Kyiv Meeting Real Estate Scam Victims’ Grievances

KYIV, Ukraine -- Nearly nine months following the eruption of a major real estate scam in the nation’s capital, more than 1,000 apartment buyers who were bilked out of an estimated $100 million are still waiting for the Kyiv city authorities to follow through on pledges to organize the construction of compensatory housing.


Elite-Center scam cost investors $100 million

In a recent response to the apartment buyers’ continuing protests, the city administration has said that it has compiled a list of the scam victims and planned to hold a tender to attract private investors interested in financing the compensatory housing.

However, suspicion of licensing and regulatory officials, as well as concerns for the rights of Ukraine’s emerging middle class, remain.

Starting in 2004, prospective Ukrainian homeowners invested an average of $70,000 each into apartments to be built by Elite-Center, a private development company offering eight residential projects in Kyiv.

By the beginning of this year, it became clear that they had lost their down payments, together with any housing they were supposed to get. In late January, Elite-Center’s top executives fled the country after having funneled the funds they had received from buyers through various bank accounts.

Elite-Center, which advertised heavily throughout the capital, never actually existed as a legal entity, but worked through at least 14 other companies.

The paperwork documenting the eight projects formed a trail to the administration of then Kyiv Mayor Oleksandr Omelchenko, suggesting that top city officials were at best negligent, if not implicated in the real estate scam.

On Feb. 25, Omelchenko issued an order that designated Kyiv Investment Agency, a public utility company under the Kyiv City Administration, to take charge of attracting developers and builders to put up compensation housing for Elite-Center victims. Only one of the eight projects advertised by Elite-Center had actually been started, on the capital’s Otto Schmidt Street.

Omelchenko’s order said that construction of the housing projects was to be funded by new investments as well as money returned to Elite-Center buyers through court decisions.

On March 2, the Kyiv City Council allocated 19 plots of land for the construction of housing for the bilked apartment buyers.

On April 28, Kyiv’s Shevchenkivskiy district court held the first hearing in a case brought by victims of the Elite-Center scam, in which they accused the state financial services markets regulation commission of failing to exercise financial oversight of the investment agreements between the scam victims and Elite-Center.

On May 19, the court ruled that the commission’s inactivity was illegal, noting that there had been no proper control over the implementation of the investment agreements. The court ordered temporary administration of Elite-Center by the same state commission, with the aim of fulfilling the purchase agreements.

Earlier in May, Interior Minister Yuriy Lutsenko had announced that law enforcement agencies in CIS countries and the Baltic States were hot on the trail of the scam’s main suspect, the director of Elite-Center, who went under the name of Oleksandr Volkonsky.

Lutsenko said, however, that due to shortcomings in Ukraine’s court system, he was unable to seize several million hryvnias discovered in accounts thought to be linked to Volkonsky in a number of foreign banks.

Meanwhile, Volkonsky remains at large.

Some individuals affected by the scam have been living in hostel accommodations provided by the Kyiv City Administration starting in late June.

According to Anna Shmidt, a member of an initiative group of Elite-Center’s victims, some duped apartment buyers have been camping out in tents around Kyiv waiting for their turn to receive a room in a hostel. Like many of the other scam victims, Shmidt said that she had been living with friends after selling her apartment to invest in a flat in Elite-Center’s Otto Schmidt Street project.

Deceived buyers turned up the pressure on the city council in mid-August, when a group of them pitched a tent camp in front of the Kyiv City Administration building, demanding that municipal authorities guarantee the construction of the compensation housing.

During a press conference held on Aug. 16, Mayor Leonid Chernovetsky, elected in the general elections of March 26, told journalists that the demonstrators had been paid to try to force his hand.

“They were each paid Hr 100 for sitting there,” Chernovetsky said.

The Shevchenkivskiy district court refused to satisfy the city administration’s demand that the court ban the demonstrators from putting up their tents.

During a public hearing on Aug. 30, Chernovetsky said that due to a lack of support from the Interior Ministry, which had failed to provide the city with a list of the scam’s victims, citing investigative secrecy, the Elite-Center issue had been unreasonably drawn out.

Action finally taken

Now, nearly a year after the scam emerged, the municipal authorities have said they have finally launched their search for new developers and construction companies.

