“Brazilian SEC Borks Foreign Investment House”


Volume five-fingered discount in the NEWS-DJ tie-up? Source: It says what the source is. I clipped it from W$J. com.

The Folhapress news agency rewrites the press release: The Brazilian SEC and federal attorney are suing a “foreign investment firm” for insider trading. The case is sealed, so we cannot know the identity of the firm in question.

Nassif has a commentary on the story as well, but I cannot seem to access iG from here in Queens, New York for some reason.

This is the sort of thing I have tended to pay more attention to offline than online lately. I tend to blog less these days about things I sometimes make a living at, because, well, work is work, and blogging is blogging.

But the goings-on at Brazilian regulatory agencies, and corporate governance and investor protection initiatives at the BOVESPA,  are definitely an interesting subject.

The potential for massive maracutaias with the booming of the capital markets down there is dramatic, it seems to me.

And the potential social benefits of getting a world-class, well-governed, orderly and efficient market going  down there seem equally dramatic, even discounting a certain level of hype.

SÃO PAULO – A Comissão de Valores Mobiliários (CVM), em conjunto com o Ministério Público Federal, entrou com ação pública contra uma “sociedade investidora estrangeira” suspeita de usar informação privilegiada para comprar ações da Suzano Petroquímica às vésperas da venda da empresa para a Petrobras.

The CVM [federal securities regulator], togther with the federal public ministry [prosecutor’s office], filed a public-interest lawsuit against a “foreign investment firm” suspected of using privileged information to buy shares of Suzano Petrochemicals on the eve of its sale to Petrobras.

Segundo informou a CVM em comunicado quinta-feira à noite, a entidade ajuizou na Justiça Federal do Rio uma ação de responsabilidade por danos causados aos titulares de valores mobiliários e aos investidores do mercado, por utilização de informação privilegiada em negociações de ações preferenciais de emissão da Suzano nos dias que antecederam a divulgação da alienação do controle da companhia pela Petrobras.

According to a CVM press release [last Thursday evening], it filed suit in a federal court for damages caused to shareholders and market investors by the use of privileged information in transactions involving Suzano’s preferred shares in the days leading up to the announcement that Petrobras would assume control of the company.

A ação, diz o comunicado, é contra “a sociedade investidora estrangeira que teve recursos bloqueados no âmbito da medida cautelar ajuizada pela CVM e pelo Ministério Público Federal em 7 de agosto”. Nos dois dias anteriores à compra da Suzano pela Petrobras por R$2,7 bilhões, anunciada no dia 3 de agosto, a CVM constatou uma movimentação atípica com as ações preferenciais da empresa. No dia 1º do mês, o movimento ficou em R$9,974 milhões, 93,2% a mais do que em 31 de julho (R$5,159 milhões). No dia 2, o volume total de negócios com as ações da companhia somou R$16,478 milhões, com alta de 65,2% em relação ao dia anterior. No dia da venda, em 3 de agosto, as ações PN da Suzano movimentaram R$67,435 milhões na Bolsa, 309,2% a mais do que no dia anterior.

The suit, the press release said, was filed against “the foreign investment firm that had its assets frozen by a court order requested by the CVM and the MPF on August 7.” In the days leading up to the Suzano acquisition, announced on August 3, CVM noted atypical transactions in the preferred shares of the company. On August 1, the value of shares traded reached R9,974,000, 93.2% higher than July 31 (R$5,159,000). On August 2, volume rose to R$16,478,000, 62.5% higher than the previous day. On the day the sale was announced, on August 3, the trading volume in those shares hit R$67,435,000, 309.2% higher than the previous day.

Segundo o comunicado da CVM divulgado quinta-feira, a sociedade estrangeira adquiriu ações preferenciais de emissão da Suzano no dia 23 de julho, tendo vendido toda a posição no dia 3 de agosto (data do anúncio da compra da Suzano), após a reabertura do pregão. O lucro da operação foi de mais de R$500 mil. Essa investidora, conforme a CVM, não havia negociado com as ações preferenciais de emissão da Suzano em nenhum momento anterior no ano de 2007. Segundo a CVM, as investigações quanto ao “investidor pessoa natural” que também teve os seus recursos bloqueados judicialmente em 7 de agosto tornaram “desnecessária a manutenção da medida cautelar ajuizada, bem como o imediato ajuizamento de uma ação civil pública”.

