ABOUT THE CORRUPTION IN ROMANIA, WHICH DESTROYS BUSINESSES AND LIVES

Chapter III                                                                                                                        Chapter V

CHAPTER IV – THE DEFRAUDING MECHANISM AND THE VALUE OF DAMAGES

 

which were caused to the state, to the companies and to the undersigned

            A. The Defraud and Damages Caused to the State, Farmec and to the Undersigned:

A.1. As a result of the illegal ISSUANCE by the officials of Farmec of a number of 5,294,256 shares, failing to comply with the Law and the European Directive and as a result of using shares when voting in the shareholders’ meetings, shares that were not subscribed and not paid by the shareholders nor by Farmec

A.2. As a result of ANAF’s refund of excise duties for refined non-distorted alcohol[1]  with a concentration of 96.5%, usable in the industry of spirit drinks (vodka, gin) without the Farmec officials presenting the documents provided by law (see Annex 9 – requests for returning the excise duties, control reports, decisions to return excise duties).

 

          1) TAKING THE CONTROL OVER THE FARMEC COMPANY. ILLEGAL OPERATIONS WITH THE SHARES OF FARMEC COMPANY.  MODUS OPERANDI.   

 

On the date of privatisation in 1995, Farmec SA issued a number of 649,318 shares with a rated value of 25,000 ROL/share, at the time being the equivalent to 16 US Dollars per share.  At that time, part of the company’s shares were not subscribed by shareholders, were not paid by shareholders, but by the company and later became the possession of the individuals of the Turdean and Pantea families.

However, when voting, the officials of Farmec have used the shares that have not been subscribed and have not been paid by the shareholders in the shareholders’ AGA meetings, in order to make new decisions in violation of the law, including on decisions to increase the share capital by cancelling my right of preference, without evidence that the shares had paid by the shareholders, Annex 2, excerpt from the register of shareholders, which shows that 81,246 shares were stopped at the disposal of the Farmec Pas Association. Although they have not been subscribed, have not been paid, these shares were used for voting until now, received dividends and were later transferred on the names of Turdean and Pantea, although according to Art. 273 par. (b) of the Law on Trading Companies, it is forbidden to use shares for voting, which are unsubscribed by the shareholders, and Art. 101 of the same law prohibits the use of shares in voting, which are not paid by shareholders. Please also read Annex 6 – the note of expert Violeta Radu in the civil case 1514/1285/2012 of the Tribunal of Constanta, which points out that of a number of 649,318 shares, requests for subscription only for a number of 246,467 shares and Annex 7 – payment order since 1995, Farmec SA to the Farmec PAS Association were submitted.

The Supreme Court of Justice of Romania ruled with the force of res judicata by the irrevocable decision 2390/2008 (see Annex 224) that the valid shares are the shares that have been paid by the shareholders and not by other individuals.

Although Art. 8 of the Farmec’s statutes regulate that it is forbidden to receive new individuals other than the founding shareholders of 1995, according to the excerpt: “nominative shares are transferable only between shareholders” … „the shares acquired under the conditions of these instrument of incorporation can be transferred to third parties only by legal inheritance”, (please also read the company’s statutes – Annex 215), in the register of shareholders and on the list of individuals there are new individuals who participated in voting, later in the shareholders’ meetings, including individuals from the families of Turdean and Pantea.

 

          2) THE PRICE OF THE FARMEC SHARES HAS DROPPED from 16 US Dollars per share to 0.6 US Dollars (2.5 lei).    

 

Since 1995, I am a significant founding shareholder of the joint stock company Farmec SA, with the registered office in Cluj Napoca, a city located in the Transylvanian region of Romania. At that time, during the privatisation of this company, I invested a large amount of money in buying shares at Farmec SA, which I had strong business relations with. At the time of the privatisation of Farmec SA, the price of 25,000 ROL per share represented the equivalent value of 12 US Dollars per share, the equivalent value of 2.5 lei today. In 1998, the company issued 200,000 shares to finance the purchase of a new aerosol factory, when we also contributed to this capital increase and thus we acquired 280,000 shares of the company, representing 34.49% of the legal share capital of 809,000 shares of the company), (see Annex 1 – share certificate).

 

          3) THE SEQUENCE OF ILLEGAL OPERATIONS that contributed TO THE DISPOSSESSION OF MY PROPERTY

 

            as a result of the fact that the company’s administrators have illegally issued 5,294,256 shares.

            In 1995, Farmec was privatised and 649,312 shares were issued at a price of 25,000 ROL per share, the equivalent value of 16 US Dollars per share.

Through successive illicit operations, individuals from the Turdean and Pantea families, by using their three-fold quality of shareholders, administrators and managers in the company, have acquired the CONTROL OVER THE JOINT STOCK COMPANY, meaning that at the time of the company’s privatisation in 1995, the two families had under 1% of the shares, and currently, after the transactions with the company’s shares and illegal releases, they have more than 65% of the company’s shares, while the quota of the undersigned to participate in the share capital reached 11.12% from 34.49%, as a result of illegal increases in the share capital.

In 1995, upon the privatisation of SC Farmec SA, Turdean Liviu held 1,323 shares representing 0.20% of the share capital, and together with the members of his family – Turdean Mircea Liviu, Turdean Ovidiu Horea, Turdean Ioana Virginia, Turdean Mihaela in 1995, at the time of the company’s privatisation were not shareholders or employees – at the beginning of 2002, they held together 9.27% ​​of the share capital.

