Estonia, Financial Services, Investments, Legislation, Security, Technology

Kati Pino, a lawyer at Hedman Partners, gave a recent example from her practice, where a scammer presenting themselves as a well-known international investor tried to scam money from an Estonian startup.

"The founder of a startup was contacted by a seemingly reliable foreign investor, who wanted to invest a larger amount in the company. Preliminary background research showed that this is a person who has been active in investing in startups before," Pino said in a press release.

During the negotiations, the communication moved to the investor's financial advisor, and since this is a normal course of events, the startup did not have any doubts. The financial adviser wanted to see a draft contract, which was also sent to them by the founder of the startup. After that, the events started to develop differently than expected.

"After sending the contract, the founder received a reply that the conditions were appropriate and the contract could be signed. However, in addition to the usual information, a copy of the founder's passport was requested, explaining that the contract had to be 'legalized'," the lawyer said.

The meaning of the legalization requirement remained unclear to the founder and they asked the "financial adviser" to clarify it. They received a reply that the legalization would cost 1,000 euros and that the investment would take place after that amount had been paid. The fact that payment of 1,000 euros was made a precondition for concluding the contract made the startup entrepreneur suspicious.

However, a thorough background check revealed that the source of the electronic communication was hidden through the use of servers in Russia, Germany and Brazil, and the person who presented themselves as an investor was a fraud. "The investor, as the fraudster presented himself, was a victim of identity theft along with their family members," Pino added.

In this case, the startup managed to escape the scams, but according to the lawyer, this may not be the case for all startups waiting for an investment. "We recommend that startups thoroughly check the background of investors, especially during the current crisis," Pino suggested.

Legalization is an internationally recognized proof of the authenticity of a public document. Only public documents are legalized and thus it is not possible to legalize the documents of an investment as a private transaction.