COURT’S MOVE AGAINST THE PYRAMIDS

(cont. from p. 1)

A year later the members of Parliament find out that the chief of Control Kamen Toshkov has taken no
action on this report. The arguments for this, according statements of BNB at that time were that the
Central Bank was not responsible for juridical persons not licensed by them.

Today the said report secures sound sleep to its authors and a moral satisfaction that they have walked
alone their small way in the struggle against financial criminality. The problem is that most of the rest
participants in this “Action” haven’t got such an alibi. There’s no answer from the courts of higher
instance to the following question: Was it business of BNB to close companies that were not in the
legal range of their control?

The silence of “lambs”

The second wave of financial pyramids that rose after “Demos” and the plays of luck overflowed
mostly Northeast Bulgaria – the towns of Varna, Dobrich, Rousse, Silistra and Toutrakan. The
technology of plundering was simple: with the help of broad and even brutal advertising the audience
of depositors was informed about the “property” and other assets that the pyramids had at their
disposal in the country and abroad. The advertisement aimed at persuading the people that they should
not be afraid about their money, since it was securely assured by property.

Another characteristic of the second pyramid wave were the well - prepared contracts (with the help
of highly qualified lawyers, of course), which the victims signed. Everywhere in these documents for
loan the exact financial and banking terminology typical for the normative documents regulating
banking activities was avoided. For this reason it is hard to prove that law has been violated.

Most often the agreements were concluded as per art. 240 of the Law for Obligations and Contracts
and the fact of volunteer signing and the aim of the citizens to GET DIVIDENDS BUT NOT
INTEREST was heavily emphasized. The dividend was higher than the interest on bank deposits. This
“perfection” of phrasing, fruits of the labour of highly paid lawyers made it possible for “Yugoagent”
for instance to survive with no remarks the special inspection by virtue of the Law for Banking and
Crediting Activities. The people from “Bank Control” at BNB did not find out any substantial
infringements. Something more – they even agree with the infringers that the pyramid “does not deal
with gathering of deposits but with administering the “deposits” ( in Bulgarian – влог – “вложения” –
it’s a pun, you have one word in English) of the citizens”.

At the time when Borislav Sratev and Valery Dimitrov write their report to Kamen Toshkov, in which
they make comments that the person Kapoustin breaks Bulgarian laws and has to be punished with all
stringency of law, the Kanadian jobber born in Plovdiv in fact settles down in our country after a
dozen of international warrants of arrest. The first warrants of arrest were issued by a court in Dallas,
Texas for robbery. Six more warrants of arrest follow in Vancouver, Canada for documentary frauds.
After that – seven warrants of arrest in province British Columbia, Canada for infringement of the
local tax legislation. Despite this avalanche of warnings and regardless of the long queues of
depositors in front of the offices of the company, the Ministry of Home Affairs and the Prosecutor’s
Office waited for quite a long time before taking legal actions against the activities of Life Choice.
Something more, the members of Parliament who now passed willingly (although with backdate) the
law against credit millionaires, at that time they watched in amazement the acting pharaohs. In
amazement and ineffectively! Even the finance boss of Life Choice Stoev became their colleague. The
question why did the Parliament at that time allow becoming an indirect associate to the pyramids will

1
remain with no response (and no consequence) forever. They did not pass a law even with one only
article against the activity of the pyramids.

The reports point out as an especially striking case showing the negligence of “Bank Control”, the
activities of “Financial house MCS-Bulgaria”. It “opens” in 1992 by concluding contracts for
“trusting administration of assets” (activity not forbidden by law at that time) and for effecting of
“joint investment schemes” with credulous citizens. There are accusations that in stead of closing it
for the numerous warnings of large jobberies, in 1993 department “Bank Control” humbly makes it to
re-register only as a financial house and issues a license to it for effecting of non-banking finance
transactions. At first glance BNB has strictly kept the regulations of law. But the real result is totally
different: the consecutive international pyramid that spread its tentacles in more than 26 countries in
the world was legalized in our country. In Germany only it has deceived people with 50 million DM,
in France – with 2 million USD. The whole structure of MCS group is managed by the international
jobber Norbert Seenhuber(?). Its victims in Bulgaria surpassed 5000 people – mainly from Sofia,
Pazardjik, Pernik and Blagoevgrad. The total amount of damages is more than 500 million lv.

