The Sunday Times - UK (2022-05-01)

The Sunday Times May 1, 2022 5

BUSINESS

illusion was shattered. The

US Securities and Exchange

Commission ordered him to

pay $17 million for facilitating

a $165 million “pump and

dump” scheme that allowed

executives at small US firms,

known as penny stocks, to

sell their shares in secret to

an unsuspecting public.

Gastauer was branded a

fraudster and earned himself

the nickname the “Wolf of

Canary Wharf ”, for the

parallels to the Hollywood

movie The Wolf of Wall Street,

in which Jordan Belfort and

his team illegally pumped up

the prices of penny stocks.

Gastauer began his career

at Deutsche Bank in the

1990s, before co-founding

Swiss asset management

business G&S in 1998. He

claims to have sold it five

years later and used the funds

to set up a payment-

processing firm called Apax.

However, in 2010, he was

given an 18-month suspended

sentence by a Swiss court for

allegedly cheating his G&S

business partner — later

convicted of fraud himself —

out of millions of pounds. He

denies wrongdoing.

Stepping up to the stage to

collect the Global Banker

award in May 2018, Michael

Gastauer smiled broadly.

“Look at this beautiful

award. Amazing,” said the

German businessman. Staff

from the fintech start-up

WB21 applauded their leader,

who had thrown a bash to

celebrate his claim to have

won five million customers

and a purported $10 billion

(£8 billion) valuation — for a

firm less than three years old.

WB21, based in London’s

Canary Wharf financial

district, said the award was

given to “exceptional

financial institutions for

revolutionary achievements”.

The problem was, the

award was not real — it was

created by the firm itself, not

bestowed upon Gastauer by

any external judges.

For years, Gastauer, now

47, portrayed himself to his

1.6 million Instagram

followers as a thriving

entrepreneur. The self-

professed financial “genius”

would travel by private jet,

relax on superyachts and sip

champagne at red carpet

events. But in March, the

Many

shops

have

stopped

paying

rent

Devoured by

scandals, but

the Wolf is

still a ‘genius’

Michael Gastauer has been assailed by

courts and regulators and told to pay

out millions of dollars — yet now he is

eyeing a London float. By Jamie Nimmo

the proceeds of those illegal

stock sales”. It said Gastauer

lied to banks about who

owned the shares.

Despite denying any

knowledge of Knox’s

activities, Gastauer was told

by the SEC in March to pay

$17 million. Meanwhile, Knox

has pleaded guilty to fraud.

Now back in London,

Gastauer’s ambitions are

undiminished. Speaking to

The Sunday Times, he said

the SEC had unfairly picked

on him, and blamed other

unnamed culprits at his firm

for the real wrongdoing.

“The SEC had a focused

approach targeting myself as

a private individual and as an

executive of the company,” he

said. Last month, the

Financial Conduct Authority

warned that Black Banx was

targeting UK consumers

despite lacking authorisation

to operate here.

Does the SEC fine spell the

end of his ambitions? Hardly.

Gastauer has his eye on a

London float. He said: “Wise

went public recently, Revolut

is planning an IPO. I believe

this is a possible future

scenario for us as well.”

two associates had to pay

recompense of $7 million.

Despite this history,

Gastauer has managed to

style himself as a visionary.

After setting up WB21 in

2015, he moulded an image

on social media of a serial

entrepreneur. He claimed to

be shaking up the banking

industry with his cutting-edge

company, which focused on

mobile bank accounts. The

fake award was used to

burnish his image further.

But the SEC had Gastauer

in its sights. By 2016, he had

established a relationship

with Belfast-born Roger

Knox, who opened bank

accounts with WB21 in the US.

Knox had created the

scheme to let executives of

small listed companies in the

US illegally sell shares in

secret. Knox would take a cut

of the proceeds.

In 2018, the SEC froze the

assets of Gastauer and Knox

and alleged that a US

subsidiary of WB21, now

called Black Banx, was set up

solely to enable the fraud.

The SEC said Gastauer had

used the bank accounts of his

US subsidiaries to “disburse

The same year, Apax hit

trouble. One of its biggest

customers, online gambling

giant Sportingbet, sued

Gastauer and others in the

High Court and alleged Apax

was set up in the UK to “drain

cash” from a Sportingbet

subsidiary. Gastauer called

the allegations “false and

baseless” but in 2011, he and

Michael Gastauer

has been

branded a fraud

and called “The

Wolf of Canary

Wharf”

K

irill Stepanov is getting

ready to spend more time at

his modest dacha tending to

his tomatoes, cucumbers

and potatoes in a patch of

countryside 45 kilometres

southeast of Moscow. Kirill,

who arranges customs clear-

ance for expensive jewel-

lery, said his employer had

started to lay off staff and send others on

unpaid leave as the Russian economy flat-

lined. His company works for the upmar-

ket retailer Mercury, which sold luxury

brands such as Rolex, De Beers, Omega

and Chopard to wealthy Russians — until

western sanctions hit.