On Sept. 27, the city organized a meeting with Elite-Center apartment buyers to compile a victims list independently of the Interior Ministry.

“This is why we had to organize this meeting and invite buyers to bring their passports as well as the documents given to them by the Internal Affairs Ministry,” said Vitaly Zhurakhovskiy, the deputy head of the city administration.

According to a Sept. 28 statement by the municipal administration’s press service, the city’s victims list compiled at the Sept. 27 meeting totals 1,220 people.

Denis Bass, the deputy head of Kyiv City Administration and the head of the ad-hoc commission to provide housing for Elite-Center victims, was quoted as saying that preparations for holding the investment tender are in their final stage.

“Now we are close to the investment tender,” Bass said.

Ivan Nesin, an Elite-Center victim turned protester, said that selfish motives were behind Kyiv authorities allowing the situation surrounding the scam to drag on.

“I think they simply have their own interests in this and want to get more money using the situation. Otherwise, the problem would have been resolved long ago,” said Nesin, a pensioner who sold his house in Kryvy Rih to invest in an Elite-Center one-room apartment.

“My son-in-law was killed in a car accident and left my daughter a widow, as well as my grandson. I wanted to be closer to my daughter to help her raise her child,” he said.

Anna Levshunova is a dentist. She owned a one-room apartment in Kyiv’s historical Podil district, but because of dilapidated housing conditions where she lived, Levshunova decided to sell her flat and purchase a two-room apartment in an Elite-Center project on the city’s Left Bank.

“I wanted to improve my housing conditions because my son is growing up. Now I live with my child and my brother in his apartment,” she said.

“There are difficulties in the investigation. But it is the criminal part of the issue. The administrative part could be settled by a Kyiv Council resolution,” said Mykola Boychuk, a deputy in the Kyiv City Council with the opposition Yulia Tymoshenko Bloc.

He added that instead of holding public hearings on the Elite-Center issue, the city of Kyiv should try to reach some kind of compromise with every family victimized by the scam.

“I think the Kyiv city government has all the resources to do this,” Boychuk said. “This can involve [Kyiv] regional administrations and institutions that deal with social issues to work with the victims and finding a mechanism to solve the problem instead of trying to keep away from it.”

Boychuk said that the Elite-Center issue could have been resolved already and that Chernovetsky must take complete responsibility for resolving it, as he said he would.

Vladyslav Kaskiv, a leading politician in the PORA People’s Party, and a former adviser to President Viktor Yushchenko, also suffered a loss as a result of the scam, investing in the purchase of a three-room apartment in Elite-Center’s Otto Shmidt Street project. However, Kaskiv said he hasn’t taken an active part in the housing buyer protests, indicating that this could compromise his position as a political activist.

“Of course, I did not lose everything I had … But my situation is rather inconvenient. If I became too involved in the issue, it could have been understood as an abuse of my position,” Kaskiv said.

“On the other hand, of course, I have a rational wish to get my money back or receive an apartment. But I think I don’t have the moral right to interfere,” he said.

Kaskiv said he believes the fact that such a scam took place shows that the construction sector’s regulatory system is not working properly. According to Kaskiv, the construction market in Kyiv has already been formed, and many people have their interests vested in it, especially politicians and officials.

“If the system collapses, their interests would be damaged first,” he said.

Meanwhile, some Elite-Center buyers are trying to receive compensation without the city’s help.

On Aug. 30, Kyiv’s Holosiyivskiy district court ruled in favor of two Elite-Center buyers against Blagovest Pechersky, one of Ukraine’s largest real estate agencies, freezing Blagovest’s banking accounts. Blagovest acted as a broker between Elite-Center and the two buyers, who demanded Hr 600,000 [$120,000] in compensation from Blagovest in the case.

“Apparently, as a leader of the real estate market, the defendant should have had enough information about the market and market players,” reads a statement from Ilyashev&Partners, the law firm that represented the Elite-Center buyers in the case.

According to Ihor Khasin, an attorney with Ilyashev&Partners, if the court’s decision is not appealed, or the Court of Appeals confirms the Holosiyivskiy court’s decision, the buyers will be compensated Hr 492,000 [$100,000] in monetary damages and Hr 100,000 [$20,000] in moral damages.

Source: Kyiv Post

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