CL-2020-000117 - [2025] EWHC 1620 (Comm)

Between 1 April and 25 September 2015, Falcon acquired a total of 147 units of Boardwalk Real Estate ETI for €15.2m. The structure was in many ways similar to the Solid Venture P2P ETI. The Securities Note dated 12 March 2015, was in broadly similar terms. The issuer was called ETI Securities Plc; the collateral was to be performance linked bonds issued by AI Undertaking Ill Inc., a public limited company incorporated in St Vincent and the Grenadines that was wholly owned by ETI Securities Plc., which in turn was said to have invested in (i) a managed account held at Sparkasse Bank Malta plc; and (ii) registered, non-listed bonds held directly by the Collateral Obligor. However, by an agreement between Boardwalk Co Ltd, ETI Securities Ltd and AI Undertaking III Inc dated 17 March 2015, it was recorded that ETI Securities Ltd had agreed to “… utilise all proceeds of the Securities (net of certain agreed costs) to purchase (through its wholly-owned subsidiary AIU), certain bonds to be issued by Boardwalk (“Bonds”)”. The agreement specified that the maximum return from the Boardwalk bonds would be 12%. It was common ground between the claimant and Mr Gergeo that Boardwalk (the 11^th defendant in these proceedings) was at all material times controlled by Mr Gergeo.

In fact Al Undertaking Ill Inc used the sums invested by Falcon (a) on 18 September 2015, to purchase 1,000 Werel shares from Gergeo Holding for €5m; (b) on 13 October 2015, to invest €5m in Werel bonds; and on 7 December 2015, to purchase a further 1,000 shares in Werel this time from Boardwalk for €4.9m. The share purchases imply that Werel had a value of about €50m at the date when the shares were purchased. As I have said no attempt was made by Falcon or TAM or Mr Ökten to value the company whether using any conventional company valuation methodology or at all. This issue was the subject of an expert report from Ms Faye Hall. As she says at paragraph 6.2.3 of her report:

“…on 15 July 2015, Gergeo Holding AB acquired from SVC Malta 5,500 shares (representing a 55% stake) in Werel (this is shown in the share registry as two transactions but relate to one share purchase agreement). This transaction occurred at a price of SEK 100/share (or approximately EUR 11/share at an exchange rate of 9.329). Gergeo Holding AB then sold 1,000 shares (representing a 10% stake) in Werel on 18 September 2015 for SEK 46,081/share (or EUR 4,990/share (at an exchange rate of 9.328). Based on the financial information that I have seen, I do not understand how a valuation of Werel (as a whole) of SEK 460.89 million as at 18 September 2015 could have been calculated or supported, or how the valuation could have changed so significantly, without a significant milestone being reached or a significant reduction in Werel’s risk being achieved between 15 July 2015 and 18 September 2015.”

I accept this evidence and conclude that there was no honest or commercial justifiable basis for the price difference. As Ms Hall adds at para. 6.2.8 of her report, “… Gergeo Holding AB benefitted from buying and selling shares in Werel and realised a gain of SEK 46m from holding 1,000 shares for two months”. Using her conversion rate this equates to about €4.932m.

Aside from this €4.9m was paid to Boardwalk on 8 April 2015. Of that, €3.3m was probably used to acquire 638 newly issued shares in Werel AB on 16 September 2015. Ms Hall has considered that transaction in terms that I accept. She concludes that “… the 100% pro-rated value of Werel’s shares at that point in time was SEK 500.2 million or EUR 53.7 million. Based on the financial information that I have seen I do not understand how a SEK 500.2 million valuation of Werel as at October 2015 could have been calculated or supported.…” This is precisely the same point as Ms Hall made in relation to the sale of the existing Werel shares referred to above. As before there was a partial redemption but again as before this was funded by payment made from other, later, Falcon investments rather than a redemption in accordance with the terms of the Security Note.

The claimant submits and I accept that the Boardwalk Real Estate ETI investment is one that I should conclude was fraudulent. It was a mechanism for transferring money belonging to Swedish pension savers to Mr Serwin and his associates. This was achieved in part by the sale of shares in Werel at what I conclude was a fraudulently inflated price. It resulted in a loss to the claimant (net of the supposed redemption) of €9.5m.