Sergei Polonsky

Sergei Polonsky declared a hunger strike stemming from the raid on the Kutuzovsky Mile development project, and it has become a bottomless pit of Internet folklore. He brought a wealth of attention to himself by swearing profusely, lying under the wheels of a truck and demanding that “Arkady” come. 

What’s left behind the scenes is by no means funny at all. The matter in question after the lives of stakeholders who invested 5.7 billion roubles, most likely the largest amount in Russia, in the project.

It’s no secret that the buyers of flats in the Kutuzovsky Mile residential complex (it’s also referred to as Fort Kutuzov) are wealthy people who are well-versed in the law or able to pay for qualified attorneys. Therefore they hoped to solve their problems with the typical legal tools, but these tools began to glitch: their numerous appeals to the Moscow General Prosecutor’s Office were plainly ignored.

So at the end of last week, the stakeholders of the non-commercial partnership for protecting the rights of stakeholders in Fort Kutuzov, combined with the co-investors in Kutuzovsky Mile, wrote a collective letter to Moscow Prosecutor Sergei Kudeneyev and Russian General Prosecutor Yury Chaika

There are already 120 co-investors’ signatures and counting on the document.

Why are the stakeholders confident that they’ve been had?

In 2007 and 2008, Avanta and Concordia Asset Management, fiduciary manager of Fund Mirax Real Estate First (closed-end investment fund) signed preliminary buy-and-sell contracts with the stakeholders, who wrote, “this contract type had been in use for a long time to circumvent federal law 214 on equity construction, which made it possible to purposely organise the filtering off of co-investor money out of the project for other needs that in no way had anything to do with the facilities in question”. You could, of course, ask the stakeholders themselves why they agreed to such terms and conditions, but that still doesn’t change the legal aspect of this.

 “Avanta LLC used the preliminary buy-and-sell flat contracts to collect roughly 5.7 billion from people and through Concordia Asset Management, fiduciary manager of Fund Mirax Real Estate First CEIF.” Were are talking about roubles, here, of course, and not dollars. Just to be clear, this was the money of the investors’ organisations, and not Polonsky’s. So what happened with their money?

As the stakeholders’ information has it, “of the aforementioned amount, Avanta used only around 2,531,000,000 roubles to finance the construction of the residential complexes as part of fulfilling Investment Contract #1.

This is the amount that Polonsky’s company transferred to Federal Centre of Social Development CJSC (FCSD). To make things clear, FCSD is a company that signed an investment contract with the Moscow government in 2002, meaning that it has been around a lot longer than Avanta. As far as the Moscow government is concerned, all of the contractual obligations lie with FCSD. The company did all of the initial construction work, including the design documentation, setting up the utilities and resettling the people from the torn-down five-story residential buildings, where new residential buildings are currently being built. The company then brought in Mirax Group in 2006 as a co-investor. 

After having collected the money, Polonsky set to work constructing the complex. So, in other words, there are no grounds to suppose that he had concocted some “bad” scheme beforehand. In 2008, however, the economic crisis hit, and Polonsky was forced to pay up on his loans that came about from other projects he was conducting. Meanwhile, Avanta stopped financing the Kutuzovsky Mile project. The residential complex’s construction came to a halt, and then some time later FCSD terminated the contract unilaterally. Pyotr Ivanov, the company’s director, asserts that the contract stipulated such action as possible (see comments). Polonsky’s organisations, however, disputed FCSD’s decision in commercial court, but lost, and then lost again in their appeal.

So then the question arises as to why the construction project came to a screeching halt, if Avanta was supposed to have more than 3 billion roubles on its accounts. The stakeholders to have signed the collective letter presuppose, “The remaining funds were siphoned off for fulfilling other projects conducted by Mirax Group Corporation and for the personal needs of the Corporation’s head Sergei Polonsky.”

This, of course, is only speculation, but the stakeholders made their appeal to the prosecutor’s office to find out just how founded this speculation is. Novaya Gazeta’s editorial board, nonetheless, does have a copy of a statement from the settlements accounts of Avanta LLC from 22 March 2007 to 9 February 2010 (see table).

For example, Avanta lent 832 million roubles to MIK-SM LLC and 735 million roubles to CJSC Mirax-Fili. Here, though, there is some logic: the first organisation was the general subcontractor, while the second was the technical client of the Kutuzovsky Mile construction project at the time when Polonsky was running it.

At the same time, the loan repayment and payment for agreeing to terminate a co-investment contract in favour of CJSC Stroimontazh Investment and Industrial Company (Mirax Group) come as very odd. Since it’s not a loan but rather an irretrievable expense for needs that have nothing to do with Kutuzovsky Mile.

Avanta also lent money to organisations carrying out the Federation Tower project: CJSC Bashnya Federation Management (270 million roubles), CJSC Mirax-City (310 million roubles), Polonsky’s Kursky Train Station project (Infotriumph, 210 million roubles). In other words, does the “hoodwinked investors’” money lie at the foundation of the Federation Tower?