Between 1998 and 2016, the binomial consisting of Turdean and Pântea proposed and ordered the increase of the share capital by 5,294,256 shares at the (historical) price of 2.5 lei / share, equivalent to 0.5 Euros/share, by means of measures with express dedication preventing me to participate in these increases and without imposing a first issuance to equalise the rights of the existing shareholders with the rights conferred by the new shares.   In this way, the members of the Turdeanan and Pântea families acquired approximately 77% of the newly issued shares, getting to currently have approximately 60% of the company’s shares, compared to shares acquired in 1995, which represented 0.4% of the share capital at the time of the privatisation.

            In 1998 – the administrators Turdean and Pantea also proposed the increase in the share capital,

            a) with 278,944 shares representing the equivalent value of the equipment that was received free of charge from ONUDI, as a result of the falsification of official documents, the said Liviu Turdean illegally recorded these shares in the share capital. The falsification of official documents and the transfer of certain equipment in company’s shares, equipment that was received free of charge had the goal to increase the number of shares held on that date by the individuals Turdean and Pantea by implementing the court decision given through the conclusion of August 11th, 1998 which orders: “…These shares shall be assigned to the employee-shareholders proportionally to the quotum of the share capital held on that date”.  Please also read Annex 323 – the conclusion of August 11th, 1998 

            The 278,944 shares at 2.5 lei per share, the equivalent value of 0.4 US Dollars, were to be distributed only to shareholders who were also company’s employees, proportionally to the quotum of the share capital held on that date and not to all the company’s shareholders, as it would have been normal if the increase in the share capital would have been legal, which equated with the exclusion of the undersigned from the acquisition of a number of shares from this issue, corresponding to the quotum of the share capital I had at that time.

            Later, the judge Pop F Ioan became the lawyer of the employees of the individuals who were defendants in the criminal cases and received over 400,000 lei from the company 

            Decision no. 335/2010 of the Tribunal of Bucharest found the falsification of the official documents and the deed of abuse of office regarding the increase (please also read the certificate of the decision – Annex 324), as well as the observation of the criminal trial termination due to the intervention of the prescription. In this case, the said Turdean and Pantea have enjoyed the „support” of the General Prosecutor of Romania.

            Maybe that explains why at that time the Prosecutor’s Office rejected two proposals for arrest that were formulated by the police through the General Directorate of Crime Investigation. The proposals for release from the criminal prosecution proved later on to be illegal, being made only with the result of delaying the settlement of the criminal trial 305/P/2000 for the prescription intervention

The European Court of Human Rights, through the DECISION taken in the meeting of 27.05. 2014, took note of the Government’s Declaration on acknowledging the existence of a violation of Art. 6 par. 1 of the CONVENTION, which results from the excessive duration of the internal proceedings in relation with the criminal case in which the plaintiff participated as civil party and which Nicolae Cristinel Olaneanu referred to in the request 28962/2004 against Romania, respectively the aforementioned criminal case.

            b) with 200,000 shares in cash in order to build the infrastructure for the factory of CFC-free deodorants, because the company received the equipment from ONUDI free of charge.  The undersigned, I have subscribed and paid 65,000 shares to support this project with new technology   

The difference up to 200,000 shares issued additionally was acquired mainly by the administrators and managers of the company, but also by other employees. However, the payment of the value of the shares by the aforementioned individuals was not made from their personal money but by granting some bonuses from the funds of SC FARMEC SA, bonuses that corresponded to the number of shares subscribed by each individual, the amounts representing the value of these bonuses being used for the acquisition of shares from the additional issuance (these issues arise from the criminal file 305/P/2000 of the Prosecutor’s Office attached to the High Court of Cassation and Justice, settled definitively by the Criminal Decision no. 52/13 January 2011). In connection with these 200,000 shares issued in cash in 1998, it was found during an expert examination at the Court of Appeal of Bucharest with the res judicata by the final Decision no.  522/06.11.2007 that of the total of shares issued, there were 40,281 unsubscribed shares and 15,312 unpaid shares. The final Decision no. 522/06.11.2007 having the object the request for cancellation of the AGA decision dated 22.10.2004 to increase the share capital by 680,000 shares, thus limiting the plaintiff.

            In 2000, in order to protect my investment already made in Farmec SA in Cluj Napoca, against the abuses of the administrators Turdean and Pantea, the undersigned, I have bought a number of 90,000 shares that were legally issued and traded, which the officials of Farmec refused to register in the register of shareholders

On May 17th, 2000, the said Turdean and Pantea proposed and ordered a shareholders’ decision in order to limit the undersigned, so I would not have a percentage higher than 22% of the shares that make up the share capital of the company.  The Tribunal and the Court of Appeal of Suceava considered the prohibition of the right to have more than 22% of the shares in the share capital to be illegal (see Annex 325 – the decision of Suceava)

On March 6th, 2012, I submitted a request to the company for the registration of the shares into the company’s register. In relation to the circumstance that the administrators Turdean and Pantea refused to register my shares in the register of shareholders, I submitted the file to court. The sentence no. 2036 / 01.11.2004 of the Tribunal of Mures and the Decision no. 51/15.09.2005 of the Court of Appeal of Targu Mures (see Annex 326) forced Farmec to register my shares.

