Federal Prosecutor's Office accuses Mazzeo of embezzling R$ 137 million from Metro employees.

by Cida de Oliveira, from Current Brazil Network 

São Paulo – The Federal Public Prosecutor’s Office (MPF) in São Paulo filed charges yesterday (5) with the Federal Court against the CEO of the São Paulo Metro employees’ Pension Fund, Fábio Mazzeo, and the financial director Valter Renato Gregori for involvement in a fraudulent scheme that diverted R$ 137 million from Metrus – the Social Security Institute of the São Paulo Metropolitan Company – Metrô. Metrus manages pension funds, retirement and health care and other benefits.

Mazzeo has been at the helm of Metrus for over 20 years, and he previously led the PSDB's municipal branch in São Paulo.

Also indicted were the president of Banif bank, Antonio Júlio Machado Rodrigues, the former superintendent of Structured Operations, Maria Gorete Pereira Gomes Câmara, and the former director Carlos Augusto Cirillo de Seixas – who were in charge of the Portuguese-owned bank at the time of the operations – as well as businessmen Oscar Alfredo Muller and Aluísio Duarte.

According to federal prosecutor Andrey Borges de Mendonça, who filed the charges, Banif administrators colluded with Metrus directors in two irregular operations between 2005 and 2012. "A second operation was carried out to cover up the losses caused by the first, generate high commissions for Banif, and benefit third parties by granting undue loans," said the prosecutor.

According to him, the evidence gathered during the investigations is sufficient to state that "in the end, this second operation caused even more damage to Metrus."

Distrust among subway workers

The complaint does not surprise subway workers. For over a year, the São Paulo Subway Workers Union has suspected irregularities within Metrus. Union directors who monitor accounting statements had already found evidence, which has become stronger since last year. "Amidst the demands that the union began making to Metrus, some of our directors were even threatened with legal action," says the general secretary, Alex Alcazar.

The union will meet this Thursday (6) to assess the complaint filed with the court, as well as the impacts that the alleged irregularities may have on workers' pensions and health system.

The operations

The first of these was carried out in 2005, when Metrus had outstanding issues in its accounting balance due to an investment made by the company Village Country in 1998. Upon going bankrupt, this company defrauded the pension fund of R$ 7,5 million related to securities that were not redeemed.

To mask the negative balance, Fábio Mazzeo and the financial director, Valter Renato Gregori, resorted to fraud by acquiring a Bank Credit Certificate (CCB), used in the market to raise loans.

Banif then set up the scheme, issuing the CCB (Credit Card Bill) through the company Panapanan, created solely to raise funds from Metrus, through Banif, for investment in electricity purchase and sale transactions.

These transactions would occur within long-term agreements between small hydroelectric plants that comprised the Arbeit Energia Group and the company Wessanen do Brasil (currently Milani SA), all also owned by Oscar Alfredo Muller.

Metrus then became involved in another fraudulent operation in 2009. Similar to the first, it created a company to issue CCBs (Certificates of Credit) and seek a loan from Metrus. This time, the strategy was to conceal the fund's previous loss through a new credit concession, giving the appearance that the first transaction was still ongoing and the loss had not yet materialized.

The mastermind behind this plan was Felipe Marques da Fonseca, a partner at Quality Credit, a company that provided consulting and financial structuring services to Banif, again with the participation of the bank's top management.

To settle the bonds, the fund would pay R$ 63,6 million in cash and settle the remainder with the transfer of the Panapanan CCB, then valued at R$ 35,4 million. The bank facilitated the transaction by acting as a partial guarantor of the operation and repurchasing the unsecured bond from Metrus. Even knowing the illiquidity of the securities and the economic disadvantage, Banif justified that the objective of the deal was simply to preserve the relationship with the investor.

In 2013, Metrus had an estimated loss of over R$ 137 million, which the fund did not recognize in its accounting documents.

The investigations will continue to determine if money laundering is possible. The indictment regarding the other crimes was received on the 16th, according to a decision issued by the 10th Federal Court, which specializes in crimes against the financial system and money laundering.