Brazilian Police Launch Investigation Into Alleged Fraud at Pension Funds 

Brazilian police on Monday said they launched an investigation into alleged fraud of as much as 8 billion reais ($2.5 billion) at the country’s four largest pension funds, all of which are linked to state-controlled companies.

Judge Vallisney de Souza Oliveira ordered the freezing of assets worth that amount, belonging to a total of 103 people and companies under investigation, the Federal Police said. The assets include 90 properties, 139 cars, a plane, bank accounts and shares, among other things, the statement said.

The Federal Police said police and several other agencies are investigating allegations of reckless management and fraud at Previ, the employee pension fund of Banco do BrasilSA; Funcef, the employee pension fund of state-owned lender Caixa Economica Federal; Petros, the employee fund of oil company Petróleo Brasileiro SA, or Petrobras; and Postalis, the employee fund for the postal service.

Press officials at the four funds didn’t answer calls from The Wall Street Journal seeking comment. Lawyers for pension funds weren’t immediately available for comment.

The alleged fraud consisted mainly of the pension funds buying shares in independent investment vehicles that themselves had paid too much for company stocks or bonds based on valuations that were “unreal and technically irregular,” according to court documents released by prosecutors. The valuations were based on information provided by the companies seeking investment in at least some of the cases, according to the documents.

As part of the same operation, according to a spokeswoman for the prosecutors office, the police raided offices of Eldorado Brasil, a pulp-making unit of J&F Investimentos—the holding company that controls JBS SA, the world’s largest meatpacker.

Wesley Batista, who is the chief executive officer of JBS and a shareholder of J&F, was detained by police for questioning in São Paulo. His brother Joesley Batista, chairman of JBS and CEO of J&F, was unable to speak with police Monday because he is out of the country, according to a J&F spokeswoman.

A J&F spokeswoman denied any wrongdoing on the part of Eldorado or the Batista brothers. J&F said in a statement that its relations with the pension funds were always ethical, and that it has always been willing to cooperate with authorities.

The judge also ordered a series of measures applying to 40 people under investigation, among them officials at the pension funds and executives at companies that received investments, including the Batista brothers.

The 40 people on the list have to turn in their passports, and are forbidden from carrying out “any and all” activity in financial markets, and from “exercising any management post or function” in any company. It wasn’t immediately clear if that means Wesley Batista has to stop working at JBS.

A JBS spokesman said the company is analyzing the impact of the decision.

Investigators are looking at more than 10 companies that might have received irregular investments from the funds, the spokeswoman said.

The J&F spokeswoman said in a emailed response that Petros and Funcef invested a total of 550 million reais in the company in 2009. In 2015, their investment was valued at 3 billion reais, the spokeswoman said, adding that J&F and its executives are cooperating with authorities.

Monday’s operation involved at least 560 police, as well as prosecutors and officials of other agencies, who raided pension fund offices and worked to execute arrest warrants for seven unnamed people. Another 33 people are wanted for questioning, the police said.

The operation is taking place simultaneously in the federal capital district of Brasília and the states of São Paulo, Rio de Janeiro, Espirito Santo, Bahia, Paraná, Rio Grande do Sul, Santa Catarina and Amazonas.

Brazilian police and prosecutors have been attacking the country’s endemic corruption in the past few years with a series of investigations targeting company executives and politicians.

The most high-profile investigation to date has been Operation Car Wash, which has led to the jailing of dozens of executives from some of Brazil’s biggest companies on charges including bribery and money laundering and the investigation of former President Luiz Inácio Lula da Silva.

Source: WSJ

---