            In 2002, during the AGEA of March 12th, 2002 , the administrators Turdean and Pantea proposed an undervalued price of 2.5 lei/share although the rated value was 77.385 lei, with 280,000 shares by cancelling my right to subscribe new shares, according to the excerpt from the attendance note “a shareholder shall not be able to have more than 25% of the company’s share capital”.  During the same meeting, it was decided to reduce the share capital by 278,944 shares for the equipment received free of charge from Onudi Vienna.  This AGEA decision was cancelled by the irrevocable decision no. 180/13.03.2003 of the Court of Appeal of Oradea.

In the second AGEA of December 12th, 2002 it was observed that „at the AGA of March, the proposal to issue new shares that were to be subscribed by the shareholders proportionally to the number of the shares they have, with certain exceptions …” and that „the approval of the increase of the share capital by 7 billion lei, by issuing 280,000 shares at the value of 25,000 lei per share, under the conditions established in the AGA of March 12th, 2002 … (Annex 23¹ – AGE minutes of December 12th, 2002) 

            Contrary to the AGA Decision of March 12th, 2002, out of the 280,000 shares issued, a total of 166,256 shares – representing approx. 53.96% of the total share capital increase – were acquired by TURDEAN LIVIU, PÂNTEA PETRU IACOB and members of their families, namely: Turdean Liviu acquired 34,382 shares, representing 12.27% of the total shares, Turdean Mircea Liviu purchased 1,154 shares, representing 0.41% of total shares, Turdean Ovidiu Horea purchased 60,753 shares, representing 21.70% of the total shares, Turdean Ioana Virginia purchased 20,485 shares, representing 7.31% of the total shares, Pântea Petru Iacob purchased 49,482 shares, representing 12.27% of the total shares

In the second AGEA of December 12th, 2002 it was decided to amend Art. 8 last par. of the Company’s statutes, in the sense that „A shareholder may not have more than 190,000 nominative shares of the company”, although in the NOTE OF ATTENDANCE for that AGEA, published in the Official Journal no. 2401/14.11.2002, and the agenda specified „the amendment of Art. 8 last par. of the statutes, based on the request of a group of shareholders according to the provisions of Art. 119 of Law no. 31/1990, respectively a shareholder may not have more than 17% of the share capital”

            In 2003, the company’s administrators initiated, organised and performed two general meetings of the shareholders (AGA) of SC FARMEC SA to increase the company’s share capital by 480,000 shares, through an issuance of cash shares at an undervalued price and without an issuance bonus, according to the Regulation adopted in the AGA on March 12th, 2002, and by illegally limiting the right of the undersigned to subscribe new shares.

The decision to increase the share capital through the additional issuance of 480,000 shares at the rated value of 25,000 lei/share and „under the conditions of the Regulation adopted by the Extraordinary General Meeting of February 12th, 2002″ , therefore by cancelling the right of the undersigned to subscribe shares from the new issuance, it was taken during the AGEA of January 31st, 2003, and this decision was cancelled by the irrevocable decision no. 3453/07.06.2005 of the High Court of Cassation and Justice

In the second AGEA of September 5th, 2003, it was found that „in the extraordinary AGA of January 30th, 2003, needing liquidities, the proposal to increase the share capital by was approved, by issuing 480,000 new shares and the new regulation to subscribe them has been approved” and that „all newly issued shares have been subscribed and paid” (AGEA minutes of September 5th, 2003). Out of the 480,000 newly issued shares, under the conditions of preventing the undersigned to subscribe, a number of 315,826 shares – representing approx. 66% of the total share capital increase – were purchased by TURDEAN LIVIU, PÂNTEA PETRU IACOB and members of their families, respectively: Turdean Liviu purchased 82,532 shares, representing 17.19% of the total shares, Turdean Mircea Liviu acquired 21,364 shares, representing 4.45% of the total shares, Turdean Ovidiu Horea purchased 79,857 shares, representing 16.63% of the total shares, Turdean Ioana Virginia purchased 38,734 shares, representing 8.069% of the total shares, Pântea Petru Iacob purchased 93,329 shares, representing 19.44% of the total shares, Turdean Mihaela purchased 10 shares, representing 0.002% of the total shares

            In 2004, the company’s administrators initiated, organised and performed a general meeting of the shareholders of SC FARMEC SA to increase the company’s share capital by 680,000 shares, through an issuance of cash shares at an undervalued price, without an issuance bonus and by illegally limiting the right of the undersigned to subscribe new shares.

The decision to increase the share capital through an additional issuance of 680,000 shares was taken in the AGEA of October 22nd, 2004 , a decision that was cancelled by the decision no.  522/06.11.2007 of the Court of Appeal of Bucharest (Annex 15¹) , which became irrevocable following the rejection of the appeal of SC FARMEC SA based on the decision 2390/02.07.2008 of the High Court of Cassation and Justice (Annex 37¹) , among the reasons for the illegality of the AGEA decision the court established/determined the following:

  • the violation of the right of preference provided in Art.  216 of Law no. 31/1990
  • the existence of 40,281 unsubscribed shares, out of which 15,312 unpaid shares, which contradicts the provision stipulated in Art.  92 Par. (3) of Law 31/1990
  • „by changing the shareholding structure, given that the accounting value of a share was more than 15 times higher than the rated value without the issuance bonus, the ratios between the shareholders who could exercise the right of pre-emption and those who had it blocked became unbalanced.