Late Activity of the State

In 1995 when most of the pyramids collapsed, department “Bank Contrpol” controlled 45 banks, 150
financial houses and more than 2000 change bureaus. The members of Parliament from the temporary
commission for checking the conformity with law of the so-called financial pyramids note in their
report introduced in the Parliament in July 1995 that the board of managers of BNB and personally
the chief of “Bank Control” Kamen Toshkov had never exerted their numerous rights as per the Law
for BNB and the Law for Banking and Crediting Activities (LBCA) to avert the activities of the
pyramids. It has not been stated what their rights are. These rights have been mentioned in a letter
from the Regional Prosecutor’s Office in Dobrich, ref. 809 dd Sept. 26 th, 1994. The said letter warns
department “Bank Control” that company “Yugoagent” in Dobrich carries out banking activities
without permission. A demand for punishing of the offenders in compliance with art. 58, par. 2 of
LBCA was addressed.

It can’t be explained why BNB keeps silent when the regional prosecutor in Dobrich protests with the
Supreme Court by ref. 1255 dd Jan. 19, 1995 against decision No 2505/1994 of the company
department of the regional court in Dobrich. This decision admits entering in the commercial register
that the activities of fund “Yugoagent – Investment” AD include making banking transactions like
financing of associate companies (credit contracts); transactions with securities; finance and other
type of brokerage; confidential administering of money, currency exchange.

Members of Parliament from the temporary inquiry commission draw the following conclusion: “In
all the cases when “Bank Control” has been referred to by the prosecution or by the Juridical
Department of the Central Bank the responsibility is laid upon “Bank Control” as an institution and
upon its chief Kamen Toshkov”.”

With ref. 3395 dd June 7, 1995 the Main Public Prosecutor has demanded from the Board of
Managers of BNB to activate the control functions of the Central bank referring to the existing in the
country pyramidal structures. On June 12,1995 the Main Public Prosecutor’s Office order all
prosecutors in the country to carry out inspections aiming at eventual discovery of illegal banking
activities by commercial companies for the purpose of gathering data for offences effected ref. art.
209, 212 252 and others of the Criminal Code. BNB does not respond to these documents. Joint
responsibility rules there and everyone waits for orders from the high officials. It’s quite strange why
they keep silent.

2
The silence of the regional tax departments during the pharaoh boom makes deep impression. The
pyramids every day overwhelm the citizens with advertising appeals promising high rates of interest
and dividends. But according to Bulgarian legislation commercial companies, which are not banks
may pay interests and dividends after having remitted to the state tax on their profits. The revenues
from interests received by the first depositors with the pyramids have not been “levied a tax” as per
art. 13 of the Law for Total Income from that time. There is a satirical explanation for this
misunderstanding – BNB asserts that the transactions of the pyramids are not banking and the revenue
from them should be levied. The tax collectors assert that they have always considered the pharaohs’
activities to be banking and for this reason they have not levied taxes on the interests.

For this reason people keep on asking themselves the following question:
Are pyramids a result of broad conspiracy?

The answer of state authorities so far is “No!”. Most of the politicians share the same opinion
although all the pyramids stick to one and the same scheme. They take money from private persons
against a contract for loans, change it into foreign currency and remit it abroad. Nevertheless “the
Regional Direction of Home Affairs and the Investigation Service in Varna do not dispose of data
showing common interests and actions of the “Pyramids”.

In fact, despite the great delay, on May 19, 1995 the Parliament made some corrections in the
Criminal Code. They declare concluding of bank transactions by profession without having a license
to be an offence. The new texts came into force from June 5 th. And the Varna pyramids collapsed
precisely at that time. This happened not for economical reasons but because of the will of the
pharaohs to escape the real danger of prison.

An important role for this played the Law for securities, stock exchanges and investment companies,
too. It was passed by the Parliament on June 30, 1995 and precluded all the possibilities to use for
gathering of deposits derivatives (?! – perhaps he means instruments) like “depositary notes”,
“depositary certificates” and shares having due date but no real cover
with assets.

The collapse of pyramids was predicted by the specialists from the Central Service for Fight against
Organized Delinquency. The policemen guessed the truth and this provided ground for the chief of
SDS (the Union of Democratic Forces) in Varna Dobrin Mitev to draw a very close correlation
between the pharaohs, the police and BSP (Bulgarian Social Party). He accused them of a conspiracy
against the savings of people.

Today the idea of conspiracy seems ridiculous. This was admitted even by the lawyers from Sofia
Krasimira Yaneva and Valya Karamfilova who conduct most of the lawsuits of depositors against
BNB. This, of course, does not replace the necessity to say whether BNB and the rest institutions
were guilty for the things that happened. And this is a great question having no answer.

Besides this it is time for the Parliament and for the government to find out and “card - index“ the
lawyers who made (and go on making) perfect contracts for old and new pharaohs and – why not – to
pass a law, which will forbid such lawyers to manage insurance companies, banks and all types of
companies in the financial field.

Houben Nenchev, “Banker”, # 25, June 22-28, 1998

3
Translation M. Radoulova
September 9, 1999