“The Man Who Broke the Brazilian Bourse”

Nahas takes on the market

ISTOÉ Dinheiro: Our friend Leonardo Attuch, serial hagiographer of Brazilian big businessmen — and alleged collaborator with Daniel Dantas and Mangabeira Unger in Dantas’ bid to retain control of Brasil Telecom per fas et nefas — is back with this cover story on “the man who broke the Brazilian bourse” in 1989 and says he plans to do it again.

The Lebanese investor proposes to sue the BOVESPA (São Paulo stock market) and BM&F (the national mercantile and futures exchange) for $10 billion. The magazine consecrates its cover to the story.

CartaCapital published a note on the gentleman back on June 8. I will note that in bit.

BOVESPA is planning to IPO shortly, I think.

I have not the slightest idea what this is all about.

But I will translate and then see what I can dig up.

O mercado de capitais brasileiro tem um encontro marcado com o passado. Mais precisamente, com um nebuloso episódio ocorrido em junho de 1989 e que teve como protagonista o investidor libanês Naji Nahas. Acusado de manipular o mercado e de inflar artificialmente os preços das ações, Nahas foi alvo de uma intensa perseguição policial e chegou a ser preso por uma equipe chefiada pelo delegado Romeu Tuma. Contra ele, pesavam duas acusações: crime contra o sistema financeiro e crime contra a economia popular. Sua carteira de ações, à época avaliada em US$ 490 milhões, foi tomada. Nela, havia 7% das ações da Petrobras e 12% dos papéis da Vale do Rio Doce. De lá para cá, Nahas gastou boa parte do seu tempo com advogados, defendendo- se das acusações que sofreu. Recentemente, foi inocentado de vez em todos os processos e, contra ele, já não cabe qualquer tipo de recurso.

The Brazilian capital markets have a date with the past. More precisely, with a murky episode from June 1989 starring the Lebanese investor Naji Nahas. Accused of market manipulation and artificially inflating stock prices, Nahas was the target of intense police persecution and was arrested by a team lead by then Federal Police official Romeu Tuma.

Tuma, who once headed DOPS, the political police, is now a federal senator from São Paulo.

He faced two accusations: a crime against the financial system and a crime against the popular economy. His stock portfolio, valued at the time at $490 million, was seized. The portfolio included 7% of the shares in Petrobras and 12% of the paper on the Vale do Rio Doce mining company. Since then, Nahas has spent a good part of his time with his lawyers, defending himself against the accusations he suffered. Recently, he was found innocent once and for all in all the cases against him, without possibility of appeal.

É dessa posição, não mais de vilão e sim de vítima, que ele se prepara para, novamente, abalar o mercado. Nos próximos dias, Nahas deverá ingressar com ações bilionárias contra a Bolsa de Valores de São Paulo (Bovespa) e contra a Bolsa de Mercadorias & Futuros (BM&F).

It is from this position, no longer that of villain but now that of victim, that he is prepared to bring down the market. In the next few days, Nahas is due to file billion-dollar lawsuits against the BOVESPA and the BM&F.

Nahas also has a connection to the Dantas-Kroll industrial espionage case, it seems, by the way. A Knight-Ridder story from July 24, 2004, by Kevin G. Hall, archived on Common Dreams — Brazil Investigates American Corporation for Spying — interviewed the Dantas gang about their hiring of Kroll to look into ties between Nahas and the husband of the mayor of São Paulo at the time:

In a statement read to Knight Ridder, a Brasil Telecom spokeswoman said the company hired Kroll to clarify overcharges by Telecom Italia that amounted to $1 billion. As part of its investigation, Kroll also looked into Luis Favre, a Frenchman who’s married to Sao Paulo Mayor Marta Suplicy, the first Workers` Party mayor of South America`s largest and most important city. Brazilian media reports said Kroll was investigating ties between Favre, who at the time was an international adviser to the Workers’ Party, and a Lebanese-born Brazilian businessman, Naji Nahas.

This Telecom Italia mess just will not die, with spies and bugs and disinformation campaigns up the wazoo, it seems. Does anyone actually understand any of it?