            Of the 680,000 new shares issued by the AGEA Decision of October 22nd, 2004, 513,466 shares – representing approx.  76.5 % of the total share capital increase – were purchased by TURDEAN LIVIU, PÂNTEA PETRU IACOB and members of their families, namely: Turdean Liviu purchased 79,061 shares, representing 11.62% of the total shares, Turdean Mircea Liviu purchased 87,466 shares, representing 12.86% of the total shares, Turdean Ovidiu Horea purchased 83,662 shares representing 13.30% of the total shares, Turdean Ioana Virginia purchased 63,551 shares, representing 9.35% of the total shares, Pântea Petru Iacob purchased 73,957 shares, representing 10.87% of the total shares, Turdean Mihaela purchased 46,823 shares, representing 6.88% of the shares, Bria Sebastian, the nephew of Pantea Petru Iacob, purchased 78,946 shares, representing 11.61% of the total shares.

            In 2007, the company’s administrators initiated, organised and performed a general meeting of the shareholders of SC FARMEC SA to increase the company’s share capital by 800,000 shares, through an issuance of cash shares at an undervalued price, without an issuance bonus and by illegally limiting the right of the undersigned to subscribe new shares.

The increase of the share capital through an additional issuance of 800,000 shares was done following two AGEAs on September 27th, 2007 and December 6th, 2007, being cancelled by the sentence no.  53/01.07.2009 of the Tribunal of Cluj (Annex 8¹), which became irrevocable by the Decision no.  36/11.05.2010 of the Court of Appeal of Galaţi (Annex 8¹), among the reasons for the illegality of the AGEA decision the court established/determined the following: 

  • the violation of the right of preference provided in Art.  216 of Law no. 31/1990
  • the existence of 40,281 unsubscribed shares, out of which 15,312 unpaid shares, which means the violation of the provision stipulated in Art.  92 par. (3) of the LSC      
  • the existence of an undervalued price per share, the issuance being carried out without the issuance bonus
  • the lack of the right of preference and the right of pre-emption;      
  • the lack of the reference date      
  • the nullity of the mandates used to achieve the quorum

Of the 800,000 shares newly issued in 2007, a total of 584,231 shares – representing approx.  73 % of the total share capital increase – were purchased by TURDEAN LIVIU, PÂNTEA PETRU IACOB and members of their families, namely: Turdean Liviu purchased 85,465 shares, representing 10.68% of the total shares, Turdean Mircea Liviu purchased 85,465 shares, representing 10.68% of the total shares, Turdean Ovidiu Horea purchased 85,465 shares, representing 10.68% of the total shares, Turdean Ioana Virginia purchased 79,510 shares, representing 9.93% of the total shares, Pântea Petru Iacob purchased 85465 shares, representing 10.68% of the total shares, Turdean Mihaela purchased 81,636 shares, representing 10.20% of the total shares, Bria Sebastian, the nephew of Pantea Petru Iacob, purchased 81,225 shares, representing 10.15% of the total shares.

            In 2008, the Company’s administrators initiated, organised and held a general meeting of the shareholders of SC FARMEC SA for the illegal reduction of the share capital by 200,000 shares issued in 2008 (in order to reduce the number of shares legally held by the undersigned) and at the same time, for the increase in the company’s share capital by 880,000 shares, through an issuance of cash shares at an undervalued price, without an issuance bonus and by illegally limiting the right of the undersigned to subscribe new shares.

The increase of the share capital by 880,000 shares was done following the AGEA decision of August 12th, 2008, which was cancelled by the sentence no.144/1811/2009 of the Tribunal of Piteşti, which became irrevocable by SC FARMEC SA failing to exercise the legal remedies

            In 2009, the company’s administrators initiated, organised and performed a general meeting of the shareholders of SC FARMEC SA to increase the company’s share capital by 695,000 shares, through an issuance of cash shares at an undervalued price, without an issuance bonus and by illegally limiting the right of the undersigned to subscribe new shares.

The increase of the share capital was made following the decision taken in AGEA on 09.07.2009, which was cancelled by the sentence no. 210/13.02.2011 of the Tribunal of Dolj, the court considering that „the decision of the extraordinary general meeting of the shareholders on 09.07.2009 was adopted in violation of the norms provided by Art. 123 Par. 2 and 3, Art. 217 Par. 3, Art. 129 Par. 7, Art. 217 Par. 2, Art. 208 Par. 2, Art. 125 Par. 3 of Law no. 31/1990, which is why the writ of summons formulated by the plaintiff is grounded, following to, under Art. 132 of Law 31/1990, to order the cancellation of the decision of the extraordinary general meeting of shareholders of 09.07.2009 and of the addendum to the defendant’s instrument of incorporation and the updated instrument of incorporation”

It results that the commercial court has found the violation of the right of pre-emption presented in Art.  216 and 217 of Law 31/1990, the non-existence of the report drafted by Farmec’s administrators, which is specified in Art.  217 of the Law no. 31/1990 on the increase of the share capital, the absence of attendance tables at the voting schedule and the impossibility to identify the shareholders and to determine the number of shares voted during the general meeting, the violation of the LSC provisions stipulating that the original copies of the mandates shall be submitted 48 hours prior the meeting

