Flying Over The Phoenix Nest

In April 2016 the Security Service of Ukraine carried out a series of searches in the offices of IT-company Lucky Labs. It happened for the second time in 2 years, while the dates of raids surprisingly corresponded with the course of the legal process between the founders of Lucky Labs and Phoenix ltd. The question is whether such coincidence is actually accidental?

Divorce worth $ 11 mln

Max Polyakov is a Ukrainian IT-businessman with British citizenship, the founder of an international asset management company Noosphere Ventures. Polyakov’s successful online dating projects have made him well known in certain circles. However, he has gained much of the notoriety after a number of scandalous BBC Radio 5 investigations about fraudulent practices to attract customers.

Lucky Labs’ founders Rustam Gilfanov and Sergey Tokarev had long-standing business relationship with Max Polyakov. A couple of years ago they had assets in three joint projects in the field of online gambling business. At the time their partners were Maxim Krippa and Konstantin Lyashenko.

Krippa is a co-founder of Club Jaguar Llc. He has also been associated with the IT-company Evoplay. In 2015, he ran for membership in Kiev City Council from the association “Samopomich”. Even less is known about Mr Lyashenko.

The multi-component business was quite successful, but problems began when Lyashenko decided to get out of the business and to sell his 20% stake in GMS company to his partners. Maxim Krippa, who negotiated the purchase of 5% stake, have conducted the negotiations too successful. For himself. As a result, Krippa was about to become the majority shareholder. The other shareholders couldn’t let this happen. Therefore, Maxim Polyakov offered to buy out Gilfanov’s and Tokarev’s shares.
The combination with juggling stakes in GMS, cleverly done by Polyakov and Krippa, could easily serve as a way of wrestling out both Gilfanov and Tokarev off the company.

Max Polyakov already has a similar experience. After all, that’s what he has done to Bill Dobbie – his Cupid plc ex-partner. Together with Polyakov Dobbie was developing the dating company for a few years. Joint efforts enabled to raise it to the level of the leading British online dating business. However, the ultimate person, who benefited hugely from Cupid’s success, turned to be only one of many partners – namely the Polyakov. At first he managed to sell his shares at the peak of their value. Than he provoked a media scandal about fake profiles. The price of Cupid plc shares fell down. Ultimately, he bought these assets by piecemeal and for unduly underestimated prices thrpugh the companies controlled by Polyakov. That’s how he wrestled Bill Dobbie out of business.

Only by chance such a successful scheme has not materialized with GMS stakeholders. Nevertheless, a series of internal misunderstandings between them was the reason to divide the joint business.

Division of the projects was documentary confirmed by the framework agreement fixing the agreed prices of divided assets. According to the agreement Maxim Polyakov had to pay Gilfanov and Tokarev $ 11 mln  – the price difference in the cost of projects – within six months. However, during further negotiations it was decided to swap Polyakov’s debt for 10% stake in his company Phoenix Holdings ltd, which controlled the online dating project Together Networks.

Regardless of Polyakov’s poor ethical record, the Share Transfer Agreement was signed.

The Myth of the Phoenix

As a matter of fact, new business relationship between the Polyakov and partners lacked transparency. Firstly, shareholders were not provided with the constituent documents of Phoenix Holdings ltd. In fact, the founder of a newly established business was the only person who knew how it’s going to look like. New shareholders were defiantly misled as to the information both on the total number of shareholders , and the type and number of issued shares. Only many months after the deal it turned out that the earlier reached agreements are contrary to the provisions declared in the official documents of the company.

Initially, it was agreed that it will be only three shareholders in Phoenix Holdings ltd: Max Polyakov’s father – Valeri Polyakov, who will be just a nominal holder of 90% of shares, and his son will act on his behalf; and Gilfanov with Tokarev – the holders of 10% of the shares, 5% each. It was also planned to issue only common shares. In fact, everything turned out quite differently.

Phoenix Prepares for the Dutch act

Gilfanov and Tokarev discovered the existence of two more shareholders only almost a year after reaching the basic agreements on the purchase of shares in Phoenix Holdings ltd. It appeared that directors of Phoenix Holdings ltd – Mark James Watt and Max Polyakov himself – owned profitable interest shares, which was contrary to the previous agreements. Thus, the actual share of Gilfanov and Tokarev was about 6.75% instead of agreed 10%, at the expense of which Polyakov’s multi-million dollar debt was written off.

