Around 600,000 people in Ukraine may be at risk of losing their money after investing in a company called B2B Jewelry that sells jewelry and fraudulent certificates while promising unusually high-interest rates, according to an investigation by the Bihus.Info journalism project published on Aug. 29.
Two days earlier, the Security Service of Ukraine — known as the SBU — said that it blocked “illegal activity of an organized criminal group” that had created a financial pyramid and seized more than $250 million since the beginning of 2019, when the controversial company was founded.
Although the SBU did not specify the name of the company, most Ukrainian media have pointed to B2B Jewelry.
“It’s an outright scam,” said Denys Bihus, a Ukrainian journalist leading the Bihus.Info investigative team. “I’m happy that the SBU finally noticed them, but why did it take so long to do it?”
Founded by Mykola Honta and his wife Olena, B2B Jewelry promised sky-high interest rates from 8% per week to 416% for a year, while each certificate cost anywhere between $11 to $3,000.
The company also offered unrealistic cashbacks of over 100% within one year from each purchase of silver or gold jewelry put up for sale in any of the 135 B2B Jewelry stores across Ukraine, Russia and Kazakhstan.
Earrings, pendants, necklaces and rings are produced by a small factory called Charm, which is located in the city of Ladyzhyn in Vinnytsia Oblast and also owned by Mykola Honta.
B2B Jewelry — which has no official legal entity in Ukraine, but only operates as a brand name for the Charm factory — is run by about 20 key people, who allegedly withdrew people’s money via around one hundred legal entities, including one charity fund called Zymorodok, founded by Olena Honta.
Caught on the Bihus.Info investigative journalists’ cameras, every day Honta’s people would carry plastic bags full of cash collected from its stores and pack them into cars.
Organizers spent the money on luxury items and even purchased an island on the Dnipro River in Kyiv, as well as 18 luxury cars worth over $100,000 each, according to the SBU.
At first, the company paid interest and cashbacks to its customers at the expense of new clients who invested money, giving the false hope that the business had nothing in common with a Ponzi scheme.
But since mid-March, B2B Jewelry has stopped paying money to its depositors, hiding behind quarantine measures imposed by the Ukrainian government to fight the COVID-19 pandemic.
Moreover, the Honta started issuing cryptocurrency in May called B2BToken, which Ukraine’s National Securities and Stock Market Commission reported to be “doubtful.” At the time, the commission said that the cryptocurrency operation may be aimed at the “illegal seizure of investors’ funds.”
Honta did not respond to the Kyiv Post’s request for comment. At the same time, on Aug. 31, news website Ukrainska Pravda reported that Honta made an announcement that its jewelry stores were working as usual and his lawyers were preparing lawsuits against the SBU for blocking his business.
Experts were right
Experts warned about the risks behind the B2B Jewelry business model at least half a year ago. For Hlib Vyshlinsky, CEO of the Center for Economic Strategy, it all looked like large-scale fraud.
“The jewelry business has existed for thousands of years, and it’s impossible to come up with a model that would provide a profitability of 400% per year,” Vyshlinsky told Ukrainian news agency Liga.net on March 1.
After a recent law on financial monitoring entered into force on April 28, Kateryna Rozhkova, the first deputy governor of the National Bank of Ukraine, also said that B2B Jewelry “violated all laws possible.”
“This is a financial pyramid that has no license,” Rozhkova told journalists during an online meeting on April 29.
At the same time, just one month before the SBU blocked his firm, Honta was not hiding from journalists and answered questions willingly. On July 29, he said that, after strict quarantine measures were over in May, B2B Jewelry stores had opened.
And while there were no sales during the first week, as of July “sales are growing exponentially and prospects are great,” Honta said at the time. “The first thing that people buy during a crisis after food is jewelry.”
Delayed reaction
B2B Jewelry’s suspicious activity started to show up back in December 2019, when a court seized the bank account of the Zymorodok charity fund for dubious transactions made for the company.
The Prosecutor General’s Office initiated the case. However, it was soon closed, and the bank accounts were unlocked after prosecutors did not appear at the hearing several times, according to the Bihus.Info investigation.
B2B Jewelry can be easily noticed in Ukraine with its ample advertisements and its clients standing in lines for certificates. Strangely, law enforcement had a harder time noticing it, according to journalists.
“(Law enforcement) knew about B2B — arrests and proceedings were opened and closed,” said Bihus, who is convinced that prosecutors not only knew, but were most likely engaged in shady schemes.
“Regional prosecutors may ‘miss’ scammers, but they will not lose their profits,” he said. “Such fraud should not grow so massively and gain such momentum.”
