AFFAIRS

The Message of Life Choice Int. AD dated July 15, 1995:

“The managing board of the Company, after consultation with the representative of McCandles,
Morison &Verdichio Law Corporation (Representative), representing Life Choice International Inc.
(1996) being a company duly registered as an off-shore company exempted from taxes under the
jurisdiction of Antigua and Barbuda, acting as a confidant through its not registered subdivision
Banq1 (the Confidant) as per a Depositary Contract dated April 1, 1994 between the Company and the
Representative, on behalf of the Confidant and according to the Supposition for Depositary Receipt
Contract (the Supposition) between the company, the Confidant, the Representative and the owners of
receipts issued as per the aforesaid contract and referring to the ordinary shares of the Company with
face value of 100 lv per share (Ordinary share), decided to undertake converting the capital structure
of the Company aiming at setting it in compliance with the Law for Securities, Financial, Banking and
Investment Activities and the Commercial Law.”

“LIFE CHOICE” GREW UP IN THE WHITE FIELDS OF LAW

If someone is able to understand from first reading the above quotation, he will never lose his money
in a pyramid. Translated to simple language the said text advises the citizens tempted for the
following: the ODR issued by Life Choice Int. AD are converted into ordinary shares with face value
100 lv. But there is a curious admission, which often escape the notice of “up-and-doing” men
dreaming for quick and considerable profits. The problem is that the “confidant” of Life Choice Int.
AD is a nowhere registered structure although its name sounds like a bank – Banq 1. Using this trick
the international jobber and lover of motorcycles “Harley Davidson” succeeded to ensnare thousands
of credulous Bulgarians.

If we remember how the great fraud “Life Choice” began we’ll have to admit that
the root of the evil

is neither the “dodger” Michael Kapoustin, nor the new for Bulgaria finance instruments used by him,
but the white fields in Bulgaria’s legislation and the low finance knowledge of the population. On
such “fertile” ground of course the “wild” market manners thrive. And one of the best-qualified
persons for “work” under such conditions appeared to be just Michael Kapoustin.

In contrast to the other pyramids the initiative of the jobber who was born in Plovdiv and grew up in
Canada, seems to be an idea from totally different galaxy. He came to Bulgaria after the failure of the
Plovdiv games, when the first scandals concerning the companies, which developing no business,
advertised the primitive schemes for payment of exclusively high dividends.

Life Choice AD – the company of Michael Kapoustin, presented as an associated company to the
international holding company Life Choice Inc. AD, did not choose the way of the middle generation
of pharaohs who gathered money most often against “shares with an option”. The top of this trick was
“Demos” that issued redeemable shares with “due date” three, six and nine months.

Having amassed knowledge, experience and worldly wisdom from the USA and Canada,

Kapoustin staked on the unknown

anticipating two characteristic features of the Bulgarian living in the beginning of the 90-ies. First, he
doesn’t like doing real business because the inborn by socialism indolence hampers him. Second, the
same citizen takes on trust everything coming from the West, because this makes him feel part of the
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dreamed Europe and America. Appraising the convenience of these two facts and the circumstance
that in the Bulgarian legislation are open wide gapes, which could be easily circumvented or made use
of, Kapoustin staked on the double “counting” of the simpletons. At first Life Choice issued
shares with face value of 100 lv promising 224% dividend on them. The second step were the
derivatives of securities. Thus the large jobbery was presented as investment from abroad and as
transferring into Bulgaria of new, unknown in the world productions. Because the medicine against
AIDS and producing petrol from waste motor oils is sheer innovation. But not many people, except
for the experts, were aware of how much time it would take to make tests and offer for sale medicines
against AIDS and to introduce and pay off recycling technologies before 300% profit over the primary
capital could be achieved.

Today it is a shame to remember how enthusiastically Kapoustin’s initiatives were applauded.

Certainly, there were some muted sober voices. But in the autumn of 1994 the “ODR” did not
contradict the Bulgarian legislation, which did not consider (and still does not do it in a satisfactory
way) the derivatives of securities. But they, in contrast to shares and equities, prove to be the ideal
means for unlimited gathering of capital without any control possible.

The critical analyzers missed another aspect of the activities of the Canada “leavened“ pyramid. Its
possibilities to accrue income, which could be allocated in the future among the shareholders and the
owners of ODR, were reduced additionally by the enormous expenses for advertising.

