BaltCap completes the main stage of the internal investigation into misconduct

The main stage of the internal investigation launched by BaltCap and supported by external experts into the misconduct of former manager of the BaltCap Infrastructure Fund Šarunas Stepukonis has been completed after 3.5 months of investigation. It reveals that the total amount embezzled from the Fund’s portfolio companies is €40.4 million. BaltCap is now planning changes in organisational setup and management.

Main findings from the core part of the internal investigation

The main stage of the internal investigation addressed the portfolio company level in BaltCap Infrastructure Fund I. According to the investigation, the total amount embezzled by Šarunas Stepukonis is €40.4 million. Most activities related to the outflow of funds were executed in 2021–2023. No irregular activities were detected in the Fund itself. The transactions took place in portfolio companies, including their subsidiaries, in Lithuania and Poland.

According to the investigation, no evidence was found indicating any collusion with other BaltCap team members. The investigation reveals that the embezzlement was facilitated by the creation and submission of an extensive number of falsified and fictitious documents, and possibly other criminal acts and violations of fiduciary duties by Šarunas Stepukonis. The embezzled amounts were transferred to various gambling facilities (Olympic Casino Group) and a securities trading platform (Interactive Brokers).

BaltCap learnings and steps forward

“When looking back at the chain of events, we admit that the safeguards put in place in BaltCap were not meant to render the protection against outright fraud and embezzlement, especially in the portfolio companies and on their subsidiary levels. We did not envision all the specifics entailed with developing greenfield projects compared to a more traditional buyout strategy,” Dagnis Dreimanis, Simonas Gustainis, Martin Kõdar and Peeter Saks, the managing partners of BaltCap, say in their joint resolution.

“We are very aware of and deeply regret the damage this incident has caused to the trust we have built over the years as well as the negative impact it might have on the whole Baltic PE and VC ecosystem. We can assure that we are addressing the current situation with the utmost seriousness, and BaltCap is fully committed to rebuilding the trust and solving the situation in a responsible manner,” the managing partners of BaltCap emphasize.

Additional control measures were introduced on portfolio level immediately after the discovery of the misconduct to make sure that a similar incident could not happen again. With the following steps, the focus is on further strengthening of BaltCap’s risk management and financial controls. “We also foresee changes in operational management and structure of the organization. Though the main part of the internal investigation has been completed, the investigation is still ongoing and will take a while, because of the complexity of the case. Changes will come, also new policies and procedures will arise from thorough risk analysis,” the managing partners of BaltCap state.

In addition to further strengthening risk and control management, the BaltCap Infrastructure Fund’s portfolio companies have taken all relevant measures to reclaim the embezzled amounts, and have submitted claims against the counterparts who have received ill-gotten profits.

“We have been working diligently to avoid any further damage to the fund and the value of its portfolio,“ the managing partners of BaltCap say. Regardless of the damage caused to the BaltCap Infrastructure Fund’s portfolio companies, they continue to carry out their business activities, and the fund is profitable—the value of the fund portfolio is still considerably above the invested cost. “This incident does not affect the funds of other BaltCap investment strategies,” the managing partners of BaltCap conclude.

Since its inception, investors have invested €663 million across BaltCap funds, and the total value of these investments, including distributions already made to investors, has grown to €951 million. The average annual return of realised investments stands at 18%.

BaltCap is the largest and most experienced private equity investor in the Baltics covering buyouts, growth, venture, and infrastructure investments. Since 1995, BaltCap has invested in over 120 companies across a wide range of industry sectors and raised aggregate capital of over €900 million. BaltCap has a team of 40 investment professionals working across Tallinn, Riga, Vilnius, Warsaw, Stockholm and London offices.