Billionaire Whistle-Blower Loses
$730 Million Alleging Fraud
By Vernon Silver and
Anabela Reis
Bloomberg.com
February 4, 2010
On a December afternoon
in 2007, billionaire
Jose Berardo walked into the attorney general’s 18th-century
headquarters in Lisbon to rat out executives at the Portuguese
bank on which he had staked his fortune.
Berardo, whose 7
percent share in
Banco Comercial Portugues SA was worth about $1 billion at
the time, says he met with Attorney General Fernando Pinto
Monteiro for two hours. The investor handed Portugal’s top
prosecutor several folders of evidence showing that executives
at Portugal’s largest publicly traded bank had allegedly used
offshore companies to try to boost the share price and their own
bonuses. Berardo says he hoped his disclosure would spur the
prosecution of the Oporto- based bank’s chairman, with whom the
investor had clashed over governance issues, Bloomberg Markets
magazine reports in its March issue.
"Nobody can guarantee
you’re going to have success, but it’s another thing to be
crooked," says Berardo, 65, who owns one of the world’s
most-valuable private modern-art collections. "I want the money
back that they took."
In June 2009,
prosecutors accused five former bank executives, including
Chairman
Jorge Jardim Goncalves and CEO
Filipe Pinhal, of market manipulation, falsification of
documents and fraud. A Lisbon judge is considering whether to
bring the case to trial. The five executives, who denied the
accusations in court filings and through their attorneys,
declined to comment.
An Outsider
In his book "The Right
to Defend My Good Name," Pinhal says
shareholders
presented evidence to prosecutors that was one-sided and meant
to push the executives out of the bank.
"The denunciations were
nothing more than a means to force the door, to make taking over
the bank possible," Pinhal, 63, wrote.
Berardo, who owns homes
in Johannesburg, Lisbon, London and Toronto, is an outsider in
Portugal’s financial community, says Carlos Peixoto, chief bank
analyst at Banco BPI SA in the northern city of Oporto. Born on
the Portuguese island of Madeira 965 kilometers (600 miles) from
Lisbon, Berardo left school at age 13 to take a job at a
winery where
his father worked as a laborer. He later began amassing his
fortune by extracting gold dust from mining waste in South
Africa before returning to Portugal in the mid-1980s to manage
his investments.
"He’s a force of
nature, very hardworking and sure of himself," says
Horacio Roque, chairman of
Banif SGPS SA,
the biggest bank in Madeira, who has invested alongside Berardo.
"He’s a man who knows the value of money, especially because of
the way he was raised."
‘Hello, Baby’
Berardo’s all-black
wardrobe and informal manners set him apart from Banco
Comercial’s more-conservative executives and shareholders. He
often bellows "Hello, baby" in English when greeting employees
and friends. The bank’s other biggest shareholders have included
Portugal’s richest and oldest commercial clans, such as the Jose
de Mello family, whose real estate, chemical and bank holdings
date to the 1890s.
"The bank is more
formal than Berardo," Peixoto says. "He’s more provocative, more
aggressive than other shareholders."
Berardo’s public attack
on the bank’s executives, including an impromptu press
conference he held immediately after his visit with the attorney
general, was extraordinary in Portugal’s financial industry.
Regulators and executives tend to address violations between
themselves without public disclosure, says
Antonio Ramirez, a banking analyst at Keefe, Bruyette &
Woods in London.
"You don’t normally get
scandals," he says.
Cayman Islands
From 1999 to 2003, BCP
loaned 590 million euros ($843 million) to 17 Cayman
Islands-based companies it controlled without accounting for the
debt on its books, according to prosecutors’ accusations filed
in a Lisbon court. The offshore companies used the cash to buy
almost 5 percent of BCP’s stock to boost its value, according to
the accusations.
Prosecutors say the
operation backfired when Portuguese stocks, including BCP’s,
dropped in 2001 and 2002, preventing the offshore companies from
paying back the loans. Executives disguised the bad loans as
real estate losses, which inflated the bank’s
earnings and
propped up the flagging shares, prosecutors say.
As a result, according
to the accusations, five executives were wrongly rewarded with
24 million euros in bonuses. A bank spokesperson and the
prosecutor leading the case declined to comment.
Bad for the Bank
Andre Rodrigues, a
banking analyst at Caixa-Banco de Investimento SA in Lisbon,
says Berardo’s revelations ignited a scandal that’s damaged the
bank. Portugal’s national newspapers, such as Diario de Noticias,
have regularly covered the story on their front pages.
