Investment scams are the negative side of any capitalist system. Getting the general public to finance commercial projects is good for everyone involved, unless, of course, someone runs off with the money. According to a Post article this week, this is apparently what happened in Kyiv, when the people behind a virtual group of builders and developers called Elite Center disappeared with about $100 million dollars invested by at least 1,500 people who thought they would get new apartments.
Fiascos of this kind have been happening for a long time in the West, where the legal system is much stronger. Russians have still not forgotten the $1.5 billion pyramid orchestrated by the Mavrodi brothers in the mid-1990s, which claimed over 2 million victims. It appears as if the ancient maxim “Let the buyer beware” is just as relevant today as it ever was.
All of this, of course, is little consolation to those Ukrainians who have been left without their money or apartments. Some sold their flats and invested the money into one of the eight projects offered by Elite Center. Neither have the spirits of bilked buyers likely been lifted by police announcements that warrants were issued for the villains’ arrests. It appears as if Ukrainian jails have little room for rich people.
And it was only adding insult to injury when Kyiv Mayor Oleksandr Omelchenko told journalists after the fact that investors should have known better.
Ukrainians thought they knew better when they trusted the Soviet Savings Bank with their deposits and the 2004 electoral commission with their votes. Someone eventually has to trust someone for business to take place. In large, complex economies it’s not unreasonable to assume a regulatory role for the authorities.
It’s the Mayor’s Office and City Administration that hands out the permits without which a construction project cannot begin. Indeed, any builder in Kyiv will tell you that the ‘hidden’ cost of obtaining permits makes up a sizeable portion of the city’s housing prices.
The current construction boom is a sign of overall prosperity, which we welcome. If the authorities in Kyiv want it to continue, they should start playing the role of regulator, not middleman. Public trust, like the tax revenues it ultimately generates, is not something to be dismissed so lightly. It’s not inconceivable to imagine Ukraine’s building boom winding down to a halt if another scam or two of this kind erupts. City and state officials better move fast to solve this sour deal and implement steps to prevent it from repeating.
