The Bank granted a line of credit to the Borrower (run and owned by Mr. Go-Getter, CEO) in the amount of 50 million Rubles for a period of 36 months to replenish the Borrower's current assets. As security for the performance of the obligations under the credit agreement, the following were used:
- Mortgage of the liquid commercial real estate owned by the Borrower in the market value of 100 million Rubles (confirmed by independent evaluating company that was accredited by the Bank).
- Guarantee of a Borrower's supplying company (hereinafter referred to as the Underwriter run by 95% shareholder Mr. Leary).
Three months after granting a credit the Borrower sold the mortgaged real estate, as agreed with the Bank, to the Underwriter, with transferring the rights and obligations under mortgage agreement.
Furthermore, the Underwriter's key shareholder and CEO, Mr. Leary, withdrew from the company and sold his share to another company participant, Mr. Homeless. Six months after granting a credit the Borrower actually ceased business activities and completely suspended payments contrary to credit agreement.
The Bank requested the Banking Forensic services to clarify all circumstances of this credit transaction and assess the outlook for debt recovery.
The analysis of the package of documents provided by the Borrower at the stage of agreeing terms and conditions of credit agreement has shown that bank employees failed to thoroughly examine the due diligence of both the Borrower and the Underwriter. In particular, it has been found that the second participant of the Underwriter's company having a 5% share is actually Mr. Homeless who had more than 15 companies registered in his name, half of which turned out to be dormant or dissolved ones.
The analysis of bank operating activities has revealed the following:
- The Borrower maintained the turnover on the bank settlement account at the agreed level, exclusively through lodging cash to be subsequently spent for repaying credit interest.
- All borrowed money was remitted by the Borrower to purchase equipment from a third-party company owned by Mr. Homeless.
Following the data request from the United State Register of Rights to Real Estate and Transactions (USRRRET) and the analysis of the affiliation of the parties related to the contract, it has been found that the pledged commercial real estate was sold under the sales contract to a third person, Mrs. Leary (mother of the Underwriter’s ex-CEO, Mr. Leary). However, no entry was made into USRRRET regarding the cloud on the title.
The search for assets has brought to light that (1) the Borrower and the Underwriter sold their property assets, and (2) the physical persons - Mr. Go-getter (the Borrower's owner) and Mr. Leary (the Underwriter's ex-CEO) - acquired non-movable assets outside the country.
Due to investigation, it has been found the following:
- existence of foreign assets of Mr. Go-getter and Mr. Leary;
- sale instance of the pledged property to Mrs. Leary, which was effected without any entry made into USRRRET regarding the cloud on the title.