Police investigation ensues in stock brokerage bankruptcy

Earlier this week, the largest Czech brokerage company specialising in American stocks suddenly declared bankruptcy. Although representatives of the company deny allegations of any fraudulent activities, the case is being investigated by a police unit that specialise in fighting serious economic crime. Vladimir Tax reports.

Private Investors is a Czech brokerage company that has focused primarily on trading on US stock markets. On Monday, company representatives informed the Czech Securities Commission that they intended to declare bankruptcy.

Managers at Private Investors claim that long-term developments on the capital markets in the United States are behind the company's problems. But the Securities Commission believes that there has likely been a failure in internal controls that are mandatory for securities dealers.

The commission has therefore launched an investigation into the company's activities, and access to all of Private Investors' accounts has been blocked. The commission has also logged a legal complaint against the company's management for breach of fiduciary duty in managing clients' assets.

Private Investor's clients say the company has not provided any official explanation, does not respond to phone calls and has switched off its website. Under Czech law, clients can get some of their money back from the Stock Brokers Guarantee Fund. The overall debt has not yet been calculated, but according to preliminary estimates, it could run to tens of millions of US dollars. However, apparently only some 1,500 of the company's 2,400 clients have the right to compensation.

As chance would have it, the headquarters of Private Investors are at the same address as the former investment fund Futurum Aurum, owned by Russian businessman Alim Karmov, whose company collapsed after large-scale asset stripping several years ago. However, observers say that unlike in other suspicious bankruptcy cases, Private Investors' managers are probably in a very similar situation to their clients.