A manager at investment fund BaltCap is suspected of embezzling and gambling away as much as €30mn at casinos, exposing supervision loopholes in the fund, bank and gambling industries.
BaltCap announced that it was firing one of its partners, Sarunas Stepukonis, back in November, quoting “financial mismanagement”. Although it turned to law enforcement over a suspected misappropriation of assets, the story only exploded in the media in late January when more details emerged. LRT.lt, the website of Lithuanian national broadcaster LRT, reported on February 6.
On February 3, the European Public Prosecutor’s Office announced an international search for Stepukonis, quoting suspicions of embezzling at least €27mn, saying that his whereabouts are currently unknown. He may be in Ukraine, as Stepukonis is a former volunteer soldier.
The fund has revealed that Stepukonis may have embezzled €16.5 million or even as much as €30mn and gambled it away in casinos in Vilnius and Tallinn. BaltCap is suing not only its former partner, but also the listed Olympic Casino Group Baltija group.
According to the OCCRP investigative network, the losses occurred at the BaltCap Infrastructure Fund, an €80mn investment fund focusing on infrastructure projects in the Baltic countries. The fund also benefits from €20mn in support from the European Investment Bank (EIB) through its Investment Plan for Europe.
The alleged fraud has raised questions about BaltCap's safeguards. The fund’s managing partner Simonas Gustainis says the alleged embezzlement was facilitated by forging documents and signatures.
“The system itself is built on the assumption that the person with authority respects the law. If a person deliberately chooses to break the law, to embezzle money, to falsify information and documents, he or she is circumventing the system of safeguards. In this case, the former fund manager and partner succeeded in doing so and the scheme he created worked for some time,” Gustainis says.
But experts are surprised that one person could be given that much power.
“There are strict requirements for fund managers, and generally no one fund manager can make decisions. [...] Their decision has to be backed by another person, there has to be a four-eyes principle, which is primarily BaltCap’s problem,” says Vaidas Cibas, director of the Financial Services and Markets Oversight Department at the Bank of Lithuania.
“It would be naive to expect that one person could move such amounts of money. Perhaps, either consciously or unconsciously, more financiers were involved in the scheme,” says Mantas Janavicius, a board member of the Investors’ Association.
The Estonian Financial Inspectorate, which is responsible for the supervision of BaltCap, says the money could have been taken from the company since as early as 2018. According to the sources of the news website Delfi, the amount of money that Stepukonis suspectedly gambled away in Lithuania is relatively small, €3 million, while around €10 million was lost in Estonia. If this is true, where the rest of the money went remains to be seen.
Before reaching the casino, the BaltCap money should have passed Stepukonis’ bank accounts. If so, the flow of millions of euros should have set off safeguards in banks and the financial regulator. The Bank of Lithuania says that the value of the pension funds of SEB and Swedbank fell by €3mn as a result of the BaltCap affair.
There are also questions over the supervision of the gambling regulators.
Lithuania’s Gambling Supervisory Authority explains that when a new gambler starts gambling, the casino has to assess his or her level of risk: to see whether the sums they’re gambling on are consistent with their income. If it sees a discrepancy, it has to report it to the authorities.
“Neither the Gambling Supervision Authority nor the FNTT [Financial Crimes Investigation Service] is involved in this process, so they do not have the data from the gambling operators,” says Arnoldas Dilba, spokesman for the Gambling Supervision Authority.
The gambling companies themselves say that a gambler’s income is considered when he or she deposits or wins more than €1,000. Gambling companies and regulators say they cannot stop a gambler if they suspect they have a gambling problem.
Gustainis estimates that Stepukonis’ gambling amounted to a quarter of the annual turnover of Olympic Casino. It was therefore probably in the casino’s interest to let him keep going.
Olympic Casino Group Baltija has insisted it did all it was required to ensure the legitimacy of the money Stepukonis’ was losing.
The State Tax Inspectorate says that it was only interested in whether taxes were paid on the winnings, while the FNTT, when asked when and why it had contacted the casino and why it had not investigated the case earlier, replied that it could not provide the requested information at the moment.