CVM fines Portugal Telecom for not warning about risks – 05/31/2023 – Market

The CVM (Comissão de Valores Mobiliários) condemned Pharol (successor of Portugal Telecom) for failing to warn Oi about financial risks that ended up leading the telephone company resulting from the merger between the two to a crisis that has already culminated in two requests for judicial recovery.

Six other Oi executives were fined for omissions in assessing these risks before approval of the merger process, an operation that, according to the government at the time, would form a Brazilian-owned supertele with businesses in Europe and Africa.

The merger ended up failing after the discovery that Portugal Telecom had high exposure to bad securities of an associated company. For the rapporteur of the process at the CVM, Alexandre Gurgel, the Portuguese company should have warned Oi shareholders about this exposure before the approval of the merger.

A Sheet could not contact Pharol until the publication of this text. During the judgment at the CVM, the company’s defense said that the company was not aware of the rotten securities and that it was the most affected in the entire process.

Pharol was fined R$400,000. President of Oi at the time of the operation and egress from Portugal Telecom, Zeinal Bava received a fine of R$ 500 thousand for omission. Rangel recalls that he even received an email from a legal adviser warning of the risk before the operation.

“All these problems could have been avoided or mitigated if Zeinal Bava had taken measures to protect the company”, said Rangel. The executive had been fined BRL 169.5 million on Tuesday (30) for approving the payment of bonuses to himself for the success of the merger.

Another former member of Portugal Telecom, former director of Oi Luis Miguel da Fonseca Pacheco de Melo, was also fined R$500. Former CFO of Oi, Bayard Gontijo, was sentenced to a fine of R$400,000.

Two other Telemar directors, Fernando Magalhães Portella and Shakhaf Wine, were fined R$300,000 each, the same amount stipulated for a fine for the then director of Telemar Participações, Otávio Marques de Azevedo.

In the same process, CVM acquitted Oi’s controlling shareholders for abuse of controlling power in the company’s management. The technical area defended that the group maintained an abusive scheme to approve guidelines of interest, such as the merger, but the thesis was rejected by Rangel.

Among those accused were Andrade Gutierrez, Jereissati Telecom, and Pharol itself, as well as BNDES and pension funds for employees of Banco do Brasil, Petrobras, Caixa Econômica Federal, which were part of the control block.

The CVM also decided to fine shareholders Andrade Gutierrez and Jereissati Telecom BRL 500,000 each for abuse of power by approving bonuses for the success of the operation without consulting the other shareholders. Bava received the highest amount, R$ 40 million, in values ​​at the time.

In all, the irregular bonus process resulted in fines of R$ 200 million, both for Bava, as well as for Gontijo and other directors of the company. According to the CVM, they decided for their own benefit without consulting the board of directors and shareholders.

Initiated in 2013 and completed in 2014, the merger operation between Oi and Portugal Telecom was sponsored by the Dilma Rousseff government within the policy of creating national champions. It would be, according to the government at the time, another Brazilian multinational.

Two years later, however, the company filed its first request for judicial recovery, to deal with a debt of R$ 65 billion, in values ​​at the time. The process was completed in 2022, after reducing the sale of a large part of the company’s operations.

In March, however, the company decided to go to court again, claiming that it cannot deal with debts of R$ 43.7 billion.