Zeromax and Gulnara Karimova: Swiss court reveals century-old bankruptcy secrets

In Switzerland, a creditor of Zeromax is pursuing a legal case against the auditing firm Ernst & Young (EY). The Federal Supreme Court has ordered EY’s Swiss branch to provide documents related to Zeromax’s audit. The decision could result in billions in fines and seriously damage the firm’s reputation.

The case has been ongoing for five years. The auditor is accused of turning a blind eye to suspicious transactions, issuing positive reports, and helping mislead creditors about Zeromax’s financial condition.

According to Tippinpoint, the court has ordered EY Schweiz to disclose a wide range of documents, which journalists have described as “a new chapter in the financial thriller surrounding Uzbek ‘princess’ Gulnara Karimova.”

Founded in 1999 in Delaware, USA, Zeromax was a conglomerate that held assets in dozens of industrial sectors in Uzbekistan. In 2010, it was suddenly declared bankrupt, with assets valued at $2.56 billion and liabilities totaling $4.12 billion. Later investigations revealed that its actual assets amounted to only 6.66 million Swiss francs, while claims from 191 creditors exceeded 5.6 billion Swiss francs, marking Switzerland’s second-largest bankruptcy in history.

Creditors range from small German firms and utilities to Uzbek oil and gas companies and Russian pipeline consortia. Among them was the former football star Rivaldo, to whom Zeromax owed 22.7 million francs.

In 2019, the American hedge fund Lion Point Capital acquired the right to recover debts from Zeromax and filed a lawsuit against EY Schweiz, accusing the auditor of negligence.

According to the Financial Times, in the years leading up to the bankruptcy, Zeromax’s expenditures were unrelated to business activities. Between 2006 and 2007, the company spent more than $13 million on luxury goods, including $2 million at the Christian Dior boutique in Geneva. In 2008–2009, it spent another $25 million on jewelry, including $6 million at Graff Diamonds.

Media outlets have linked Zeromax to Gulnara Karimova, which she denies. However, evidence suggests that she used at least some of the jewelry purchased by the company. In 2016, Swiss police, acting on a court order, searched Karimova’s safe at Lombard Odier bank in Geneva, uncovering jewelry, including Boucheron diamond rings worth $2.5 million. Investigators determined the purchases were paid for by Zeromax.

Police documents reviewed by the Financial Times indicate that the former owners of the jewelry claimed the buyer was Karimova herself and that the funds came from a Zeromax-linked bank account.

Despite these facts, EY Schweiz issued “clean” audit reports for the company. It remained Zeromax’s auditor from 2007 to 2010 but stopped publishing audit reports.

The law firm Quinn Emanuel is representing the creditors in court, seeking $1 billion in damages from Ernst & Young. The Federal Court rejected the auditor’s appeal and ordered the firm to disclose all Zeromax-related documents, pay 25,000 francs in court costs, and compensate plaintiffs with 30,000 francs.

EY Schweiz has confirmed it will comply with the court’s decision. Legal experts note that the case could set a significant precedent for auditor liability in Switzerland.