For a long time new shareholders could not receive documentary proof of their title to the shares. They were provided with copies of duly executed Certificates of Shares in more than a year after the signing of Share Transfer Agreement. And Certificates were granted only after the numerous reminders to Polyakov.

In addition, Polyakov failed to manage the work of Phoenix Holdings ltd as a transparent and effective business. Gilfanov and Tokarev relied on clear perspectives and transparent corporate structure when deciding on the purchase. Instead, the company failed to generate even one fifth of the planned profit.

Moreover, the dividends were not paid to shareholders. The initial agreement was to pay it monthly, than the payments were expected annually, eventually – it never happened at all.

A suit in the Court of the British Virgin Islands has followed such wrongdoings. It will decide whether Polyakov will return $ 12 mln to his partners. That is the price of “10% of the shares” in Phoenix Holdings ltd that Gilfanov and Tokarev have paid.

Vendetta Levels Up

Phoenix Holdings ltd is not the only dark point in Gilfanov’s and Tokarev’s business relationships with Polyakov. There is another dispute on Level Up, which is one of the most successful traffic generators of Russian Internet, and a supplier of about 40% of traffic to Polyakov’s commercial websites. After the division of the joint business “Maxim Polyakov began an aggressive campaign to purchase Level Up. As a result, the Level Up team appealed to Gilfanov and Tokarev with the offer to buy half of their business under the condition of their protection against Polyakov’s attacks”, writes Timur Vorona, one of the most prominent Tech journalists in Ukraine. As a result, Gilfanov and Tokarev have made the decision to purchase.
The loss of business object strategically important for Polyakov made him feel uneasy. As a result, Polyakov and Krippa threatened Level Up’s owners demanding about a million dollars of compensation from the for the imaginary losses. They also threatened Gilfanov and Tokarev with the claims to non-compliance of non-compete agreement, which did not exist. These claims, together with demands to compensate $30 mln losses due to the loss of control over the Level Up, looked very much absurd.

Searches in Lucky Labs

Rustam Gilfanov and Sergey Tokarev are the founders of Ukrainian IT-company Lucky Labs. Security Service of Ukraine (SSU) has conducted a search in the company just a couple of months after the commencement of the trial between Gilfanov, Tokarev and the Polyakovs (father and son). It might have been a coincidence, but was it really?

In the comment to Rusbase IT online journal two sources stated that they “believe that it is Polyakov who stands behind the SSU visit to Lucky Labs”. In his home country he is well known as a hardliner in business, able to use all available means to get what he wants, including defamation.

In April 2016 another series of searches was carried out in the Lucky Labs offices. Just a few weeks before that the Court of the British Virgin Islands has arrested all the Polyakov’s international assets worth $12 million.

Regardless of his multiple moves to lift the arrest, Max Polyakov has not managed yet to do so. As a result he can’t sell neither profitable dating business, nor other assets.

Searching for betrayal of Ukraine

The Secret Service of Ukraine accuses Lucky Labs of online gambling business administration, which is prohibited by the Ukrainian legislation. It also believes that the company helped to withdraw money in the Russian Federation and financed the terrorist activities of separatists on the eastern border. In the first weeks after the searches the SSU was actively accusing the company both on its official briefings and on the TV shows.

The company’s official representatives have stated multiple times that they develop software for dozens of international customers in different spheres, including gaming, but has nothing to do with operating online gambling. For the time being Lucky Labs top management hasn’t received any official charges, while reputational damage is dire. In addition to it, law enforcement officers have confiscated the company’s electronic facilities and money, which was contrary to the Court’s search-warrant, and stopped the work of the company for many weeks.

Needless to say, that now any spelled connection, even imaginary, to Russia or Russian separatists is fatal for the reputation in Ukraine. Sadly enough, today’s Ukraine is the country where law enforcement authorities still offer services ‘a la carte’ to the business, which is willing to pay for pressure on the competitor. What is even more cynical, is that the war in Ukraine has become a part of mob law.

Meanwhile, the Court of the British Virgin Islands continues considering the case of Phoenix ltd. Way less certain is how the Secret Service of Ukraine will work off its fee submitted by Polyakov.