O valor da indenização? Dez bilhões de dólares! Exatamente quanto valeria sua carteira se ela ainda estivesse em seu poder. “Não foi o Naji quem quebrou a bolsa; foi a bolsa que quebrou o Naji”, disse Nahas a um interlocutor que participou do desenho de sua estratégia jurídica. “Para entrar com as ações, era preciso esperar o fim de todos os processos criminais.”

The amount of damages sought? $10 billion! Exactly what his portfolio would be worth today if he still had it. “It was not Naji who broke the market; it was the market that broke Naji,” he told an interlocutor who was taken part in designing his legal strategy. “In order to file a lawsuit, it was necessary to wait for all the criminal actions to conclude.”

What is the name of this interlocutor, by the way?

O distanciamento histórico poderá fazer bem ao megainvestidor libanês que chegou ao Brasil em 1969 com US$ 50 milhões no bolso, decorrentes de uma herança familiar. Se tivesse entrado com as ações judiciais no calor dos acontecimentos, ele dificilmente teria possibilidades de êxito. Hoje, no entanto, o quadro é distinto. Dias atrás, o ex-ministro Delfim Netto publicou um artigo no jornal Valor Econômico apontando a “injustiça” cometida contra Nahas em 1989.

The amount of water under the bridge might serve the megainvestor, who came to Brazil in 1969 with a $50 million inheritance, well. If he had sued in the heat of the moment, he might not have had much chance of success. Now, however, the prospects are different. Just days ago, former minister Delfim Netto published an article in the Valor Econômico newspaper pointing out the “injustice” committed against Nahas in 1969.

“Aquela disputa pareceu envolver [sic] Delfim justificou sua posição. “Havia uma queda-de-braço entre comprados e vendidos, onde um dos lados quebraria”, disse ele. “A Bovespa decidiu então mudar as regras do jogo contra o Naji.” Segundo Delfim, Nahas era uma “menina do Colégio Sion” diante das “crooners do La Licorne”, referindo-se a uma das mais famosas casas do meretrício paulista. À época do crash, Nahas também teve o apoio explícito de outro notório economista, o ex-ministro Mário Henrique Simonsen, mas os argumentos do professor da FGV, num contexto de histeria na mídia contra o “especulador [sic] empresas valem US$ 1 trilhão. Para ampliar sua carteira, Nahas se valia de uma regra então vigente no mercado brasileiro conhecida como “DZero”. Ao comprar ações, um investidor tinha prazo de cinco dias para liquidar as operações, mas recebia os papéis à vista, que podiam ser dados em garantia a um banco para obtenção de novos empréstimos.

This paragraph appears to have been garbled in the transition from print to Web.

Delfim justified his position. “There was an arm-wrestling match among the sell-outs and the ones who bought them, and both sides lost,” he said. “BOVESPA then decided to change the rules of the game to Naji’s detriment.” According to Delfim, Nahas was “a parochial schoolgirl” amid the “crooners of La Licorne,” referring to one of São Paulo’s most famous houses of ill-repute. At the time of the crash, Nahas also had open support from another notorious economist, former minister Simonsen, but the FGV professor, inthe midst of a media frenzy against the “speculator” … companies worth $1 trillion. To fill out his portfolio, Nahas made use of a rule stil in force at the time, known as [T+0]. [I think he means T+5? –Ed.] When buyings stocks, an investor had five days to settle the transaction, but received the paper on the spot, which could immediately be pledged as collateral to a bank in order to receive new loans.”

Let me see if I can find that article.

This sounds familiar from current flaps about securities lending and leverage short-selling here in gringoland, does it not?

Assim, era possível “alavancar” a posição. No seu jogo, de alto risco mas dentro das regras, Nahas vinha sendo financiado por bancos como o Multiplic, o Crefisul e o Planibanc. Para que a operação fosse lucrativa, a alta das ações pordeveria [sic] superar a taxa de juros cobrada pelos bancos nos financiamentos. Naquele momento, Nahas já era o maior investidor em atuação no Brasil e operava no mercado do Rio de Janeiro.

Thus it was possible to “leverage” the position. In this game, which was high-risk but within the rules, Nahas was financed by banks such as Multiplic, Crefisul and Planibac. To make the transaction profitable, the increase in the stock price had to exceed the interest rate charged by the banks on the financing of the deals. At the time, Nahas was already the biggest active investor in Brazil and operated out of the stock market in Rio de Janeiro.

