The complicated case of Ihor Kolomoisky and Gennadiy Boholiubov, who operated a mosaic of entities with U.S.-based partners and managers under the Optima Ventures umbrella, ensnared Michigan Seamless Tube LLC, which has a factory on McMunn Street that employs hundreds.
For years, South Lyon's largest employer was owned by two Ukrainian oligarchs accused of laundering billions stolen from the bank they owned by purchasing commercial real estate and businesses. Few people in Michigan noticed.
The complicated case of Ihor Kolomoisky and Gennadiy Boholiubov, who operated a mosaic of entities with U.S.-based partners and managers under the Optima Ventures umbrella, ensnared Michigan Seamless Tube LLC, which has a factory on McMunn Street that employs hundreds.
Aside from perhaps the South Lyon Community Schools district, it is the west Oakland County community's largest employer, said Nathan Mack, the community's economic development and DDA director.
Notices of the Michigan Seamless' June 2008 purchase are, at best, dry.
Within a few years, the company became a bit splashier under parent company Optima Specialty Steel Inc., announcing a $25 million investment in new equipment in 2013.
It was all a sham that could have collapsed the economy of the now war-torn country that's battling the invading Russian army.
Less than a decade after buying Michigan Seamless Tube — which through David Ascher, the company's vice president, general counsel and secretary, declined comment — Optima Specialty Steel filed for Chapter 11 bankruptcy protection in 2017, the South Lyon Herald reported at the time.
But in hindsight, obviously, even from the outset, it was never going to end well.
Federal court documents say Michigan Seamless Tube was purchased in June 2008 using $74.5 million in misappropriated funds. That includes $28 million from PrivatBank Cyprus and $1.5 million from PrivatBank in the Ukraine, both of which court filings say were owned and controlled by Kolomoisky and Boholiubov.
The $29.5 million passed between bank accounts for 16 different LLCs' bank accounts in 28 different transactions and then was coupled with $45 million more that was laundered, according to the feds.
And with that, Michigan Seamless Tube — which can produce 40,000 tons of pipe and tube annually, according to the feds, and has operated continuously for nearly a century — was controlled by billionaire oligarchs, one of which would later play a bit part in the first Donald Trump impeachment trial.
It wasn't just Michigan Seamless locally that fell victim to Boholiubov and Kolomoisky, who the Washington Post reported is tied to Ukrainian President Volodymyr Zelensky. Prior to his election, the now-president starred in a comedy show on Kolomoisky's television network.
A civil case filed in the Delaware Court of Chancery says Optima Specialty Steel in December 2011 bought Niagara LaSalle Corp. and its five steel production facilities, including the one in Warren, as part of a $236.1 million deal. The Warren facility is at 22700 Nagel St. east of Hoover Road and south of East Nine Mile Road.
Another entity, Steel Rolling Holdings Inc., another defendant in the Delaware case, in May 2006 paid $20 million for the 600,000-square-foot Detroit Cold Rolling Facility in Gibraltar, running the plant from 2009 to March 2015 when it was sold to Ferragon Steel Rolling, according to the filing.
And in Cleveland, Kolomoisky and Boholiubov spent at least $180 million on downtown real estate, my colleagues at Crain's Cleveland Business have reported the last few years. Federal agents raided Optima's offices in August 2020 and it's been a steady drumbeat of bad news since.
The U.S. Department of Justice says in varying criminal complaints and federal court filings that Kolomoisky and Boholiubov each owned about 45 percent of PrivatBank, which was founded in 1992, and made more than $5 billion in loans to themselves from the bank. Various reports about the scandal say that they have denied wrongdoing.
Nevertheless, the fraud that was uncovered in 2016 was a cataclysmic shock.
The DOJ says it held one-third of Ukraine's deposit accounts and deposits totaling more than $6 billion, accounting for 25 percent of the country's banking sector. It had to be nationalized and bailed out by the National Bank of Ukraine with $5.5 billion.
Zelensky has reportedly not been in favor of returning control of PrivatBank to the oligarchs.
The feds have sought forfeiture of various real estate assets the men accumulated with the ill-gotten funds, including in Cleveland, Dallas and elsewhere.
Others implicated in the scheme are Mordechai Korf, based in Miami, who partially owned and operated dozens of U.S. entities for Kolomoisky and Boholiubov; and Uriel Laber, also based in Miami, who worked with Korf.
The U.S. Department of Treasury, through the Financial Crimes Enforcement Network, or FinCEN for short, is attempting to get a better handle on the broader problem: The ease with which money can be laundered through real estate transactions.
Global Financial Integrity, a Washington, D.C.-based NGO, found in an August 2021 report called "Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrat's Dream" that at a minimum, more than $2.3 billion was laundered through U.S. real estate between 2015 and 2020 across 125 reported cases.
The NGO says that Treasury's use of what are known as geographic targeting orders, or GTOs, is "insufficient."
The most recent GTO — which requires American title insurance companies to report the identities of people behind shell companies buying residential real estate in cash valued at $300,000 or more — expired April 29. It covered Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
Tom Cardamone, president and CEO of Global Financial Integrity, said in a press release last year: "It is clear that despite their best efforts, the U.S. government's attempt to address money laundering — particularly the use of real estate — has fallen short of what is required to address this growing problem. More needs to be done, including requiring real estate agents and lawyers to report certain purchases to the Treasury Department, so that the United States rises to global best practice."
In the past six months, FinCEN held what's known as an Advance Notice of Proposed Rulemaking period, during which it solicited comments and suggestions on ways to address what it called "systemic money laundering vulnerabilities presented by the U.S. real estate sector," an issue which "threatens U.S. national security and the integrity of the U.S. financial system."
That period ended in February, and a FinCEN spokesperson said in an email last week that it is "currently reviewing comments and cannot speculate on whether or any any such regulations might be proposed."
Unlike markets like Miami and New York, for example, using real estate to launder money has never been a foremost concern in the Detroit area, said Will Thomas, an assistant professor of business law in the University of Michigan Stephen M. Ross School of Business in Ann Arbor.
That's because people laundering money are looking for ways to launder the most in the quickest amount of time. And although Detroit has expensive homes, they are more expensive in other markets — and those expensive homes can trade hands a lot quicker.
"You're looking for markets where you can make transactions that are large and liquid markets where you can offload it quickly," he said.
And although Thomas said that "in principal it's a good idea" to have more specific nationwide reporting regulations — not just targeting certain markets — the "devil will be in the details."
"It could be extremely costly and not have a lot of good outcome," he said. "One of the biggest problems FinCEN is going to have is that property law is state law. The feds have a lot of say on the banking stuff and can put these requirements on insurers, but at the end of the day the feds are going to have to coordinate with 50 different secretaries of state."
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