Banking & Finance

Investor Accuses Warren Steel Holdings of Fraud

WARREN, Ohio – An investor in Warren Steel Holdings LLC alleges the principals have swindled him of millions of dollars that he put up as seed money to buy the former Copperweld Steel Co. mill in Champion.

In Trumbull County Common Pleas Court Monday, Vadim Shulman of the nation of Monaco filed the complaint that claims Warren Steel, Halliwel Assets Inc., and four individuals – Igor Kolomoisky, Genady Bogolubov, Mordechai Korf and Panikos Symeou – “have exploited the business to enrich their own interests to the detriment of Warren Steel and the plaintiffs.”

A statement released by Warren Steel says the allegations are baseless.

“We believe the lawsuit filed against the company is without merit; and we intend to vigorously defend against it,” the statement says. “It is Warren Steel Holding’s policy not to comment further on pending litigation.”

According to the lawsuit, Shulman and his Lichtenstein-based company, Bracha Foundation, Kolomoisky and Bogolubov each have a one-third interest in Halliwel Assets Inc., a shell company formed in the Virgin Islands, whose sole asset is Warren Steel.

The lawsuit claims that Shulman, Kolomoisky and Bogolubov formed Warren Steel Holdings to purchase the former steel mill, last known as CSC Ltd. According to court documents, Shulman made an initial investment of roughly $13.5 million and advanced another $15 million following that investment.

Documents say that Kolomoisky and Bogolubov were to reimburse Shulman for the $28.5 million initial investment, but that compensation never occurred.

In 2012, Shulman says, he began to sense questionable activities with the company and its principals and instructed his agents and attorney to investigate, court filings say. The investigation was “met with resistance, circuitous and partial explanations, vague responses, and incomplete disclosures,” the lawsuit says.

According to court papers, the investigation turned up $18 million worth of loans that related parties issued the company, and later found more related party loans greater than what was initially divulged. These loans, the lawsuit claims, decreased the value of the principals’ interests but affected Shulman more because Kolomoisky and Bogolubov were also co-owners of the related party secured lenders.

Korf, based in Miami and president of Warren Steel, executed loan documents on behalf of both the lenders and the company and had a nominal interest in the lending entities, court papers say. Symeous, vice president of the company, also had interest in the lender, the lawsuit states.

“Korf, at the request of one or both of the other ultimate beneficial owners and/or Symeou, has been conducting insider transactions to laden Warren Steel with secured debt from related parties,” the lawsuit states.

These actions, the complaint alleges, have placed the steel company in financial peril and were accomplished through the defendant’s “elaborate scheme of self-dealing and self-interested transactions, which they conceal through misrepresentations and sham records.”

In 2014, shareholders of Halliwel were called for an extraordinary general meeting Aug. 8 to discuss a proposed debt-restructuring agreement for Warren Steel, the complaint says. Shulman then discovered that the documents named a “new lender” that was later determined to be Optima Acquisitions LLC, a related party. The restructuring agreement proposed adding another $25 million in related party loans secured by assets of Warren Steel, which at the time were valued at just $27 million, the lawsuit says.

Were the agreement passed and enforced, it would give Optima — and therefore Kolomoisky, alone or with Bogolubov — the security over almost all of the assets of Warren Steel, “which would leave approximately $2 million for the lenders and obviously nothing for plaintiffs,” court papers say.

However, the restructuring agreement had already been passed Aug. 1 per Symeou in his capacity as sole director of Halliwel, the complaint alleges.

Court papers say that the assets of Warren Steel have since increased to $34.4 million, but it carries $173 million in liabilities.

Shulman also claims in the lawsuit that “despite Warren Steel’s purportedly weak financials, evidence exists that defendants are trying to sell the company to Optima Specialty Steel, of which defendants Kolomoisky, Bogolubov and/or Korf are the ultimate beneficial owners.”

In the court documents, Shulman alleges that the parties are using these tactics to shut him out of the business: “Defendants have entered into an agreement to divert plaintiff’s significant financial interest in Warren Steel to related parties and swindle plaintiff Shulman’s investment through the related party secured loans and a related party purchase.”

Shulman is asking the court for at least $3 million in damages, a temporary and permanent injunction to prevent the sale of the company, and the appointment of a court-ordered receiver over Warren Steel.

Pictured: Interior of Warren Steel Holdings.

Published by The Business Journal, Youngstown, Ohio.