Hoje, a mesma posição seria de US$ 10 bilhões, valor da causa de Nahas contra as bolsas

Today the same position would be worth US$10 billion, which is the amount Nahas is suing for.

Or says he is about to sue for.

Em 1989, no entanto, as autoridades da Bovespa agiram para suspender as operações “D-Zero” em todo o País. Num depoimento à Justiça, Luiz Carlos Mendonça de Barros, que presidia o Planibanc, declarou que cortou o financiamento a Nahas depois de ser pressionado pelo presidente da Bovespa, Eduardo Rocha Azevedo. Sem prazo, Nahas não conseguiu liquidar suas compras de ações e perdeu sua carteira, que foi tomada pelos bancos.

In 1989, however, BOVESPA officials moved to suspend [T+0] transactions throughout Brazil. In court testimony, Luiz Carlos Mendonça de Barros, president of Planibanc at the time, declared that he had cut off Nahas’ financing after being pressured by the president of BOVESPA, Eduardo Rocha Azevedo. Left without a grace period, Nahas could not liquidate his buys and lost his portfolio, which was taken over by the banks.

So sue the banks?

Depois disso, as cotações, que haviam caído 30% em junho de 1989, rapidamente voltaram ao patamar anterior, mesmo com Nahas distante do mercado. Aos amigos, ele sempre atribuiu sua queda a Rocha Azevedo e ao ex-presidente do BCN, Pedro Conde. Os “vendidos”, segundo Nahas, teriam lucrado US$ 58 milhões num único dia, numa operação feita para “quebrar o turco”. Rocha Azevedo hoje prefere não falar mais sobre esse assunto. “Se o Nahas acha que tem algum direito, deve tentar exercê-lo”, limita-se a dizer. Na Bovespa, esse tema também é tabu. Ninguém gosta de comentá-lo e a posição oficial é de que se trata de uma história do passado. Na BM&F, comenta-se que o caso é um problema restrito à Bovespa. Procurados pela DINHEIRO, diretores das duas bolsas evitaram dar declarações. Mas ambas as instituições serão parte dos processos por que assumiram os negócios feitos na Bolsa do Rio, onde Nahas atuava.

Afterwards, stock prices, which fell 30% in June 1989, rapidly returned to previous levels, even with Nahas out of the market. To friends, he also attributd his fall to Rocha Azevedo and the former central bank president, Pedro Conde. The “sell-outs,” he said, made $58 million in a single day in an operation designed to “break the Arab.”

Turco is a somewhat insulting term for persons of Arab descent.

Rocha today prefers not to discuss the past. “If Nahas thinks he has a case, he should try to exercise his rights,” he limits himself to saying. In the BOVESPA, the theme is also taboo. No one likes to talk about it and the official position is that it is water under the bridge.

Who did you ask?

In the BM&F, it is commented that this is solely the BOVESPA’s problem. Sought out by this publication, board members of the two bourses declined comment. But both institutions will be parties to the lawsuit because they inherited the business of the Rio exchange, where Nahas traded.

O fato é que as ações judiciais de Nahas, que tem como advogados Paulo Lazareschi e Carmen Sílvia Parsaudita, ele é amigo de grandes empresários, como Marco Tronchetti Provera, da Pirelli, e Robert-Louis Dreyfus, da Coinbra. Se não tivesse tombado em 1989, ele diz que seria uma espécie de “Warren Buffett brasileiro”, referindo- se ao maior investidor americano, que comprava ações pensando no longo prazo. Nahas carregou suas posições de Vale e Petrobras durante 12 anos. Hoje, as duas empresas têm um valor de mercado superior a R$ 100 bilhões.

The fact is that Nahas’ lawsuits, who has Lazareschi and Parsaudit as his attorneys, he is a good friend of big businessmen lik Provera of Pirelli [which owned Telecom Italia] and Dreyfus of Coinbra. If he had not fallen in 1989, he said he would now be “sort of a Brazilian Warren Buffet,” referring to the biggest American investor, who pursued a long-term investment strategy. Nahas maintained his positions in VDRD and Petrobras for 12 years. Today, the two companies have a combined market value superior to R$100 billion (US$45 billionish).

Well. Interesting. Let me study up on this one.