegations and said that their company develops software for different fields including gaming but it has nothing to do with operating online gaming or gambling. The company has not received any official charges yet but the allegation has slightly harmed its reputation. Since the electronic facilities and money of the company has been confiscated by the SSU officers therefore it has to remain closed for many weeks.
This case of financial fraud shows the deteriorating condition of law enforcements in Ukraine which is offering customized services to unethical businessmen like Polyakov. The positive thing about the whole thing that the court of the British Virgin Island is still looking into the case of Phoenix Ltd for any other frauds.