BRAZIL: VALE Case Change of president refers to facts investigated by SEC and FBI for over 5 years.

While the market noticed the change of command at VALE, under the spotlight of influence or not of Minister Guido Mantega, interference or not of former President Lula or even the President of Bradesco or PREVI, few national and international investors perceived the reality involved.

The circumstances which involved the leaving of President Roger Agnelli and the inauguration of Murilo Ferreira reveal something far more serious. As it has been investigated, since 2008, by processes in SEC (US Security and Exchange Commission) under the numbers 676.560.200, 323.950.536. and 207.648.893.4; in NYSE (New York Stock Exchange) nº 676.560.196 and in FBI, there are definite proves that Brazil is a dangerous and not very reliable market. The Brazilian players are organized in ways that violate international rules, in spite of being embedded in business and global stocks.

The problem is not who rules VALE, but the incontrovertible fact that the biggest part of businesses done through BOVESPA, or even international mergers and acquisitions covering large Brazilian companies, involve 90% of times, more than U$ 250 billions administrated by the 34 largest private pension funds in Brazil, among them PETROS, PREVI, FUNCEF, plus the Stock Investment Funds of clients of Caixa Econômica Federal (approx. U$ 90 billion), the Stock Investment Funds from Bank of Brazil (approx. U$ 120 billion) and participation funds organized by BNDESPAR and BNDS (with over U$ 150 billion capital and participation) – (source: complaint with TCU nº 027.703/2008-5).  

Mentioned entities have their directors and presidents chosen by no more than six people well located in Brazil. Surprisingly, these same people also choose Presidents and Directors from over 20 companies of the “Private” Group Eletrobras, from over 30 companies of the “Private” Group Petrobras, choose the banks responsible for the multibillion-dollar issue shares and ADRs from Bank of Brazil, Petrobras and Eletrobras; and the same people still choose the Presidents and Directors of BNDES and BNDESPAR, also define the volume of financing and corporate participation in Brazil and abroad relating to businesses of the national’s most important companies in the world:  OI BRASILTELECOM, VALE, JBSFRIBOI, BRASIL FOODS, EMBRAER, EMBRATEL, AMBEW-INTERBEW.

All this structured power does not come to public, except when changes like the one in VALE happen. Almost as a rule, nothing is even mentioned, not being possible notes from audits or supervisory boards. After all, the same power center also elects Presidents and Directors of CVM - Comissão de Valores Mobiliário and Central Bank of Brazil, bodies that should oversee all.

Such fact is worrying not because of VALE or its former President, but for the following aspect: in case this group of people, companies and banks feel the need to help each other, will they be acting with “conflict of interests”? Or worse: what if the mentioned people decide to reveal to each other their intentions and secrets, even if by good faith, will they be violating the rules of the “Chinese Wall”? May their ideas define or create movements to establish the price of stocks and commodities in an unnatural way? What about when they gather and organize or not mergers / acquisitions or be TAG ALONGS? The only way is not being public! If hypothesis becomes a fact, will they be committing financial crimes or simply manipulating prices and market? It’s too many ancillary questions for a “risky” market.

The worrying looms even more when considering the fact that businesses made by Brazilian companies and investors emerge strongly on the Stock Exchanges which composes the system NYSE/Euronext. VALE, AMBEV, JBS FRIBOI, PETROBRAS, ELETROBRÁS, OI BRASILTELECOM e BRASILFOOD, for example, are the biggest multinationals  in the world in their own field of performance.

That being, when Directors of the mentioned banks, of the 34 largest private pension funds in Brazil (who manage their clients’ resources applied in stock funds), of BNDES, of BNDESPAR decide to, structurally, invest funds in stocks or engage in mergers and acquisitions involving business groups, which are linked through a common financial and managing center, it’s necessary to make it clear to the market that they are acting organized, with no surveillance, free from conflict of interests and using more than 400 billion dollars in cash and equity structures that exceed 200 billion dollars.

Without giving any explanation of how it happens, there will always be the suspicion of “conflicts of interest”, violation of the “Chinese Wall” rules, “Lack of Transparency” and “absence of impartial surveillance”. In foreign territory, specially in direct markets and derivatives organized around the operations of the New York Stock Exchange, such circumstances, bad faith present or not, are considered practices of crime by the force of  laws like Securities Exchange Act, Sarbanes Oxley- SOX e  Dodd-Frank Act.