“The business model is collapsing,”

said Kirill, 42, who has worked for the

same firm for 12 years and was paid

70,000 roubles (£675) a month. “We have

gone from processing 1,500 Rolexes a

month — half of them gold — to nothing.”

Kirill, his wife Masha and their teenage

daughter are already making adjust-

ments in the expectation that his job will

be lost too. “We won’t be going on our

holidays to Greece or Turkey for a long

time, so I am glad that we invested all of

our savings last year upgrading our

dacha,” he said. “If the worst comes to

pass, we are almost self-sufficient and

can live here year-round.”

They are among the human faces of

the economic crisis rapidly sweeping

through Russia as Vladimir Putin’s war in

Ukraine hits the home front.

Russia could lose at least two million

jobs this year after 700 foreign compa-

nies left the country or suspended their

activities. Almost half of Russian firms

have stopped or cut their recruitment

plans and a quarter have laid off staff,

according to analysts Headhunter.

Economists are predicting the worst

recession since the 1990s: a contraction

of up to 20 per cent in GDP. Manufactur-

ing fell in March at its fastest rate since

Covid struck.

Renaissance Capital predicts inflation

will peak at 24 per cent this summer, but

some analysts are more worried about

long-term structural damage as Russia

reverts to a command economy after 30

years of capitalism.

Estate agent Olga Ivanova, 42, said

demand for Moscow property has col-

lapsed after an initial frenzied spending

spree saw people rushing to find a store

of value for their plummeting roubles.

“We had dozens of cash buyers for

apartments, garages and parking spots

after the invasion,” said Ivanova. “Every-

thing is grinding to a halt now. The cash

buyers have disappeared and the people

with mortgages had only one month to

draw down at the old rate of 7 per cent.

It’s now way too expensive to buy in Mos-

cow with interest rates at 25 per cent.”

The impact of Russia’s slowdown will

filter out to surrounding nations, too.

Ivanova, who works with new apartment

complexes in central Moscow, said that

Tajik, Uzbek and Kyrgyz construction

workers have downed tools and gone

home due to the plunging rouble. Central

Asian workers on building sites in Russia

can account for up to 40 per cent of GDP

back home — but the money dries up

when the rouble dives.

“We were seeing 30 to 40 new devel-

opments a year in Moscow, but now there

are none,” added Ivanova, who had just

come with her children from a Kimomax

cinema which now shows only Russian

nies may soon issue bonds and equity on

the Moscow exchange.

With no prospect of regime change,

Russia is fast tumbling back into an epoch

resembling the 1990s, which was charac-

terised by wrenching depression, hyper-

inflation, black markets, bartering, rack-

eteering, illegal casinos and daylight

assassinations by Chechen hitmen.

Black markets for buying hard cur-

rency and western medicines are already

emerging in Moscow and other large cit-

ies. Georgiy Karpin, a private tutor, had

to buy euros at an unofficial Moscow cur-

rency booth to pay for anaesthetics for

his dog’s operation.

“I bought euros for 125 roubles when

the ‘official’ rate was 88,” said Georgiy,

28, “The vets have run out of western-

made drugs and Russian ketamine hasn’t

been approved yet, so I had to pay

through the nose to save the family’s Ger-

man shepherd.”

The rouble, which has recovered to

pre-invasion levels, is now regarded as a

synthetic currency due to capital con-

trols and restrictions on buying hard

cash. Alexei Kudrin, who served as

Putin’s finance minister for 11 years, said

last year that the rouble gaining its freely

convertible status in 2006 was “one of

proudest moments of his life”.

Newly unemployed banker Alexey

Kravchuk’s family of four are stuck in

Moscow because, with all of his assets

being in non-convertible roubles, they

can longer afford to emigrate. “I don’t

expect to be sowing seeds and harvesting

my own potatoes,” said Alexey, 46, who

lives in a large house in an affluent sub-

urb. “But we will probably stay. It’s better

to be unemployed here than have no

money and be unemployed in Australia.”

H

owever, Alexey and some of his

laid-off friends are fearful they

could be punished for not working.

This is what happened during the

USSR, when the constitution

enshrined labour as not only the “right”

but also the “duty” of each citizen. Com-

rades who failed to toil faced criminal

penalties, including deportation away

from their native regions.

Outside Moscow and the larger cities,

the simpler lifestyle of most Russians

does not seem to have been affected too

much by the sanctions or the economic

slump. Western boutiques and American

fast-food chains are few and far between

in towns in the Nizhny Novgorod region.

“We are muddling through as we have

done before,” said Marina Voronova, 56,

a radiographer in a town on the Volga

river about 80 kilometres from Nizhny

Novgorod. “All the western medicine has

vanished, but the Indian and Chinese

equivalents are plentiful in our pharma-

cies. The prices of bread, pasta, sugar

and the staples have gone up, but every-

thing else is the same.”