"The controversy was
really bad for the bank," Rodrigues says. "It’s good to probe
bad behavior, but to discuss it a lot and create turmoil wasn’t
good. The stock went down, and the management wasn’t focused."
Berardo, who owns
stakes in Portuguese companies ranging from cable provider
Zon Multimedia SGPS
SA to winemaker
Sogrape
Investimentos SGPS SA, lost about $730 million in his bank
shares in part because of the probe he provoked. The bank’s
shares plunged 71 percent to 0.774 euro cents on Feb. 3 from
Dec. 21, 2007, when authorities announced an investigation of
the bank.
Berardo says the drop
in the value of stocks he owns forced him to use some of his art
collection of about 40,000 pieces as collateral for bank loans,
the size of which he declined to disclose.
‘Say I Have No Money’
"I’ve got loans like
everyone else, and I’ve got deposits," Berardo says. "I’m not
worried. Go ahead and say I have no money. All the better for
me. That way, people won’t ask me to lend them some."
The nationally
broadcast television satire
Contra Informacao, which uses puppets to skewer public
figures, has featured Berardo, calling him the enfant terrible
of Portuguese business. A skit in November poked fun at the
investor for giving an interview to the Portuguese edition of
Playboy magazine last year. Berardo’s puppet, its shirt
unbuttoned to reveal a hairy chest, invites women in bikinis who
work for the former chairman of BCP to accompany him to the
Cayman Islands.
One of Berardo’s
holdings has also been scrutinized. As part of a tax probe that
examined records at about 150 Portuguese businesses, in 2008
police searched the offices of tobacco company
Empresa Madeirense
de Tabacos SA, where Berardo is chairman and a major
shareholder. The investor says he doesn’t expect authorities to
file charges.
Berardo
Collection Museum
With BCP’s
stock price
near historic lows this year, Berardo’s most-valuable investment
may be an art collection that he says was valued in 2009 at more
than $750 million. The collection is among the highest priced in
the world, says Iain Robertson, head of art business studies at
Sotheby’s
Institute of Art in London. His most-prized works, such as
paintings by Pablo Picasso and Andy Warhol, are on display at
the
Berardo Collection Museum.
On a Monday afternoon
in October, Berardo enters the white stone fortress-like museum
in Lisbon’s touristy Belem neighborhood, with its trolley cars
and cinnamon-scented pastry shops. Inside the museum, visitors
recognize the 6-foot-3-inch (1.9-meter) Berardo, wearing his
typical black suit and black crew-neck sweater, and thank him
for displaying his art. Unlike many cultural institutions in
Lisbon, Berardo’s museum doesn’t charge an admission fee.
In a sun-filled
gallery, Berardo examines the 1808 painting Oedipus and the
Sphinx by French master Jean-Auguste-Dominique
Ingres
that’s on loan from the Louvre in Paris. The painting is being
installed next to the work that it inspired, Francis Bacon’s
1983 Oedipus and the Sphinx, after Ingres. Berardo owns the
Bacon painting.
"You know who used to
own this one? Stallone!" Berardo shouts, referring to actor
Sylvester Stallone. Berardo recounts how he ran into
Stallone and told him, "I’ve got your Bacon!"
The museum is located
in a state-owned cultural complex -- the result of a deal
Berardo cut with the Ministry of Culture in 2006. The government
agreed to house part of his collection and took a 10-year option
to buy 862 paintings and sculptures for 316 million euros, based
on a Christie’s valuation in 2006.
"Giving his collection
public visibility adds value to it," says Joao Paulo Queiroz,
vice director of the
Lisbon University School of Fine Arts. "It’s better and
probably cheaper than having it stored up somewhere."
Buddha Garden
The investor has also
poured millions of dollars into exotic personal projects, such
as his Buddha Eden Garden that’s open to the public. In October,
a chauffeur drives Berardo in his Jaguar Daimler Super Eight
sedan more than 160 kilometers per hour on a highway north of
Lisbon to the Buddha garden in Bombarral.
At the site, set among
olive trees, the investor joins about a dozen tourists who are
perusing hundreds of stone Buddhas, dragons and lions and 700
Chinese warriors. Berardo even had streams and ponds installed
in the garden. The tallest Buddha, at 21 meters, looms above the
garden on a hill.
The investor says the
project was an act of cultural restoration he undertook after
Taliban militants in Afghanistan blew up Bamian Buddhas in March
2001. To create the garden, he imported 6,000 tons of
custom-made statues from China, attempting to match the weight
of the wrecked Buddhas.
"If somebody destroys,
somebody has to rebuild," says Berardo, a Roman Catholic.
