Čtvrtek 28. března 2024, svátek má Soňa
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Lidovky.cz

Prague districts invested Kč 590 mln via troubled Key brokerage

  13:14

Prague 6 is demanding Kč 140 mln back from its portfolio at Key Investments; it is unclear whether the money will be returned

V době starostování Tomáše Chalupy uložila Praha 6 u Key Investments až 430 milionů korun. foto: © ČTKČeská pozice

The Prague 6, 10 and 13 administrations placed Kč 590 million with brokerage Key Investments, which is currently under investigation by the Czech National Bank (ČNB). Labeled “Gross’ bankers” for its role in enriching former Prime Minister Stanislav Gross (Social Democrat, ČSSD), Key Investments is also the subject of a criminal complaint with the anti-corruption police and faces an arbitration suit.

Last week, the coal mining company Sokolovská uhelná filed a complaint against the brokerage Key Investments with the anti-corruption police and the public prosecutor for Prague 1. Sokolovská uhelná, which invested around Kč 50 million through the brokerage, sought to cash in but recently received less than 10 percent of its money back.

In August 2010, the ČNB launched an investigation into whether Key Investments operated with the mining company’s money in line with the law. In January 2011, Sokolovská uhelná filed a suit with the arbitration court of the Prague Stock Exchange (BCPP).

Prague 6 — most and longest  

The Prague 6 administration first placed public funds with the brokerage in 2003, the year after Tomáš Chalupa (Civil Democrats, ODS) became mayor of the district and well before the affair with ex-Prime Minister Stanislav Gross. Of the Prague districts known to have put money into the brokerage, Prague 6 has placed the most: In 2005, Key Investments received Kč 265 million from the Prague 6 administration.

According to Jan Záruba, deputy mayor of Prague 6, the administration has pumped a total of around Kč 430 million into Key Investments. “In the past, Key Investments was among the most successful asset managers. Between 2003 and 2009, Prague 6 cashed in Kč 73 million,” Záruba said.

Last autumn, however, a problem arose similar to the one facing Sokolovská uhelná. In April 2010, Prague 6 notified Key Investments that it would soon need to withdraw Kč 140 million. Key Investments — which on its website promises “safe placement and valuation of client's financial means with relevant yield and by keeping the most possible conservative and safe approach with flexible liquidity”— was unable to pay.

Later, the Prague 6 Council discovered that instead of liquidating the Kč 140 million requested, Key Investments had bought debt bonds valued at Kč 200 million issued by the Spolku pro chemickou a hutní výrobu (Spolchemie), a chemical maker in Ústi nad Labem, North Bohemia, that is part of the Via Chem Group. Key Investments bought shares in the same company on behalf of Sokolovská uhelná – also without the client’s knowledge.

Traders on the spot

The news was a bitter pill for economics professor Jiří Fárek, then-first deputy mayor of Prague 6 and a former board member of the now-defunct Investiční a Poštovní banka (IPB). He was tried and acquitted over the collapse of the bank. Fárek, who was responsible for Prague 6 finances, called on director of Key Investments Daniel Brzkovský and his colleague Klára Fenstererová for an accounting.‘Transfering Kč 140 million didn’t work out due to the current situation on the unregistered bond market’

Key Investments representatives attended a working meeting at the Prague 6 administration under the title “nonfulfillment of the Prague 6 Municipal District’s orders for withdrawing assets by Sept. 25, 2010.” Czech Position has a copy of the meeting’s minutes showing that Fárek expressed his incredulity about some of the bonds in Prague 6’s portfolio with Key Investment. He also asked the managers to explain how it was possible that the brokerage didn’t fulfill the orders and broke its contractual obligations.

“Transferring Kč 140 million didn’t work out due to the current situation on the unregistered bond market,” Brzkovský said. He was unable to say why Key Investments bought the Via Chem Group bonds issued as of June 2010, when the validity of the earlier debt bonds issued by the same company expired in June 2010. Brzkovský said he didn’t exactly remember the timeframe of the purchase and said he was sorry for the problems it had caused Prague 6.

Fárek said that Prague 6 had never experienced such a problem with a financial entity entrusted with its assets. “Fárek repeated his incomprehension of the fact that multiple purchases were made in June after Prague 6 had given notification about its need for finances and expressed his doubt about the correctness of the operation and adherence to commitments,” the minutes stated.

Because Brzkovský was unable to answer any of the key questions, the meeting ended with the boss of the brokerage promising that Key Investments would submit a written statement.

It is unclear exactly what happened subsequently; according to Czech Position’s information, at the turn of the year the situation had not been resolved. Reportedly, representatives of Prague 6 sought the assistance of large financial groups. However, it is clear from the minutes of the Prague 6 Council meeting on Feb. 3 that no solution had been reached because discussion of “amendments to the agreements on management of bonds and shares with Key Investments” was dropped from the agenda.

Has a miracle occurred?

Czech Position on Feb. 2. sent questions to Deputy Mayor Jan Záruba; he responded on Feb. 16, saying that Key Investments had‘Prague 10 is satisfied with the profit Key Investments has secured’ returned Kč 240 million, and that of the total Kč 430 million entrusted, the brokerage retained only Kč 190 million of Prague 6’s money.

“Currently, the quoted market value of the remaining portfolio of bonds and shares managed by Key Investments amounts to around Kč 250 million,” Záruba said. Subsequently, Czech Position asked him how the situation had been resolved so quickly, who had helped Prague 6 and at what price. Záruba said he would reply within the legally binding limit of 16 days.

Prague 10 expresses satisfaction

Prague 10 placed Kč 200 million with Key Investments in March 2009 and the district reportedly received a profit of Kč 9 million for nine months of that year, and Kč 11.7 million in 2010. “Prague 10 is satisfied with the profit Key Investments has secured,” Martina Hájková, the head secretary of Prague 10 Mayor Milan Richter (ODS), told Czech Position.

Who owns Key Investments?

Key Investments was fined Kč 200,000 in 2008, then Kč 2 million by the ČNB for breaching investment laws and rules, including investing clients’ money in unquoted stocks and bonds issued either by its clients or subjects connected with clients or Key Investments directly.

Key Investments was founded in 1999 and is among the smaller Czech brokerages. Several years ago the company assisted in the meteoric rise of former Prime Minister 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, the Slovak branch of Key Investments was under the ownership of Efficient Investments, which was registered at a UK farm with amusement park rides on its land. Economist Jiří Weigl was among Efficient Investments’ directors. He gave up the post when he was appointed head of the Office of Czech President Václav Klaus.

Following the Gross affair, there were changes to the brokerage’s ownership, though it’s now unclear who controls the company. The firm had been represented by Vladimír Kroužecký, who told Czech Position that he no longer has anything to do with the company. Daniel Brzkovský, the brokerage’s current front man, reportedly holds a 31 percent stake, but publicly available records do not reveal who the other owners are.

Autor:

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