Czech brown coal miner Sokolovská uhelná (SU) says it lost Kč 45 million in January at the hands of the Key Investments brokerage and has filed a complaint with the anti-corruption police and state prosecutor for Prague 1, along with a lawsuit in the Prague Stock Exchange (BCPP) arbitration court, claiming the brokerage mismanaged funds, Czech Position has learnt.
Key Investments, which several years ago played a key role in the fairytale enrichment of Social Democrat (ČSSD) ex-prime minister Stanislav Gross, has been under investigation by the financial services regulator of the Czech National Bank (ČNB) since the end of August 2010. Now the brokerage also faces a lawsuit at the Exchange Court of Arbitration of the BCPP, filed by the law firm Pokorný, Wagner & spol. on behalf of Sokolovská uhelná.
František Štěpánek, who heads Sokolovská uhelná and is its majority shareholder, said in November that already for several months he had been demanding that Key Investments payout the money the miner had invested through the brokerage. “I’m concerned that we may not receive it,” Štěpánek told the daily Hospodářské noviny. ‘Instead of money, the brokerage offered us shares. ... We have grave doubts about their value.’
Štěpánek’s company began investing through Key Investments in 2002 and had invested a total of Kč 50 million through the broker. Sokolovská uhelná had said that previously it had no problems with evaluation or payouts with the brokerage. Last year, however, the miner began to suspect that Key Investment had purposely depreciated the value its investment, and in August the miner lodged a complaint with the ČNB, which has yet to deliver a ruling. This was followed by a lawsuit filed with the BCPP’s arbitration court in January.
The ČNB’s regulator has scrutinized Key Investments in the past: It handed the brokerage fines of Kč 200,000 in 2008 and Kč 2 million in 2009 after it was found to have invested clients’ money into non-quoted stocks and shares, issued either by the brokerage’s clients, or legal entities in some way connected with Key Investments.
Sokolovská uhelná discovered in January that Key Investments had sold all shares in the firm Spolku pro chemickou a hutní výrobu (Spolchemie), in which over 90 percent of the miner’s invested funds were tied up, and accredited the company’s account with just Kč 4.9 million — less than 10 percent of the total Štěpánek’s company had invested. The mining company then turned to the police and public prosecutor.
The problems began for Sokolovská uhelná in the spring of 2010 when the company decided to liquefy its assets and asked Key Investments to pay up.
“Instead of money, the brokerage offered us shares in [Spolchemie] in Ústi nad Labem, which it had bought on our account. But we have grave doubts about their value,” Sokolovská uhelná’s financial director and minority shareholder Jaroslav Rokos said last November. “The Spolchemie shares are practically illiquid, and we doubt they have the value for which Key Investments bought them on our behalf.”
Key Investments was controlled by a firm registered at a UK farm that had rides parked on its land. Rokos said that the acquisition of the Spolchemie shares was contrary to the Sokolovská uhelná’s investment portfolio and strategy. “We have signals that our funds were invested disadvantageously and contrary to our investment and portfolio strategy. Key Investments is now unable to pay them out; therefore, it has devalued our investment,” he said.
Founded in 1999, Key Investments belongs among the smaller Czech brokerages. Several years ago the company assisted in the meteoric rise of former prime minister Stanislav Gross’ wealth when he bought shares in Moravia Energo, a Czech electricity trading company, with money loaned from the Slovak branch of Key Investments.
At the time, Key Investments was in the ownership of Efficient Investments, which was registered at a farm in the UK with fair rides parked on its land; among Efficient Investments’ directors was economist Jiří Weigl, who gave up the post upon being appointed head of the office of Czech President Václav Klaus.
Who owns Key Investments?
The changes to the structure of Key Investments following the Gross affair mean that the company’s ownership is now unclear. The firm had been represented by Vladimír Kroužecký, who told Czech Position that he no longer has anything to do with the company. According to media reports, Daniel Brzkovský is now brokerage’s front man — he reportedly holds a 31 percent stake — but publically available records do not reveal who the other owner(s).
Brzkovský refused to comment on the Sokolovská uhelná case, or say whether Key Investments had purchased shares, bonds or any other financial instruments of the Via Chem Group— a key shareholder in Spolchemie. Brzkovský also declined to say whether or not there are any ownership or personnel ties between Via Chem Group and Key Investments and refused to reveal anything about the ownership structure of the brokerage.