Meanwhile, at Kirill’s dacha, his neigh-

bour, Stepan, has joined to help marinate

meat for skewering later on the barbe-

cue. Stepan, a 67-year-old widower, is

more philosophical than his friend. A

former physicist, he remembers the wild

1990s, when he worked variously as a taxi

driver, a ticket tout and a stockbroker,

before ending up employed in logistics

for 20 years for multinational firms.

“We have lived through tough times

before and we can survive whatever is

coming,” said Stepan, who recently

restarted making samagon — a potent

moonshine distilled from sugar, beets

and potato.

“As long as we have a little drop of my

samagon, we will be able to forget about

our foreign holidays and our Swiss

Rolexes. It’s not Chivas, but it will do.”

lThe names of some of the people

mentioned in this article have been

changed for security reasons

Western shops

remain shuttered

in Moscow

People

who

drank

plonk

will turn

to vodka

films. “Even if we had the workers, the

cost of materials has already risen

100 per cent and logistics by 40 per cent.”

The crisis is the worst that Tim Millard,

a British director at property consultant

Jones Lang LaSalle, has witnessed in his

19 years living in Russia. “The economy

has gone back 20 years or more in a mat-

ter of weeks: the impact on property mar-

kets will be profound,” he said. “Previous

crises have tended to spur consumer

spending, but the current uncertainty

caused by the war, on top of already frag-

ile sentiment, will cause a significant

slowdown.”

Millard, 51, has been deployed to the

Dubai team while his firm exits Russia in a

management buyout by local partners.

Vacancy rates at some shopping malls

have already climbed to 70 per cent of

tenancies, while office blocks may soon

be 25 per cent empty.

“I’ve heard that many retailers have

stopped paying rent as they try to pre-

serve cash,” Millard said.

O

lga Smirnova, a wine and spirits

importer and distributor, said

panic buying has subsided after the

European Union introduced sanc-

tions banning the sale of wine and

champagne above €300 (£250) a bottle.

One long-term client bought a pallet of

600 bottles of Grey Goose vodka;

another customer dropped millions of

roubles on 400 bottles of premium

French and Italian wine.

“The big stockists have enough wine

for a year, but we will eventually have to

source from Argentina, Chile and Uru-

guay,” said Olga, 53. “The people who

used to drink cheap French plonk for the

equivalent of seven euros won’t be able to

afford it and will have to turn to vodka.”

The Central Bank, run by Putin loyalist

Elvira Nabiullina, is relaxing rules to help

banks and companies survive. The regu-

lator recommended that banks no longer

have to comply with strict capital ade-

quacy ratios, nor pay dividends. Lenders

also will not be required to create addi-

tional reserves for assets hit by sanctions.

Unemployment is expected to double

to at least 8 per cent. The government,

which controls large swathes of the finan-

cial, energy and industrial sectors, may

be able to control spiralling joblessness

by forcing millions of workers to take

unpaid leave, like during the pandemic.

Amid spiralling inflation, the govern-

70%

Vacancy rates at some

Moscow shopping malls

ment is mulling regulating prices for

goods from food and medicine to chil-

dren’s clothes, household chemicals and

pet products due to rising scarcity. It is

monitoring the price of 24 products from

a list of “socially significant goods”,

which include bread, wheat flour, milk,

eggs, sugar, salt and some types of meat.

Duma deputy Arkady Ponomarev has

called for price controls for milk and

cheese, reminiscent of the old days. “One

of the ways we kept products on the

shelves in the USSR was to sell them in

smaller portions and in packaging that

was less convenient for consumers,” Pon-

omarev, founder of the Russian dairy pro-

ducer Molvest, told a news channel. “We

probably won’t revert to milk in cans.”

A

gainst the backdrop of six packages

of western sanctions, St Peters-

burg-based economist Gennady

Braginsky said the Kremlin had qui-

etly begun removing economic sta-

tistics and corporate data from public

access as creeping nationalisation kicks

in. “We are worried that it will make it

more difficult to make accurate fore-

casts,” said Braginsky, 37. “There will

inevitably be more nationalisations in

areas of the economy that are very weak,

such as aviation, finance and insurance,

but it’s premature to say if we are return-

ing to a full command economy.”

The state’s share of the banking system

jumped to about 70 per cent in late 2017

after three of the five biggest private

banks in Russia went under due to poor

practices and illegal actions. That share

will rise further as the Kremlin is forced

to rescue more privately owned lenders.

Government agencies are reaching out

to other pariah states: the Moscow Stock

Exchange held talks last week with the

bourse in Tehran about how to operate

under severe sanctions. Iranian compa-

ILLUSTRATION: TONY BELL

Moscow doing

the time warp

Hyperinflation, two million job losses, and a

revival of the black market: Russians fear a

return to the days of the Yeltsin-era gangster

economy, says Jason Corcoran