Out of the 695,312 newly issued shares, 535,463 shares – representing approx.  77% of the total increase of share capital – were acquired by TURDEAN LIVIU, PÂNTEA PETRU IACOB and members of their families, respectively Turdean Liviu purchased 79,270 shares, representing 11.40% of the total shares, Turdean Mircea Liviu purchased 82,304 shares, representing 11.83% of the total shares, Turdean Ovidiu Horea purchased 83,922 shares, representing 12.069% of the total shares, Turdean Ioana Virginia purchased 70,585 shares, representing 10.15% of the total shares, Penta Petru Iacob purchased 79,386 shares, representing 11.41% of the total shares, Turdean Mihaela purchased 59,653 shares, representing 8.57% of the total shares, Bria Sebastian, the nephew of Pantea Petru Iacob, purchased 80,343 shares, representing 11.55% of the total shares

IT IS WORTH NOTING the fact that the administrators TURDEAN LIVIU and PÂNTEA PETRU IACOB summoned the AGEA of 24.11.2005, when they proposed to force the undersigned, injured party/civil party to the alienation of 90,000 shares purchased legally, and the decision of AGEA was abolished as illegal through the sentence no. 25/11.06.2007 of the Tribunal of Brasov, which became irrevocable by rejecting the appeal and subsequently the appeal of SCFARMEC SA, according to the decision no. 191/05.10.2007 of the Court of Appeal of Brasov and the irrevocable decision no. 253/03.02.2009 of the High Court of Cassation and Justice.

            In 2016, on October 19th, 2016, the administrators Turdean and Pantea proposed and ordered a new illegal increase of the share capital by 1,000,000 shares at a price of 2.5 lei per share, a price overvalued by more than 30 times and damages the company with over 80,000,000 lei (the equivalent value of 16,000,000 Euros) and the undersigned with about 30,000,000 lei. The increase was done by limiting the right of the undersigned to subscribe new shares (please also read the AGA note of attendance of October 19th, 2016 – Annex 327) under the conditions of the issuance prospectus (please also read the issuance prospectus – Annex 200)

Provisions violated in Art. 220 of Law 31/1990¹³, Art. 177 Par. (1) of Law no. 31/199030, Art. 101 and 273 letter b) of Law 31/1990, Art.  217 of Law 31/1990, Art. 113 and 155 of Law 31/1990 and Art. 29 par. 4) of the Directive 77/91/EEC of 1976, which establishes in the company’s statutes the prohibition of the threshold by the necessary quorum of ¾ of the share capital.

 

            In conclusion, all increases in the capital share of Farmec SA were done by cancelling the right of the undersigned to subscribe at an undervalued price that damaged Farmec with more than 150,000,000, the equivalent value of more than 32,000,000 Euros at a price undervalued by more than 20 -30 times compared to the accounting price per share or compared to the market price per share, without the quorum stipulated by the law, and the violation of other provisions, and most of the shares were acquired by the members of the Turdean and Pantea families as a result of the fact that they proposed and voted the approval of certain illegal increases of share capital, which were done under the violation of Articles 216 and 217 of the Law on Trading Companies and Art. 33 of the Second Council Directive of 2012, according to which:

„The right of pre-emption may not be restricted or withdrawn by the statutes or instrument of incorporation. This may, however, be done by decision of the general meeting. The administrative or management body shall be required to present to such meeting a written report indicating the reasons for restriction or withdrawal of the right of pre-emption, and justifying the proposed issue price. The general meeting shall act in accordance with the rules for a quorum and a majority laid down in Article 44. Its decision shall be published in the manner laid down by the laws of each Member State, in accordance with Article 3 of Directive 2009/101/EC. „.

            The administrators and managers of Farmec SA obviously had a personal interest in acquiring new shares, illegally issued at an undervalued price, more than 30 times lower than the actual value of the shares; have acted in this regard with the confidence and even the certainty that the state institutions shall validate these fraudulent actions of share capital increase as legal, with the violation of the undersigned’s right of preference to an undervalued price. As a result, the company’s administrators did not prepare the written report provided by the law and by the cited Directive, which forces the company to present the calculation of the issuance  price per share to the shareholders in every general assembly on the share capital increase, as well as the reasons for the limitation, because the actual price of the share is at least 30 times higher than the price of 2.5 lei (0.5 Euros)/share, a price at which 5,294,256 shares had been issued.

            As a result of the fact that shares unsubscribed and unpaid by the shareholders were used when voting in the general assemblies, for the share capital increase by issuing shares in violation of the provisions of the Romanian law and those of the European law, the members of the Turdean and Pântea families illegally acquired a comfortable majority, which exceeds 60% of the company’s shares, which allowed them to carry out fraudulent deeds against the company’s patrimony and the legitimate interests of the undersigned, with negative effects on the state budget too.

