Defrauded CS Fund Investors to Receive Face Masks Rather Than Compensation from the Government

The Czech government has recently announced that a small pack of face masks will be sent to all citizens aged over 60. Coincidentally, the same age group as the majority of investors in the former CS Funds. The 60,000 investors in these funds having lost their savings in 1997 as a consequence of repeated maladministration by state officials which made the 'tunnelling' of their funds possible.

Until recently, after a lengthy legal battle by AKRO investiční společnost, a.s. (who took over the management of the funds), these investors stood to receive between Kc20,000 (EUR 750) - Kc40,000 (EUR1,500); with most investors holding either 15 or 30 units in these funds that originated from the 1993 voucher privatization (see table).

However, in a bizarre turn-of-events, years after compensation had already been paid into the funds accounts, a court in Prague 6 decided to re-examine the Statute of Limitations (two courts had already examined this issue in favour of investors), but this time admitting all the State's evidence and refusing to admit any evidence submitted on behalf of the defrauded investors; it being ''superfluous''. Not surprisingly, weighing up the State's evidence, the judge found in favour of the State. While an appeal court said there may have been a ''procedural error'' it was ''powerless to act''. The Constitutional Court didn't intervene and a complaint to the European Court of Human Rights (ECHR) was recently ruled inadmissible.

In a further blow for investors, in an even more bizarre twist, the Prague 6 Court added penalty interest, at 8% p.a., to the compensation that had to be returned for the period of time the previously awarded compensation was on the Fund accounts (which had been placed in safe, but low yielding, bank accounts under the supervision of the CNB). This CZK700m (EUR 26m) in interest has wiped out whatever remaining assets were in the former CS Funds. As a consequence, AKRO investiční společnost, a.s. has started insolvency proceedings with regard to the 3 former CS Funds.

In summary, the Czech State, through its court system, has not only failed to apologise and compensate investors but perversely rewarded itself to the tune of CZK700m for its own maladministration, inconsistent application of the Statute of Limitations, and slowness in hearing the case.

While AKRO investiční společnost, a.s. continues to try and salvage something from this mess (see our website) the former investors in the CS Funds can look forward to receiving their 'free' face masks from the government.

Jeremy Monk

Investment Director,

AKRO investiční společnost, a.s.

Prague 15.09.20