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Tim Falls as Shareholder Alleges Earnings Fraud: Sao Paulo Mover

Tim Participacoes SA dropped to a 19-month low after a minority shareholder said his complaint prompted Brazilian and U.S. regulators to investigate the telecommunications company’s financial statements for fraud.

Tim, the Brazilian unit of Telecom Italia SpA, slid 3.8 percent to 7.57 reais at the close of trading in Sao Paulo, the lowest since March 2011. It sank as much as 9.4 percent earlier in the day.

Minority shareholder Nelson Tanure said he filed a complaint with regulators that alleges Tim bolstered reported profit by provisioning only 126 million reais ($62.2 million) for a potential tax delinquency of 6.6 billion reais. In a regulatory filing, Tim said it is aware of the complaint and that the allegations of fraud are false.

“This procedure helped inflate the company’s profits under the administration of Luca Luciani,” Tanure said in an e-mailed statement. “Had the company followed the conservative management practices of previous administrations, profits would have been half of what was reported in 2011.”

Brazil’s regulator, known as the CVM, and the Securities and Exchange Commission in the U.S. are investigating the complaint of irregularities, according to Tanure’s statement.

Efforts to reach Luciani, Tim’s former chief executive officer, weren’t successful. He left the company and “gave up all his mandates,” Telecom Italia said in a May 5 statement. A Milan prosecutor filed a request in June to indict Telecom Italia and three former executives including Luciani in connection with SIM-card fraud at the domestic mobile phone unit, according to a court document.

Provision Audit

“It’s not the first time there are rumors of problems in Tim’s balance sheet,” Marcelo Varejao, an analyst at brokerage Socopa Corretora, said by phone from Sao Paulo. “It’s always worrisome. I wouldn’t be comfortable as a shareholder with these rumors going around. But it needs to be investigated.”

JVCO, the investing group through which Tanure filed the complaint, said in a reply to e-mailed questions that it had notified Tim before contacting regulators, and that it asked for a specific audit on the provisions regarding tax issues, which it says were reduced during Luciani’s management.

“Telecom Italia is acting with no concern for Tim’s interests, going against Brazilian law and harming the company’s reputation,” JVCO said.

Tim said it hasn’t been notified of any investigation by the SEC or the CVM.

“The reports are completely untrue, wrong and misleading,” Tim said in the regulatory filing. “The company is evaluating judicial measures to preserve its interests and the interests of its shareholders.”

Nothing New

Press officials at CVM and John Nester, an SEC spokesman, declined to comment.

“This wasn’t new -- all these numbers were there before, they were public,” said Roger Oey, the head of research at BES Securities do Brasil SA in Sao Paulo. “It’s unlikely they’ve done the irregularities suggested.”

Shares pared losses after Tim released its statement.

Tim shares have declined 18 percent this year, while the Bovespa gained 4.3 percent.

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