According to the CVM press release published last Thursday, the foreign investment firm bought preferred shares in the company on July 23, then sold the position on August 3 (the date of the announcement) after trading resumed. The profits on the trade were more than US$250,000. This investment house, the CVM said, had not traded Suzano shares at any other time in 2007. Investigations into the “individual investor” who also had his assets frozen by court order on August 7 made it “unnecessary to continue the court order or ask for a summary judgment in the public-interest civil suit.”

A medida cautelar e a ação civil pública tramitam em segredo de Justiça. A presidente da CVM, Maria Helena Santana, disse na última quarta-feira que, caso haja provas robustas contra os investigados, “a punição pode resultar em multa de até três vezes o valor do ganho e inabilitação da participação no mercado”.  Pela ação civil, esses investidores podem ser punidos penalmente com prisão de até 5 anos. A investigação que deu origem às ações propostas em conjunto com o MPF permanece em andamento, conforme a CVM. (Folhapress)

The two matters are sealed. CVM president Santana said that if there is compelling evidence against the subjects of the investigation, “the punishment may be a fine of up to three times the profit on the deal and loss of license to trade in the market.” Under the civil suit, these investors could also be punished with prison terms of up to 5 years. The investigations that gave rise to the lawsuits continue, the CVM said.

It would be interesting to do a Web log just on CVM disciplinary actions, as one securities lawyer and blawger I know of does.

Just to get a sense of the business environment on the ground. Even fairly piddling cases like this can give you a clue now and then. Is this willingness to bork and boot gringo gamesmen, for example, a sign from the new management, now that Santana has taken over?

In their defense, will the alleged gringo gamesmen scream “political persecution,” like Larry Rohter and Daniel Dantas and Paulo Maluf and Oscar “The Sex Death Hotelier” Maroni?

Still, there is just not as much information to be had on such matters from the CVM, it seems, as from our own e-SEC.

Yet.

At such moments, I always recall the remarks made by federal lawmaker Alberto Goldman of São Paulo when the feds borked the Daslu luxury boutique there on garish tax evasion and Parguayan Marlboro manhood [smuggling and counterfeiting and general lying and cheating and stealing] charges.

The Communist daily Vermelho commented on a Brooks Bros. riot squad organized at FIESP to protest the event:

The protest leader, PSDB deputy Alberto Goldman, explained the rationale for the protest. According to Goldman, “this arrest could lead to an economic crisis. Businesses wil say: why invest in Brazil if we are going to wind up getting arrested?”. That is: in the Toucan view of the world, the only folks that ought to be in jail in this country are the chicken thieves! The businessman who evades taxes, sends money out of the country illegally or commits other crimes can’t be touched and can even count on the help of certain politicians- who will later get a nice campaign contribution. The Daslu scandal is proof that corruption rules the day in the world of capitalist business.

I think my Communist labor organizer friends are logically leaping to vastly over-general conclusions there at the end, mind you.

But I will heartily agree that the Daslu incident was astonishingly bad publicity for the capitalist brand.

The boutique was allegedly buying up and smuggling in designer and knock-off goods on the cheap, using phony paperwork, and marking them up 100,000%.

I am not even sure I am even exaggerating for effect there with that number.

And Governor Alckmin’s daughter, who worked as a buyer at the place, lobbied the state treasurer for exceptions to accounting rules that would have made all of that even less visible to the tax man. This according to a sworn statement by the state treasurer himself.

I like to think of this as the Goldman theory of caveat emptor:

If people are deceived into paying US$2,500 for a pair of embroidered blue jeans from The Gap ($35), it must mean that they wanted to be deceived.

You hear a similar justification from certain Brazilian theorists of journalism as well.

File under “other people’s Bloomberg” and “tropical beancounting 101.”

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