A.1. The defraud and violation of the undersigned’s ownership right, deeds resulted from the illegal issuance of 5,294,256 shares and from using shares that were not subscribed and not paid by the shareholders but by the company, when voting the shareholders’ meetings

 

A.2. THE MECHANISM OF DEFRAUDING THE STATE AND THE FARMEC PATRIMONY

 

            Using the majority that was illegally acquired and held in Farmec SA, over 15 years, the management of the company annually purchased large quantities of isopropyl alcohol which was used entirely to manufacture household chemicals, as well as refined alcohol under the excise duty exemption regime, alcohol which, contrary to the provisions of the law provided in Art. 200 of the Fiscal Code has not been distorted and has not been fully used in the manufacturing process at Farmec SA, although the company has constantly enjoyed the return of excise duties from the Department for Monitoring the Excise Duties and Customs Operations (DGV) within the National Agency for Fiscal Administration (ANAF).

            The officials Farmec SA have paid the excise duties according to the value of the distorted alcohol[2], refined alcohol usable in the spirits industry, which were over 100,000,000 lei, the equivalent value of over 20,000,000 Euros, the value of which corresponds to the obligation to pay excise duties of 1,000 Euros per hectolitre, and the company’s representatives made requests for the excise duties to be refunded and monthly compensated the VAT owed (please also read the excerpt from the KPMG audit report concluded with Farmec SA – Annex 8).

            Among the suppliers of excisable refined alcohol, purchased from Romania and from abroad and received by FARMEC SA as distorted alcohol, under the excise duty exemption regime, we specify PRODVINALCO SA CLUJ, SEINEANA SRL, PRODVINALCO, the BRANCH OF GHERLA, PRODALCOM, Euroavipo Grup SA, MAREX SA BRĂILA, PET ADY TRADING SRL, STEJAR PRODIMPEX SRL, and the suppliers of non-excisable isopropyl alcohol were BRENNTAG ROMANIA, Druckfarben Romania PL Cluj, etc.

            Euroavipo Group SA was the main supplier of excisable alcohol during 2007 and 2011, and the operations carried out by this company are one of the cases of major evasion in Romania, as it results from a communiqué from the National Anticorruption Directorate, published on the website of this judicial authority in 2017, where the performance of the criminal prosecution of several officials of Euroavipo and ANAF results from, as well as the estimation of a loss of over 750,000,000 lei, representing the equivalent of approximately 130,000,000, a damage caused to the state budget. Please also read about Ionut Misa started the activity in the companies of the group.

            Defrauding the Romanian state and Farmec SA was possible only due to the participation of officials of the Department for Monitoring the Excise Duties and Customs Operations, because the officials of the company:         

         a) Either they have not presented the documents on the actual consumption of alcohol to the Department for Monitoring the Excise Duties and Customs Operations, as specified in item 22 par. 34 of the Methodological Norms for the Application of the Fiscal Code, according to which:

 “In order to refund the excise duties, users shall submit to the territorial tax authority the application for the exemption of excise duties, accompanied by: (c) the proof of the quantity used for the purpose which the exemption is granted for, consisting of a statement centralising the quantities actually used and the related documents” and the state’s officials have accepted the conditions imposed by Farmec SA (please see Annex 9), respectively requests for refunding the excise duties that do not contain the statement centralising the documents on the actual consumption and the related documents.

                 I exemplify the content of the excise duty refunding report drafted on March 30th, 2009, which shows that the customs officials have stated that:  „The distorted ethyl alcohol was received in two different warehouses, each with its own FIFO-based record, the first reception being in both cases for the merchandise provided by Euroavipo Grup SRL ….”; „…After verifying warehouse sheets, it was observed that the data therein do not fully correspond to the requests for refund, the latter having calculation errors and erroneous data” .

            Or, if all the ethyl alcohol was distorted, why was it necessary to be received in two different warehouses?! In relation to these irregularities observed by customs officials, no verifications were carried out within the company and the refined alcohol not used was removed from the company’s management by means of an accounting deduction note, without being accompanied by justifying documents.

         b) Or, in order to create the appearance of using refined alcohol in production, they issued invoices with alcohol-based products, invoices they submitted to the officials of DSAOV, and subsequently to Farmec SA:

  • they were cancelled and returned in a percentage from 10% to 13% of the invoices issued monthly, and in most cases, the products corresponding to these invoices do not appear to be recorded with customers with reception reports (NIR), nor does it appear that were reintroduced into the stock of Farmec SA, which reveals the suspicion that, in reality, those products were not manufactured and delivered to the beneficiaries, the quantities of alcohol corresponding to these products and exempted from the excise duty being fraudulently exploited;              
  • were not cashed by Farmec SA and were closed in the accounting system by creating provisions or by passing operations amounting more than 67,000,000,000 lei as non-deductible expenses, the equivalent value of over 15,000,000 Euros (please see Annex 10 – excerpt from the balance sheets on the amounts of money recorded as non-deductible expenses), and corresponding to these amounts of money, the company unjustifiably paid a 16% tax only to create the apparent use of alcohol not used in production.

            In order to maintain this defrauding mechanism, both amounts of money generated by illicit alcohol operations and amounts of money transferred from the company’s funds for invoices corresponding to services suspect to be unreal were used, which diminished the taxable profit of the company, which led to prejudicing the assets of FARMEC SA with a value exceeding 160,000,000 lei, which means over 35,000,000 Euros.

