Purpose Black's High-Rise Ambitions Hit Hard Ground Following Executives' Arrests

Sep 1 , 2024. By TIZITA SHEWAFERAW ( Fortune Staff Writer )

Purpose Black S.C. an aspirant real estate and grocery store chain investor, is facing a serious crisis as its newly appointed Chief Executive Officer (CEO), Ermias Birhanu (PhD), and three other top executives, were detained by the Addis Abeba Police, August 30, 2024. The arrests were made on allegations of involvement in a controversial financial scheme.

The company's marketing strategy has recently garnered attention for its unconventional and controversial approach. Purpose Black offered shares with an enticing twist. Each share purportedly came with ownership of a three-bedroom apartment in a project that was to be unrealised, a deal that has now come under intense scrutiny. The detentions followed investigations by the Ministry of Justice, together with the Addis Abeba Police Commission. The executives are held at the Commission's headquarters in the Arada District and are expected to appear before judges on Monday, September 2, sources disclosed.

According to sources close to the investigation, the allegations against the executives include "fraudulent marketing practices", corruption, and the misuse of funds. Employees at various levels, including senior management, are alleged to have received commissions for registering shareholders, many of whom were reportedly misled into believing they were buying homes rather than shares in the company. The alleged misleading practice has drawn the ire of authorities and sparked widespread public concern.

Purpose Black, founded by Fisseha Eshetu (MD), had ambitious plans, including the acquisition of property owned by BGI-Ethiopia in the Mexico area of Addis Abeba for five billion Birr. One of its most audacious strategies involved the proposed construction of a 115-storey tower, dubbed "Ke'Geberew Tower," with each share priced at 1.5 million Br. Initially, the company’s business plan seemed to gain traction, with Purpose Black claiming to have sold 1,000 shares in the first week, raising 1.5 billion Br. In a second round of equity raising, the share price was doubled to 3.5 million Br, with the offering supposedly limited to a select pool of 750 individuals.

The company's promoters promised prospective shareholders a four-year construction period for the real estate project, followed by dividend payments in the subsequent year. However, a crucial deal between BGI-Ethiopia and Purpose Black fell apart, leaving nearly 1,750 shareholders in limbo. These individuals, who had invested with the hope of becoming homeowners, now find themselves without recourse. BGI executives have stated that Purpose Black failed to provide the required payment upfront, while its executives accused BGI-Ethiopia of refusing to pay capital gains taxes.

The dispute was eventually taken to court. Under the terms of the court ruling, BGI-Ethiopia refunded the earnest one billion Birr payment to Purpose Black. The latter has agreed to leave the property, dropping its plan to finance the construction of a residential apartment on the site.

Controversy continued to swirl around Purpose Black when the returned billions were deposited in Awash Bank, only to be withdrawn and moved to Hibret Bank shortly afterwards. Such financial manoeuvring and the ongoing investigation have cast a long shadow over the company's prospects. Purpose Black S.C. has abandoned its initial plan to construct the corn-inspired mixed-use building on a 5,000Sqm property. The ambitious project initially included five additional structures, each expected to rise to 60 storeys tall. The company now claims to seek alternative sites in prime locations to fulfil its commitments to shareholders.

However, the aggressive approach in mobilising equity raised red flags among federal authorities, who froze the company’s bank accounts for two and a half weeks. Though the accounts were temporarily unblocked, they were suspended again once the investigation gained momentum. The financial instability has severely impacted the company’s operations, with sources reporting that most of Purpose Black's 1,600 employees have not received their salaries since then.

Adding to the company’s woes, Fisseha, Purpose Black's founder and public face, recently left the country, claiming threats and pressure. He held an online press conference to defend the company’s credibility, but his departure has only fueled shareholders' discontent. The situation reached a tipping point when shareholders, eager to sell their shares, met with Purpose Black executives. Major shareholders have expressed interest in a buyout, with a document already drafted and a follow-up meeting which was scheduled for August 31, 2024, a day after the arrest was made.

As a source put it, the situation is “unfortunate,” with implications for the company and its stakeholders.

PUBLISHED ON Sep 01,2024 [ VOL 25 , NO 1270]