The heart of the fraud

were the financial instruments. Making use of the lack of the Law for Securities, Kapoustin easily got
over the small limitations concerning issuing of shares and other securities – Instruction No 3 of the
Finance Ministry regulating the order of issuing and Instruction No 21 for the taxes levied by the state
in these cases. The legal disorder on the financial market is clearly displayed by the admission of the
chief of department “Control over Securities” in the Finance Ministry at that time Valery Voulev. He
says: “As far as the process of issuing and sale of shares is concerned the Ministry is not authorized so
far to exert any control on it, because there is no law passed. Issuing of temporary receipts is a painful
problem, too and for the time being is out of the sight of regulations. Companies may issue temporary
receipts printed even on a laser printer or, if they wish, they could have them printed in a printing
house.” (ref. “Capital Market”. #3/1994).

An episodic attack against pyramids and especially against Life Choice AD at that time was launched
by the chief of Juridical Department if BNB and member of the Board of Managers of the Central
Bank Borislav Stratev. According to him “a joint-stock company may not pay dividends in advance
before the approval of the annual report by the annual general meeting of the shareholders and before
the proposal of the managing board about the way of allocation of profits is approved.” (ref. “Capital
Market”, #3/1994)

A conclusion can be drawn that even at that time

separate legal obstacles

existed for the pyramids registered as companies paying dividends in advance. Nevertheless Life
Choice AD puts into operation its second find – the ADR. According to the advertisement this was “a
financial instrument with one year term. The dividend may be paid either monthly or capitalized (once
by the end of a 12-month period) provided there is no other period explicitly stated by the issuing
company. The ADR bear annual income of 79.5% over a certain amount of USD. The dividend is

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calculated monthly on 5% basis with capitalization. ADR can be bought against any other convertible
currency – DEM, CHF, FRF, JPY, GBP as well as Bulgarian lv”.

What are the real American depositary receipts in fact? According the American legislation Americans
cannot own foreign companies’ shares. The local financial sharks have circumvented this prohibition
by issuing of depositary receipts. Against the first class shares from abroad deposited with European
banks the US dealers issued a certificate verifying the ownership of the American citizens over
foreign shares. The revenue from these securities remained as a deposit with the European banks. But
in the case with Life Choice the receipts issued by Michael Kapoustin resemble more equities because
they have strictly fixed face value – 50, 500, 1000, 5000 and 10 000 USD and they yield fixed
income. Despite all these contradictions that are brought to our attention Life Choice AD affirms that
each Bulgarian can “buy and own unspecified number and combinations of the values mentioned
amounting to the value of investment he wishes to make”.

By the way,

Kapoustin’s impudence reaches its height

When he begins building a bridge of convertibility between the “American” Depositary receipts and
the foregoing ODR: “If the ODR owned bears a monthly payable dividend, the new instrument –
ADR will have face value equal to the face value of the ODR you already own. If the ODR bears
capitalized dividend, the face value of the new ADR will be equal to the face value of the ODR,
including all dividends calculated and due by the date of issuing of the new instrument.” In this way
the difference between the separate instruments is erased and Michael Kapoustin gets the chance to
play all possible tricks by changing one type of securities into another in increasing dimensions
because of the “capitalized under them income”. In this way the company of the Bulgarian Canadian
becomes equal to the real pyramids although it has pretensions for gloss.

And to make things look in order Life Choice AD announces that “all ADR are covered to the amount
of their face value by USD, which are the equivalence of the amount invested with one of the
following banks in the USA: CITIBANK, CHEMICAL BANK, BANK OF AMERICA, ROYAL
BANK OF CANADA, FIRST INTERSTATE BANK. And at the end the trap is laid: “The issuing
company reserves the right to choose the bank”. After this particularization is made the following
words sound more like pure outrage over the credulous people than like a commercial proposal:
(to be continued on p. 10)

A note in the middle of the article:

The head of the National Investigation Service Boyko Rashkov announced on May 6th, that the final
indictment against the chief of the pyramid Life Choice Int. AD Michael Kapoustin would be ready.
According to investigator No 1 the offences effected by the pharaoh will fill about 1200 pages and
most probably the case will enter the Court by the end of June.

Michael Kapoustin has been under investigation since October 1995 when Sofia City Prosecutor’s
office received warnings from deceived citizens, their total number is about 7000 – 8000 persons.
Like most of the pharaohs, who sought security abroad, Michael Kapoustin left Bulgaria but in
August 1996 he was found and was brought back from Frankfurt. Canadian justice has some
pretensions towards him but his sins in Bulgaria seem to be more. Before the court he will be charged

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for embezzlement of 5 million USD, for fraud amounting to 7.8 million USD and appropriation of 4.7
million USD.

“Banker”, # 21(264), May 25 – 31, 1998

Translation M. Radoulova
September 11, 1999