            The damage to the state results from the value of the excise duties unjustifiably returned for the quantities of alcohol that would be used in the production/manufacture of spirits in the illegal context in which the officials of Farmec SA did not present the accounting documents provided by the law at item 22 par. 34 of the Methodological Norms for the Application of the Fiscal Code on the proof of the actual alcohol consumption in production, which enjoyed the refund of excise duties between 2002 and 2018.  The estimated damage exceeds 46,000,000 lei, the equivalent value of over 10,000,000 Euros.

 

            ENCOURAGING THE FRAUD.  THE IRRESPONSABILITY OF AUDIT REPORTS.

 

            Although these reports were drafted annually, they were drawn with remarkable care so that they did not reveal and did not present to the company’s shareholders information about annual audits that could have contributed to preventing and stopping the frauds, which were reflected by damages to the state budget, to the patrimony and capital of Farmec SA and some shareholders.

According to the law, the joint stock company that records certain economic parameters has the obligation to inform the shareholders through an annual audit report. The audit report should accurately highlight the reality of the company’s parameters specified in the annual reports presented by the company’s employees, as well as the reality of the economic operations, contracts, invoices and the true reality of the physical stock compared to the stock in script specified in the company’s registers.

Thus, for the financial year 2009, auditor Adrian Grosanu pointed out in the audit report for 2009 that there is a difference between the physical stock and the stock in the registers but did not specify the value of the difference (please also read Annex 11):

„We did not follow the physical inventory of the physical stocks as it was on December 31st, 2009, because this date was before the period when we were initially employed as auditors of the company and we were not convinced of the correctness of the (determined – our note) quantitative stocks using other audit procedures”

For the period between 2010 and 2018, Farmec has signed an audit contract with the international company KPMG in exchange for the amount of money ranging from 40,000 to 50,000 Euros that Farmec pays annually to KPMG, although in a company environment, I proposed an auditor to the administrators that provides the auditing service in return for only € 5,000/year (the audit rules being the same for any auditor), however, the administrators preferred to pay 10 times more to KPMG Company.

KPMG did not submit a response to me as a result of the communication of May 11th, 2012 (please see Annex 12) nor as a result of the communication of January 5th, 2018 (see Annex 13)

However, although its services are remunerated at 50,000 Euros, a price that Farmec SA paid annually in exchange for the Audit Report, KPMG, through the Auditor Anca Jurcareanu, did not inform the shareholders and did not specify in the annual audit reports regarding to the fact that:

  1. the company and the administrators of the company are engaged in civil and criminal litigations
  2. the administrators and managers of the company are involved in criminal trials in relation to the share capital and the patrimony of the company they manage.  The nature of the criminal trials as a result of a personal interest of the officials of Farmec.   
  3. the company’s employees have increased the share capital by 4,214,256 shares with limitation, at an undervalued price of 2.5 lei/share, in violation of the provisions specified in the Second Council Directive: „The right of pre-emption may not be restricted or withdrawn by the statutes or instrument of incorporation. This may, however, be done by decision of the general meeting. The administrative or management body shall be required to present to such meeting a written report indicating the reasons for restriction or withdrawal of the right of pre-emption, and justifying the proposed issue price. The General Assembly shall act in accordance with the rules on quorum and majority laid down in Article 44. The Assembly’s decision shall be published in the form provided for by the legislation of each Member State in accordance with Article 3 of Directive 2009/101/EC” and in Art. 217 of Law 31/1990, without the administrators submitting a written report on the calculation of the issue price.  From this perspective, Farmec SA was injured with 161 million lei, the equivalent value of over 40,000,000 Euros.
  4. The representatives of Farmec do not submit to the Department for Monitoring the Excise Duties and Customs Operations the documents referred to at item 22 par. 34 of the Norms for the Application of the Tax Code, which puts the company at a high financial risk.  Please also read the documents submitted by Farmec (Annex 9).
    “In order to refund the excise duties, users shall submit to the territorial tax authority the application for the exemption of excise duties, accompanied by: c) the proof of the quantity used for the purpose which the exemption is granted for, consisting in a statement for centralising the quantities actually used and the related documents”.
  5. The Court of Accounts mentioned in the report of 2013 the violation of the law by the customs officials who returned the excise duties to Farmec SA, without Farmec SA presenting the documents on the actual consumption of alcohol, as provided by law, in the absence of any verification and accepted the conditions imposed by Farmec.   
  6. There are differences between the value of the physical stock and the value of the stock specified in the annual registers, which the officials of Farmec present to the shareholders and to the tax body in the annual books and records.   
  7. There are invoices that have been issued by officials of Farmec SA, which were subsequently cancelled and returned, which exceed 10-12% of the invoices issued without carrying out any verifications if the products were reintroduced into the management stock of Farmec.
  8. There are invoices issued by Farmec that have not been collected, with a value that exceeds 15,000,000 Euros and were closed annually by non-deductible expenses, without any verifications that the invoices were recorded to customers and the products actually came out of the management stock of Farmec (?? !!).   