Gold Dust
Berardo’s
unconventionality reaches back to the way he began making his
fortune from gold-mining waste in South Africa. At age 18,
Berardo says, he boarded a ship from Madeira to Africa. While
selling fruits and vegetables to miners in South Africa in the
mid-1970s, he spotted opportunity in the piles of leftover dirt
that contained gold dust at abandoned mines.
Berardo says he gained
ownership of the dirt often at no cost by simply filling out
government paperwork. As gold prices soared sixfold to $850 an
ounce in 1980 from 1976, he cut a deal with mining giant
Anglo American
Plc to extract the metal. Berardo says the company took 40
percent of the profit and he kept the rest, making his first
millions.
In the mid-1980s, with
his investments increasingly tied up in Portuguese companies,
Berardo began spending the bulk of his time in Lisbon. He
focused on stock trading and by 2005 had bought a BCP
stake of more
than 2 percent.
Since Jardim Goncalves
helped found the bank in 1985, it had grown through a series of
acquisitions into a provider of retail and investment banking,
credit cards and brokerage services. The strategy hit a wall in
May 2007 when the bank failed in its hostile takeover of smaller
rival Banco BPI.
Chairman Goncalves
After the misstep, the
bank’s supervisory
board, led by Jardim Goncalves, proposed to shareholders
that they give it the power to name new CEOs -- an authority
that had been held by shareholders. The proposal also called for
the chairman to be given the right to attend meetings of the
executive board, which ran the bank’s day-to-day operations.
Jardim Goncalves, 74,
who had worked in Spanish and Portuguese banks for more than
three decades, was raised in a Catholic and conservative family,
according to the bank. He is a member of the Roman Catholic
group Opus Dei, which recruits and trains businesspeople and
hews closely to church doctrine. He wrote about his experience
with the group in a chapter of the book "Opus Dei in Portugal."
Berardo, who boosted
his bank stake to as much as 7 percent by 2007, says he objected
to what he called a power grab by the chairman.
Dishonest Evidence
"With him it was ‘my
way or the highway,’" Berardo says.
Berardo led a group of
shareholders who protested the board’s proposal and called for
Jardim Goncalves to step down in the media. The board withdrew
its proposal by the end of May 2007. Three months later, Pinhal,
who was then vice chairman of the executive board, became CEO
when his predecessor resigned.
"Berardo has strong
opinions, and he does what he wants to do," says Eva de
Oliveira, a professor of human resource management at
Catholic University of Portugal in Oporto.
Berardo says bank
insiders who supported his challenge to the chairman began
leaking documents to him about the offshore companies. Some
documents were handed to the doorman of Berardo’s Lisbon office
in envelopes lacking return addresses. Berardo says he then
compiled the evidence of wrongdoing into a sheaf of at least 50
documents for the attorney general.
Salvador da Cunha,
Jardim Goncalves’s spokesman, says that facts about the bank
were presented to authorities out of context and dishonestly
with the goal of removing former executive board
members.
Board Shakeup
"Only time and the
functioning of truly independent entities, the courts, will
allow the truth to be established," da Cunha says.
In January 2008, weeks
after prosecutors announced their probe, Berardo won a boardroom
victory at BCP. Shareholders elected a new CEO,
Carlos Santos Ferreira, and executive board. Four months
later, shareholders elected Berardo as chair of the compensation
committee and voted to cut the bonus pool for top executives to
a maximum of 2 percent of profit from 10 percent. Under Berardo,
the committee suspended perks for retired executives, such as
the use of the corporate jet.
In 2008, to account for
the offshore losses that Berardo helped disclose, the bank
restated its prior-year earnings to reduce its equity by 300
million euros. The global recession has also hurt the bank, with
its net income
dropping 64 percent to about 201 million euros in 2008. Bank
profit rebounded in the first nine months of 2009 on the sale of
money-losing assets.
Stock Outlook
"We’ll probably need to
look beyond 2011 to see the bank get back to more-significant
growth levels," says
Tiago Bossa Dionisio, a bank analyst at Banco Espirito Santo
SA in Lisbon. He sees the stock reaching 1.20 euros -- a third
of its 2007 peak -- by the end of 2010.
Berardo the outsider is
now an insider at the bank as he tries to recoup the loss in the
value of his stake. While the provocative investor triumphed in
the battle over control of BCP, he may not win back his bank
fortune for years to come.
To contact the
reporters on this story:
Vernon Silver in Rome at
vtsilver@bloomberg.net;
Anabela Reis in Lisbon at areis1@bloomberg.net
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