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American Investors Embroiled in Ukrainian Corruption Scandal

Corruption keeps flourishing in Ukraine despite the ongoing war. Corruption engulfs not only Ukrainian companies but also well-known foreign investors. The level of corruption threatens Ukraine’s economic stability and national unity in the midst of the nation’s fight for its very survival. But where is the outcry?

The ongoing campaign by U.S.-based hedge fund Argentem Creek Partners to seize all assets of the Ukrainian GNT Group offers a vivid example of wrongdoing. GNT Group’s owners have struggled, in the wake of the pandemic and the Russian blockade of the Port of Odesa, to timely repay a $75 million loan negotiated by distressed asset investing funds.

Back in 2014, GNT Group had obtained financing via the European Bank for Restructuring and Development to improve its Odesa grain terminal and dry port and to build a nearby truck receiving and cleaning storage facility. The Argentem loan, finalized just prior to the worldwide COVID outbreak, paid off the loan. Then the Russian blockade forced a months-long shutdown that left GNT Group (like many other Ukrainian businesses) without revenue.

After the blockade was ended by a deal brokered by the United Nations, GNT Group took steps to generate new revenue streams and proposed a repayment plan – one that Argentem promptly rejected. Shortly afterward, Argentem launched a hostile takeover of the Odesa grain terminal [owned by GNT Group subsidiary G.N. Terminal Enterprises Limited] via its agent Madison Pacific Trust Limited (Hong Kong).

As unscrupulous as it seemed to take unfair advantage of a war-besieged company, there is evidence that Argentem may have been guided into corrupt practices. Last November, an Argentem representative purportedly held secret meetings in Vienna, Austria with Ukrainian businessmen and politicians – including Davyd Arakhamia – who chairs the Servant of the People faction in Ukraine’s parliament.

Arakhamia has no legal authority to influence Argentem’s asset seizure campaign. Yet, he purportedly used his influence to encourage other Ukrainian business executives to accuse GNT Group’s principals of corrupt practices in their negotiations with Argentem. The hedge fund’s next actions reinforced that presumption.

Just days after their meeting with Arakhamia and without advance notice, Argentem sent an email to GNT Group demanding that the whole debt be repaid within hours. This bold move breached good faith, as it was obvious GNT Group could not comply. Argentem then formally hired Hillmont Partners, a law firm well-known in Ukraine for its relationship with politicians from the ruling party, including Denys Monastyrskyi, the former Interior Minister who passed away in 2023 from a helicopter crash, and Vadym Halaichuk, a former director at Hillmont Partners.

Argentem’s legal team also approached Lviv City Council member (and Samopomich Party member) Yurii Melnyk (another Hillmont partner connected via the Pavlenko and Partners law firm that represents Madison Pacific in Ukraine) and Trusted Advisors lawyers connected to Supreme Court Justice Ivan Mishchenko.

All of these were engaged in what has been called “an extremely noxious legal assault” against GNT owners Volodymyr Naumenko and Sergiy Groza. This campaign included filing a criminal complaint with the Economic Crimes Investigation Unit of the Cypriot police to facilitate the planned hostile takeover of G.T. Terminal Enterprises Limited, which is registered in Cyprus. They also appointed Cypriot Chris Iacovides as the receiver.

The complaint cited various portions of the nation’s criminal code. Yet GNT Group had committed no criminal misdeeds, though its actions may have violated commercial law.

Simultaneously, the Argentem legal team improperly fired the heads of GNT Group subsidiaries and replaced them with attorneys from Hillmont Partners who had no experience in managing stevedoring businesses. These actions, which further threatened the company’s business competence, also breached the corporate agreements, under which Madison Pacific could only appoint a commercial director to monitor the company’s financial condition.

Argentem’s attorneys then re-registered the subsidiaries and relocated the business addresses of these new directors to Hillmont Partners’ Lviv offices. Argentem regional director John Patton publicly admitted his firm had relocated these legal business addresses to a city a thousand kilometers from the seaport facilities and replaced knowledgeable directors with cronies who knew nothing about running them.

Argentem’s attorneys then encouraged a long-time ally, Lviv District Administrative Court judge Oleksandra Zhelik, to block any business activities by the GNT Group by prohibiting them to respond to these changes in registrations. Zhelik, prior to her 2021 appointment to the bench, worked with Yurii Melnyk at Pavlenko and Partners. Her husband, Maksym Zhelik, is a judge of the Western Commercial Court of Appeal and hears cases related to corporate bankruptcies.

Still, on February 14, that court suspended the dismissal of Vitalii Marchenkov as director general of GNT Group subsidiary Olimpex Coupe International, the appointment of attorney Ihor Kulak as his replacement, and the nonsensical relocation of Olimpex’s registered office to Lviv. But shortly afterward, Denys Maliusk, Ukraine’s Minister of Justice, reversed the appeals court’s decision.

To the chagrin of Argentem, the Nicosia District Court (Cyprus) issued an interim international order prohibiting Argentem and Madison Pacific from taking possession, encumbering, or selling the grain terminal. Argentem responded by submitting declarations to the Lviv Oblast Commercial Court that Olimpex and GNT Group’s cargo transshipment company was bankrupt.

On March 15, the Lviv court began bankruptcy proceedings against Olimpex even though GNT Group’s attorneys demonstrated the absence of any indications of insolvency and that the mortgaged property in fact had highly liquid assets. This use of local courts is making it increasingly likely that Argentem’s move to relocate the business registrations to Lviv – which made no business sense – had as a major purpose ensuring a favorable legal environment for their asset takeover scheme.

The abrupt hostility against a long-time client dealing with the vagaries of disease and war suggests a hidden motive. The long history in Ukraine of corrupt practices suggests that Hillmont Partners is a middleman between Argentem and a secret investor. The question, though, is whether Argentem is acting in its own interests in forcing the bankruptcy case or whether the American company is being duped into a nefarious campaign by corrupt Ukrainian operators? Or did Argentem alone plan the campaign of bullying, submission of inaccurate and unjustifiable reports to police in Ukraine and Cyprus, and merely use the Lviv law firm to grease the skids for the hostile takeover?

Could it be that individuals working for and associated with Hillmont Partners saw an opportunity to threaten Argentem with a major financial loss unless it went along with a scheme to force GNT Group into bankruptcy that would leave it unable to repay its loan? Under such a scenario, Hillmont’s cronies would ensure Argentem got its money back before brokering GNT Group’s wounded assets (the terminal alone was worth $400 million before the war) at a discounted price to hidden buyers for a tidy profit.

One more idea. Argentem has now entrusted the grain terminal and other GNT Group facilities to a group of attorneys unqualified to properly operate the business – something they would be unlikely to do unless given little other choices. Second, no foreign investor would likely want to buy such a large Ukrainian business in wartime without at least a public audit. This suggests the hidden buyers might be associates of Hillmont Partners.

What a deal! First, denigrate the war-besieged GNT Group, then make Argentem both the “savior” and the villain (as an American company seizing Ukrainian assets). Then bring in a Ukrainian “true savior” to keep this vital operation – grain shipments vastly benefit Ukraine’s balance of trade – in Ukrainian hands. So, what if the scheme involves “a little corruption”?