In October last year, it emerged that funds from the BaltCap investment fund had been used illegally. It is now believed that the fund's former Lithuanian partner, Šarunas Stepukonis may have been behind the theft, spending the money on gambling in casinos. The losses are estimated at around €40 million.

ERR asked BaltCap's fund manager Peeter Saks how it was possible for a single person to have withdrawn such a large sum over several years without the company's board of directors or supervisory board noticing, and whether this means that there were shortcomings in the company's supervision.

Saks said that the money was appropriated from a number of Lithuanian and Polish portfolio companies belonging to the BaltCap Infrastructure Fund over a number of years and on a large scale.

"At the moment, we can conclude that the embezzlement was concealed over a long period of time by, among other things, the good financial performance of the portfolio companies. In other words, the embezzlement largely took place at the expense of the profits of the affected portfolio companies, while the projects were successfully launched," he said.

According to Saks, BaltCap has learned its lessons from the incident and since made significant changes to better control the portfolio companies owned by the fund.

"What happened is being investigated by the authorities in the respective countries and BaltCap is doing everything to ensure that the money belonging to the affected portfolio companies is returned," Saks added.

The Estonian FSA granted AS BaltCap a license to operate as a fund manager on August 7, 2023. AS BaltCap applied for the license as it considered its funds had reached the threshold at which point they would need to be licensed.

AS BaltCap and OÜ BaltCap Infrastructure Management – the latter of which does not have a license and which is linked to the possible thefts – are two separate companies, the Estonian authority emphasized.

When the FSA issued its license to AS BaltCap, it also directed the company to clean up its organization, and expected to see consistent and major improvement in the organization's risk controls. AS BaltCap informed the Estonian FSA it had identified the illegal use of financial resources that October.

However, the BaltCap fund from which the money was misappropriated is a separate company –  OÜ BaltCap Infrastructure Management – and is not subject to supervision by the FSA, said Kilvar Kessler, chair of the authority's board.

"Life shows that no one is completely immune from theft. Not even financial intermediaries themselves, even if they comply with all the requirements, because sometimes thieves are faster or smarter," Kessler said.

Kessler added that the FSA's role is to contribute to the stability of the financial market by ensuring that market participants do not become insolvent. It also works to ensure that the financial market is transparent and that consumers and investors have all the information they need to make legally prudent decisions.

"The Financial Supervision Authority works on the basis of the law and on the basis of the information it receives or has access to. In a free society, the FSA has neither the desire nor the means to be an all-seeing eye that spies on everyone. The authority guides businesses in building, operating and, if necessary, improving their supervisory environments on the basis of the information provided and that is known to them," explained Kessler.

He pointed out that while the FSA's aim is to ensure financial businesses are run in a stable manner and in compliance with the law, it is the owners and managers of the businesses who are ultimately responsible for the lawful, transparent and compliant operation of their business. It is also they who reap the rewards of a well-run business.

Companies' annual accounts are subject to audits, which raises the question of whether such suspicious movements of money ought to have come to light during that process.

Märt-Martin Areng, president of the Estonian Association of Auditors, said he was unable to provide any further information on this specific case. However, based on the details available from public sources it seemed possible that fraud may have been committed deliberately in order to mislead both the company owners and the auditor.

"The auditors' procedures aim, among other things, to consider the risk of intentional fraud. But in reality this is the most difficult of all the possible misstatements to detect, especially if a member of the management has a significant influence on accounting processes, there is no separation of duties or the legislative framework does not fully require it," Areng said.

Šarunas Stepukonis was arrested in Lithuania last Saturday, with Vilnius City Court authorizing his detention for two weeks on Monday.

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