Ziyavudin Magomedov impoverished by another 80 billion rubles

On April 7, 2023, the Moscow City Arbitration Court fully satisfied the claim of the Far Eastern Shipping Company (FESCO, the parent company of the Fesco group) for the recovery from the former beneficiary of the group Ziyavudin Magomedov and three foreign companies Smartilicious Consulting Ltd., Envartia Consulting Ltd., SGS Universal Investment holdings ltd. 80 billion rubles and $13.78 million in losses. This is reported in the materials of the court, placed in the filing cabinet of arbitration cases. With respect to another offshore Felix LP claims are not satisfied.

Against the backdrop of news about the recovery from the former shareholder in favor of FESCO, the company’s shares on April 7, 2023 on the Moscow Exchange increased by 26.8% – from 37.08 rubles. per piece at the beginning of the day to 47.01 rubles. by 20:00.

FESCO filed a lawsuit in the fall of 2022. At the same time, Fesco issued a statement stating that, as a result of the financial audit, several debts “formed in the interests of the group of companies and their beneficiaries” were identified.

“Earlier, shareholders issued loans to the company to repay their debt on the purchase of securities of PJSC FESCO. Since now these debt obligations are not serviced, the management, taking into account the interests of all shareholders, decided to recover the funds through the courts,” the company said in a release. The debt burden could worsen the financial and operational performance of FESCO and harm the company and shareholders, it is indicated there.

Zoya Galeeva, managing partner of the Troubled Assets Center, says that the acquisition of company shares at the expense of the company itself is not prohibited by law. “In fact, this method allows the person controlling the company to attract financing on more favorable terms, and the company to dispose of the available funds, receiving income that may be more than, for example, from a deposit. Typically, such transactions are concluded on the most favorable terms for the participant,” she notes.

Fesco also includes the largest container terminal in the Far East – the Vladivostok Commercial Sea Port, the rail transportation operator Transgarant and a fleet of cargo ships. Fesco Group’s revenue under IFRS in 2021 amounted to 113.7 billion rubles, EBITDA – 47.5 billion rubles, net profit – almost 37.9 billion rubles.

Magomedov and his partners bought a controlling stake in Fesco from Sergey Generalov in 2012. The main financing was provided by the company itself under the leveraged buyout scheme (“financed buyout”).

On December 1, 2022, the Meshchansky Court sentenced the brothers Ziyavudin and Magomed Magomedov to 19 and 18 years in a strict regime colony, respectively.

The court found them guilty of committing crimes under Parts 1, 2, 3 of Art. 210 of the Criminal Code (organization of a criminal community or participation in it), part 4 of Art. 159 of the Criminal Code (fraud), part 4 of Art. 160 of the Criminal Code (misappropriation or embezzlement) and part 1 of Art. 222 of the Criminal Code (illegal acquisition, transfer, sale, storage, transportation, transfer or carrying of weapons, main parts of firearms, ammunition).

According to the verdict, the court also confiscated to the state revenue Magomedov’s shares in FESCO Transport Group LLC (part of the group), as well as shares in Russian Troika JSC, Port Fleet JSC, Portaktiv JSC, VMTP PJSC ”, “Port Petrovsk”, “Fesco bunker”, etc.

Later, the Prosecutor General’s Office demanded that the same shares be turned into state revenue. On January 11, 2023, the Khamovnichesky District Court of Moscow satisfied the claims of the department and confiscated ordinary book-entry shares of PJSC FESCO in favor of the state. The supervisory authority referred to the fact that they were acquired at the expense of the corruption proceeds of the Magomedovs.

The requirements of the prosecutor’s office, according to lawyers, do not make sense and cannot be fulfilled after the verdict of the Meshchansky court comes into force.

Meanwhile, during the meeting on January 11, 2023, new information was announced that the Investigation Department (SD) of the Ministry of Internal Affairs of Russia is investigating two criminal cases, combined into one proceeding, on the fact of embezzlement of funds from the Russian budget and from FESCO for hundreds of millions of dollars .

In particular, on January 22, 2021, a senior investigator of the second department of the SD of the Ministry of Internal Affairs initiated a criminal case into the theft of funds from the FESCO on the grounds of a crime under Part 4 of Art. 159 of the Criminal Code of the Russian Federation (large-scale fraud). And on October 26, 2022, it was merged with the second case already on the fact of embezzlement of funds allocated from the Russian budget on an especially large scale on the grounds of a crime under Parts 3 and 4 of Art. 159 of the Criminal Code of the Russian Federation, as well as part 4 of Art. 160 of the Criminal Code of the Russian Federation (embezzlement on an especially large scale).

According to the materials read out in the Khamovnichesky District Court, during the preliminary investigation in the joint criminal case, it was established that since December 2012, an unidentified group of persons had a criminal intent through deceit and breach of trust, aimed at embezzling FESCO funds on an especially large scale.

A Fesco representative told Vedomosti that FESCO “expresses satisfaction” with the decision of the Moscow Arbitration Court, and also “declares its readiness to continue to protect interests in all possible jurisdictions and instances.” “Mr. Magomedov has been fully recovered from the losses caused to him by FESCO in connection with the illegal withdrawal of the company’s assets starting from 2012. Today’s court decision will allow compensating the losses caused to the company at the expense of the assets of the former owner,” he added.

Galeeva from the Center for Work with Troubled Assets believes that in the event that a judicial act enters into legal force, FESCO “may be problematic” to receive the awarded funds, since offshore companies registered in foreign jurisdictions are among the co-respondents: enforcement of decisions may be difficult. “A bankruptcy case was initiated against Ziyavudin Magomedov in 2021, but the procedure has not yet been introduced. Probably, FESCO will be forced to try to get satisfaction of its claims in the bankruptcy procedure, since the shares of FESCO itself were previously converted to the income of the Russian Federation, ”the lawyer suggested.

The Fesco representative also noted that the court found that one of the defendants, Felix LP (from the Cayman Islands. – Vedomosti), was not associated with Magomedov. This company could not influence the wrongful decisions made, therefore, cannot be held liable.

Yevgeny Letunovsky, senior lawyer at Orion Partners, who defended the interests of Felix LP in court, told Vedomosti that the company was satisfied with the operative part of the court decision. According to him, the share of this company in FESCO did not allow to recognize it as a controlling person. Letunovsky notes that Felix LP, through subsidiaries and holding structures, controlled about 17% of FESCO. “The share was acquired with the company’s own funds. Felix LP is not associated with Ziyavudin Magomedov. The company did not receive dividends and did not receive cash or other benefits for the episodes that were blamed on it,” he claims.

The lawyer added that in 2012, when the structures of Ziyavudin Magomedov made a deal to acquire shares in FESCO, Felix LP belonged to an American investment fund. In 2020, a Russian investor bought a company from the Cayman Islands.