            Taking into account the audit treaty edited by Alvin Arens, Professor of Accounting Emeritus at the University of Michigan and James Loebberke Professor at the University of Utah, regarding the significance levels of the data in the financial statements, these are significant or „contagious” because the true image of the financial statements is doubtful overall.  Such a situation was also encountered at Farmec SA in the financial years 2010-2017, a period when KPMG Audit STRL audited the financial statements.  And the eminent professors quoted state as follows:

„The highest significance threshold applies when there is a high probability that users would make the wrong decisions if they rely on the financial statements as a whole.  If the stocks are an erroneous balance in the balance sheet, the error is so significant that the auditor’s report shall need to indicate that the financial statements taken as a whole cannot be considered to convey an accurate view.  When this is the case, the auditor must issue either a refusal to express an opinion or an unfavourable opinion .

          The same audit treaty specified above, on page 177 in Chapter „Illicit deeds with direct impact”, states that:

„Certain violations of the legislation and norms have a direct financial impact on certain balances in the financial statements.  The auditor’s liability for such illicit deeds of direct impact is the identical to the fraud ones. In any audit, the auditor shall determine whether there is any evidence to show that there are violations of the tax law, and needs to examine the reports issued by state institutions.”

          In almost all audit reports drafted by KPMG Audit SRL it is stated that: “the reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with ISA shall always detect a significant distortion, if it exists.  Distortions can be caused either by fraud or by error”

And in the next paragraph, the auditor states:  „the risk of not detecting a significant distortion caused by fraud is higher than that of undetectability of a significant distorsion caused by error, because the fraud may involve secret agreements, forgery, intentional omissions, false statements and avoidance of internal control”

          Therefore, KPMG Audit SRL annually received significant amounts from Farmec SA, did not perform any verification to compare the data submitted by the administrators with real field information and does not incur any responsibility for confirming the true image of the activity of Farmec SA, which it submitted to the shareholders for a fair analysis on the annual financial statements.

          At the same time, the auditor also finds the potential culprit, specifying that the audit does not „have the purpose to express an opinion on the effectiveness of the company’s internal control”

          KPMG Romania, represented by the President William Archibald Bowman, has issued an unqualified opinion throughout this period breaching the minimum audit rules, although there was information from the competent institutions (the Court of Accounts, ANAF, etc.) on many violations of the legal norms.

A.3. PREJUDICES DAMAGES CAUSED TO THE STATE, TO FARMEC AND TO THE UNDERSIGNED.

 

          a. The PREJUDICE CAUSED TO THE STATEresults from the value of the excise duties unjustifiably returned for the quantities of alcohol that is undistorted and unused in manufacturing, estimated at over 46,000,000 lei, the equivalent value of approximately 10,000,000 Euros.                  

          b. THE PREJUDICE CAUSED TO FARMEC

The company’s employees have increased the share capital by 4,214,256 shares with limitation, at an undervalued price of 2.5 lei/share, in violation of the provisions specified in the Second Council Directive: „The right of pre-emption may not be restricted or withdrawn by the statutes or instrument of incorporation…” and in Art. 217 of Law 31/1990, without the administrators submitting a written report on the calculation of the issue price.  From this perspective, Farmec SA was prejudiced with 161 million lei, the equivalent value of over 40,000,000 Euros.

          c. THE PREJUDICE CAUSED TO THE UNDERSIGNED exceeds 700,000,000 lei,        

the equivalent value of over 15,000,000 Euros, as a result of:

       (i) decreasing the percentage legally held by the undersigned from 34.49% to 8.03%, 

       (ii) the non-collection of dividends that have been assigned appropriately to some shares that have been issued in violation of the law and the Second Council Directive;

       (iii) the impossibility to use 34.49% shares of the company’s legal share capital when voting, with the consequence of adopting a decision contrary to the law in the subsequent meetings of shareholders, whereby new shares were issued at a price/share decreased from 16 US Dollars, corresponding to the rated value in 1995 (when we invested a significant amount of money as a founding shareholder) to 0.6 US Dollars, the price at which the newly issued shares were acquired, mostly by the members of Turdean and Pântea families,

       (iv) decreasing the price per share resulted from the artificial reduction of the company’s patrimony through unjustified taxes and duties, the incomplete use of alcohol in production and the registration of suspiciously fictitious services that have reduced the taxable profit of the company.

          d. The damage caused by the Competition Council:     

The damage caused to the state through the inaction of the Competition Council is between 2,000,000,000 and 5,000,000,000 Euros given the following considerations:            

  • through the NOTE drafted in the “peer review” team on sanctioning the banks involved in the open investigation and the legal remedies for the future, Nathaniel Cornoiu Jitarasu, inspector at the Competition Council, highlights a damage caused to the state that exceeds 2,000,000,000 Euros.
  • The inaction or formal action of the Competition Council in the investigations for the case of Colgate Palmolive, Kraft Foods and Unilever South Central and its customers, and other investigations (…) on the evidence archived by the President’s order no.  7/2010 and the failure to solve the notification and the complaint of Prestige and Galic registered under the no.  17050/19.12.2011 resulted in the non-application of fines amounting more than 750,000 Euros.


        A.4. The prejudice caused to the companies Prestige and Galic exceeds 15,000,000 Euros, legally unrecovered right, as a result of the violation of the Law and European Law by the Competition Council and the national institutions in Romania.

 

Chapter III                                                                                                                        Chapter V

[1] In violation of the provisions stipulated in Art. 206 and 200 of the Methodological Norms for the Application of the Fiscal Code.

[2] Failing to comply with Art. 200 and 206 of the Methodological Norms for Applying the Fiscal Code.