Brazil’s Biggest Pension Funds Targeted in New Fraud Probe

  • Funcef, Petros, Previ, Postalis investigated by federal police
  • Wesley Batista, CEO of meat giant JBS, talks to police

Brazilian federal police are carrying out temporary arrests as part of a probe into the country’s largest pension funds, the latest in a string of investigations that have rocked Latin America’s largest economy in recent years.

Police say there’s evidence of allegedly organized criminal groups among business leaders, pension-fund managers, companies that rated assets and private-equity fund managers, according to an e-mailed statement Monday. The operation, named Greenfield, is targeting alleged fraud at pension funds Funcef, Petros, Previ and Postalis -- all of which are tied to state-run companies.

The probe is based on 10 cases uncovered as part of deeper look into recent pension-fund deficits, eight of which are related to allegedly fraudulent or reckless investments made by the funds’ private-equity investment arms. Police are carrying out 127 court orders, including seven for temporary arrests. The court also ordered the seizure and freezing of assets of 103 people and firms, police said.

As part of the operation, police also raided on Monday the offices of distressed shipbuilder Sete Brasil, as well as JBS SA’s parent company, J&F Investimentos, and its pulp producer Eldorado Brasil Celulose SA, O Globo columnist Lauro Jardim reported, without saying how he got the information.

A press officer at J&F confirmed the searches, adding that JBS’s chief executive officer Wesley Batista accompanied police to testify in the probe. His brother Joesley Batista, who acts as J&F’s CEO and JBS’s chairman, is out of the country, the press officer said.
Petros and Funcef invested 550 million reais in Eldorado in 2009 and owned a stake valued at 3 billion reais ($920 million) as of December 2015, J&F said in a separate statement, adding that company executives are cooperating with the investigations.

JBS shares dropped 4.4 percent to 11.90 reais as of 3:56 p.m. in Sao Paulo, the biggest decline since July 1.

A press officer at Sete Brasil, which also has pension funds as investors, couldn’t immediately confirm information on the search when reached by phone.

A press official for Funcef confirmed the police operation at its headquarters in Brasilia in an e-mailed response to questions. The fund follows strict ethics standards in all investments and relationships and is available to cooperate with authorities, the press officer said.

In a statement posted on its website, Previ’s press office confirmed the raid at its headquarters, and said all documents requested were handed to the police. Postalis’s press office said the fund is at authorities’ disposal in the probe, and that it’s interested in quick clarification. Petros also said it’s cooperating with police, and that its management is committed to transparency and good governance practices.

Police also targeted other companies, including lenders Santander Brasil SA, Bradesco Asset Management and Caixa Economica’s vice-presidency for management and assets, newspaper Valor Economico reported without saying where it got the information.

Santander said in an e-mailed response to questions that it’s cooperating with the investigation, which is not related to bank itself, but to some funds to which it provides services. Bradesco said it follows rules set by fund managers and Brazil’s regulations, adding that it’s also collaborating with police. Caixa Economica Federal said in a separate statement that it had already started an internal probe on some transactions from the pension fund.

Brazil’s securities regulator, known as CVM, said in a statement that the probe that led to Monday’s operation started a year and a half ago. Secrecy on the operation will be lifted after 7 p.m. local time, CVM said.

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