The not-so-smartphone

Here, we look at the story of executive greed and an ill-fated $130,000 phone.

A fool and his money are soon parted – just ask Canadian businessman Alex Shnaider…

It was seen as a story of executive greed and excess but now the full story of the world’s most expensive smartphone can be revealed.

A few years ago the Ulysse Nardin ‘Chairman’ phone generated a lot of publicity. No-one had ever seen a $14,000 smartphone before, never mind a diamond-studded version that was set to retail at an eye-watering $130,000.

Online newspaper Huffington Post described it as ‘decadent’ while Techcrunch reckoned it ‘ostentatious’.

But while the company behind the project bragged about having 8,000 pre-orders when a prototype was unveiled at a luxury watch convention in 2008, it can now be revealed that the project was a flop from the very beginning.

In fact, the smartphone never went into production and the ‘Chairman’ was an expensive mistake that cost its backer, Canadian businessman Alex Shnaider, over US$10 million.

The farce started when luxury watch retailer Bobby Yampolsky, who has an upmarket store in Florida called East Coast Jewelry, hit upon the idea of creating a smartphone that would incorporate a luxury watch that he could sell to his wealthy clients, many of them rich compatriots from Russia.

‘We tried to create something totally unique, a luxury – a toy for boys,’ said Yampolsky at the time. ‘It wasn’t long ago that the watch became a status symbol. Now we think it’s time for a cellphone to become a status symbol too.’

East Coast Jewelry partnered with Ulysse Nardin, a luxury Swiss watch-maker, to create the ‘Chairman’. A new company was formed by Yampolsky called SCI Innovations to develop and market the product, just one of at least 20 other companies the Russian has incorporated in Florida.

Yampolsky also created a large infrastructure of companies in Cyprus, the UK and in the United States that were incorporated to assist with various aspects of the ‘Chairman’ project.

This is where Yampolsky’s associate, Alex Shnaider, came in. His considerable bankroll, as well as a detailed knowledge of how offshore companies work, was made available to the new business.

Shnaider had made such a fortune from steel, real estate, retailing and shipping that he caught the eye of Forbes back in 2005 and the business magazine ran a feature-length piece on his exploits.

‘He has already built a $4 billion (sales) empire sprawling from Yerevan to Toronto. Much of that business – and his $1.4 billion in net worth – comes from trading Ukrainian steel and grabbing control of that country’s fourth-largest steel mill, Zaporizhstal,’ trumpeted the magazine.

‘There is also a power grid in Armenia; two hotels, a bakery chain and a meat packing company in Serbia; small interests in Turkey and Israel; a Russian steel mill in Volgograd; and an ornate office building and casino in Moscow’s Arbat pedestrian mall. They’re all under his holding company, Midland Resources, registered in the British tax haven of Guernsey.’

But Shnaider’s business genius was not on show when it came to the ‘Chairman’ project, and no matter how much money he pumped into Yampolsky’s smartphone company, the Russian always seemed to come back for more.

Shnaider was beginning to look like a soft touch so it was not particularly surprising when the ‘Chairman’ project was quietly shelved back in 2013.

One of the companies Shnaider pumped money into was called UN Cells Ltd, a UK company incorporated in July 2009 that was founded by Yampolsky, again to help with the sales and distribution of the smartphone. The company was 100 per cent owned by SCI Innovations Ltd but in February 2013 the company was put into liquidation.

The 2010 annual return for UN Cells Ltd reveals that a sum of £1,205,215 was owed to an entity called Jervois Ltd, ‘a company related to Midland Fundco Ltd, the ultimate parent company of UN Cells Ltd,’ which is understood to be owned by Shnaider.

However, when the company was put into liquidation in 2013, the amount owed to Jervois Ltd had soared to £6,400,000 (around 13 million Canadian dollars). In just three years UN Cells Ltd had burnt through a further £5 million of Shnaider’s cash, with little or nothing to show for it.

The phrase ‘a fool and his money are soon parted’ could have been written with Shnaider’s ‘Chairman’ experience in mind.

Ben Lobel

Ben Lobel

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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