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Brazilian Fraud

The full report!

A Brazilian student of mine asked me to write and share an English blog about the latest chain store fraud. ‘Lojas Americanas’ a company that was formed by a group of Americans who had just arrived in Rio de Janeiro, and inaugurated its operation in 1929, now finds itself with almost an US$8 billion shortfall.

Slow to develop and showing losses on the ledger books, the business gained strength mainly from the 1980s, when 3G Capital Partners, headed by partners Jorge Paulo Lemann and Marcel Telles, and Carlos Alberto Sicupira acquired the company. With the mission of reversing the chain's losses, the threesome revised the investment plan and restructured the operation of Lojas Americanas, managing to make it profitable shortly afterwards, or so they say.


However, 40 years on and with up to a forty billion reais deficit, both CEO Sergio Rial, and CFO André Covre who uncovered the accounting inconsistencies have resigned on January 11th, 2023. Interestingly, they had both only just recently been appointed by the chain store. That tidbit of information is enough to make anyone wonder how long the debt had been mounting up, and how it had grown to such an exorbitant sum. Clearly, there is a number of people involved in the fraud’s plot.


According to online articles there doesn’t seem to be a clear explanation of what happened to such a vast deficit; however, journalists quickly pinpoint that the company feels, or rather estimates that the cash impact of inconsistencies is insignificant. Fernando Ulrich launched a video about the subject yesterday, 18th January basically confirming my own presumptions based on suspicion about how a massive debt of 20B doubled to 40B within a few days of its disclosure.

Tabloids turn it into a basic case of contracted banks pay suppliers, and then Americanas settle directly with the banks. They go on to say the equity value of Americanas is US$2.5 billion (14 billion reais) although the preliminary sum of US$8 billion (R$40 billion reais) won't necessarily be subtracted from equity.

In a statement sent to employees, Americanas said it has US$1.5 billion (R$8 billion reais) in cash and will continue to pay suppliers within the stipulated period. Hello, subtract US$1.5 billion from 8B which means there is another US$6.5 B missing. If that were true then many suppliers must have gone out of business!


The auditor responsible for the completeness of Americanas' balance sheet in recent years is PWC. A committee of the board of directors is investigating the matter internally, with support from PWC itself. Are we to assume the board of directors committee and PWC were unaware?


This must be a classic cover up story due to years of inconsistencies. I mean, you only have to ask yourself, if indeed, $8 billion US dollars, which everyone knows is eight thousand times one million dollars just fell off the radar, or this is one of the biggest, if not the biggest rip-off-schemes ever in Brazil!


However, USA’s dishonorable Bernard Madoff makes it somewhat small in comparison to his Ponzi scheme. He ripped people off by over $65 billion dollars just under half a century before he was discovered and sentenced to 150 years in prison for taking investor’s money that he said he would be going to invest, and instead, kept it.


For all we know Lojas Americanas could have been greedy and its owners opted to reduce and keep a low profile to avoid tax liability. Only now it has materialized, and perhaps CEO Sergio Rial and CFO André Covre were classified scapegoats to bring it to fruition. Either that or they knew damn well of the coverup before becoming employed.

From my own experience of running Brazilian businesses and liaising with other business owners, it has become apparent that many firms have two accounting systems: one to launch official business transactions, and two to run black-market operational astuteness.

The objective is to reduce tax liability. Here is the catch; Stock records don’t match input and output. Therefore, the books show a shortfall, and then when ledger control is audited there needs to be adjustments. Clearly, everyone within management has a pretty good idea of the scam going way back.


Prior to the change of command, Americana’s management was comprised of a group of executives who had worked together for more than two decades, including former CEO Miguel Gutierrez; Anna Saicali, head of Ame Digital; Timotheo Barros, head of physical stores and CFO; and Márcio Cruz, who ran B2W. Now tell me that they had no idea of what was going down!

A source close to the company has told a Brazilian Journal that it is not yet clear whether the postings being questioned were in a gray area of accounting rules or whether they actually constituted fraud. In any case, the discovery of the “inconsistencies” should lead the market to question whether the same accounting practices are being adopted by other companies.

Industry CFOs should already prepare for tomorrow. The episode is also a blow to the Brazilian capital market, given that the company's free float (public float) is mostly made up of international investors, including Blackrock, Vanguard and Wells Fargo.

Americanas stock has been one of the worst retail stocks over the last two years, with the company consistently losing market value. The company ended the day worth $2 billion dollars on the stock exchange. They have several funds which are all down.


“The company is telling everything it knows at this point,” said a person close to the unfolding. Americana’s main shareholders, Carlos Alberto Sicupira, Marcel Telles and Jorge Paulo Lemann said they will continue to support the company, and that Rial will advise them on resolving the problem. I wonder how much of this they were aware of previously?


Recent disclosures show Americanas hired Rothschild & Co to negotiate with creditors while Sergio Rial who is no longer Americanas CEO will be the retailer's consultant. Rothschild’s obligations will not be simple, as Americanas are not compliant with pledges via agreements totaling such an amount with immediate and impending settlement commitments.


I think it is clear to assume the whole business is shady!


Have a terrific day!

Prof. Carl Boniface


Vocabulary builder:

Shortfall (n) = deficit, loss, underperformance, (ant) excess

Ledger book = a book in which things are regularly recorded, especially business activities and money received or paid. Accounting.

Plot (n) = conspiracy, scheme, strategy, plan, subversion, design

Equity (n) = Equity is defined as the amount of money that could be returned to a company's shareholders once all the assets are liquidated, and all company debt is paid off. Equity belongs to each shareholder in a publicly listed company, or the owner(s) if the company is private.

Coverup (n) = whitewash, plot, conspiracy, scheme, smokescreen

Black-market (adj) = is any market where the exchange of goods and services takes place in order to facilitate the transaction of illegal goods or to avoid government oversight and taxes, or both.

Astuteness (n) = shrewdness, smartness, intelligence, wisdom, (ant) stupidity

Free float = also known as public float, refers to the shares of a company that can be publicly traded and are not restricted (i.e., held by insiders). In other words, the term is used to describe the number of shares that is available to the public for trading in the secondary market. Restricted shares refer to shares that are not transferable until certain conditions are met. Restricted shares are generally held by corporate management, such as executives and directors.

Impending (adj) = imminent, looming, awaiting, forthcoming, in the near future

Presume verses assume = In the shared meaning of “to suppose,” presume is usually used when you suppose based on probability, while assume is used when you suppose without any evidence.

Shady (adj) = dishonest, crooked, underhanded, shifty, suspicious, devious

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