In a rare turn up for the books, the head of state of Latin America’s largest economy just accused the country’s richest billionaire of engaging in blatant accounting fraud.
In an interview with Rede TV! last Thursday (Feb 2), Brazil’s recently reelected President Luiz Inácio Lula da Silva, popularly known as Lula, laid into Brazil’s richest man, Jorge Paulo Lemann, accusing him of engaging in fraud. Together with his partners at the Brazilian-US investment firm 3G Capital, Lemann is one of the largest shareholders of nationwide retailer Americanas, which recently declared bankruptcy following the “discovery” of 20 billion real (US$ 3.87 billion) of accounting “inconsistencies”.
Lemann is a Brazilian investment banker, businessman and modern-day “philanthropist” with dual Brazilian and Swiss citizenship. His wealth is largely tied up in the investment fund he co-founded, 3G Capital, whose holdings include household brands such as Burger King, Kraft Heinz and Anheuser-Busch Inbe, the world’s biggest beer company. 3G Capital is also close partners with Warren Buffet’s Berkshire Hathaway. But the sudden collapse of Americanas is doing serious damage to Lemann and his partners’ reputation, says Lula:
“He was sold as the epitome of the successful businessman on planet Earth. He was the guy who funded young people to study at Harvard with a view to entering future governments. He was a guy who spoke out against corruption every day. And then he commits a fraud that could cost R$40 billion (USD7.76 billion).”
Brazil’s Worst Ever Corporate Scandal?
Lula was rounding down; Americanas’ total debt is actually R$43 billion (USD 8.35 billion). The company is currently undergoing judicial review after filing for chapter 15 bankruptcy in the US in late January. With shareholders and creditors staring at huge losses, thousands of suppliers holding billions of dollars of unpaid bills and tens of thousands of workers possibly facing the axe, the blame game is now in full swing for what some are calling Brazil’s worst ever corporate scandal.
Lula compared Lemann to Eike Batista, the mining magnate who was formerly Brazil’s richest man before suffering a vertiginous fall from grace a decade ago. Between March 2012 and January 2014, Batista’s wealth plunged by over 100%, from a peak net worth of $32 billion to a negative net worth. In 2018, he was sentenced to 30 years’ imprisonment for bribing former Rio de Janeiro governor Sergio Cabral with the goal of obtaining state government contracts.
Lula also lambasted the “financial markets” for their rank hypocrisy:
[W]hat I get upset about is the following. Any word you say on [social spending], any word, the market gets nervous, the market gets very angry. And now one of their own plunders BRL 40 billion from a company that seemed to be the healthiest on the planet and the market says nothing, it remains silent.
Lula isn’t the only major player in Brazil that is blaming Americanas’ collapse on Lemann and two of his partners at 3G Capital (which has no involvement with Americanas), Marcel Telles and Carlos Alberto Sicupira, who are respectively Brazil’s third and fourth richest billionaires. In fact, this is one of those rare occasions where the super rich have begun turning on each other in the most public of ways.
Banks Against Billionaires
André Esteves is Brazil’s seventh richest person. He is also a major shareholder of Brazilian lender BTG Pactual, one of Americanas’ biggest creditors. And BTG recently called the Americanas case “the largest corporate fraud in the country’s history”. As the FT put it, Americanas’ “mysterious” financial hole “has pitted banks against billionaires.”
In an attempt to overturn part of Americanas’ protection from creditors, BTG’s lawyers described the case as “the sad embodiment of a country”:
The three richest men (with assets valued at 180 billion real), anointed as some sort of demigods of ‘good’ global capitalism, are caught with their hands in the till of what, since 1982, has been one of their leading companies.
Other major creditors include Deutsche Bank, with total exposure of around $1 billion; Bradesco, Brazil’s second largest bank by assets ($925 million); Banco Santander SA’s Brazil unit ($715 million); Itau Unibanco Holding SA ($560 million), Banco Safra SA ($480 million) and Banco do Brasil SA ($270 million). Both Deutsche Bank and Safra have questioned the veracity of the data provided by Americanas.
But one thing that is beyond doubt is that fraud was committed, says Daniel Gerner, a lawyer representing 20 minority shareholders in Americanas. “The fraud was malicious. It was a procedure orchestrated and accepted by all involved and which generated fantastic profits for the distribution of bonuses for years.”
There are still a lot of unknowns about the cause of Americanas’ collapse. What is known is that the $3.9 billion of accounting inconsistencies were a direct result of “supplier financing operations” that were not adequately reflected in its accounting.
Here’s how it probably went down…
Read the full article on Naked Capitalism