(Bloomberg) -- The accounting scandal at retailer Americanas SA is getting personal for Brazil’s business elite, with billionaires facing off in court as market losses pile up.
Banco BTG Pactual, controlled by Chairman Andre Esteves, is accusing Brazil’s richest person, Jorge Paulo Lemann, and his longtime business partners at buyout firm 3G Capital Inc. of involvement in “the biggest fraud in Brazil’s capital markets,” according to a legal filing.
That’s a far cry from 2012, when Esteves called Lemann a mentor in an interview, crediting him with bringing meritocracy to the country’s banking industry.
The revelation last week of 20 billion reais ($3.9 billion) in accounting “inconsistencies” at Americanas sparked a sell-off that erased almost 85% of its market value in three trading days. The disclosure doubled the liabilities of the company, which has been backed by Lemann, Marcel Telles and Carlos Alberto Sicupira for 40 years. Creditors including BTG rushed to court ahead of an anticipated bankruptcy filing.
Lemann-Backed Retailer Sinks 77% on CEO Exit, $4 Billion Gap
BTG said Brazil’s three richest men, worth a combined $35 billion and “anointed as some kind of demigods of ‘good’ global capitalism, are caught with their hands in the till of what, since 1982, is one of the trio’s main companies,” according to the court filing.
Lemann, Sicupira and Telles didn’t reply to messages seeking comment about the filing. BTG declined to comment beyond the filing.
While Americanas said it’s still assessing the extent of the accounting flaws, its disclosures to investors so far imply it misreported numbers tied to financing of debts with suppliers while also wrongly deducting interest paid to lenders from its liabilities. The practice had two effects: It artificially increased profits and it reduced reported liabilities.
The problem goes back years, outgoing Chief Executive Officer Sergio Rial told panicked investors on Thursday. The former head of Santander SA’s Brazil unit stayed on the job for less than two weeks, announcing his departure along with the discovery of the “inconsistencies.”
Founded in 1929, Americanas is one of the oldest and most iconic retailers in Brazil. Its downfall could take a toll on Latin America’s largest economy: The company has some 3,600 stores in more than 900 cities, over 5,000 suppliers and 40,000 employees.
The reputation of the three 3G billionaires, who own about 31% of the business, could suffer too. The trio held control of Americanas for decades until a 2021 restructuring in which they were diluted. Sicupira and Lemann’s son, Paulo Alberto, are on the board of Americanas, representing shareholders. The firm’s chairman, Eduardo Saggioro Garcia, is a partner and CEO at LTS Investments, the family office for Lemann, Sicupira and Telles.
Americanas Meltdown Hits 3G Billionaires After $4 Billion Hole
On Friday, Americanas obtained protection against creditors from a court in Rio de Janeiro. Adjustments to account for the misreporting may put the firm in breach of covenants that could lead to early debt maturity of almost 40 billion reais, the court decision reads. Americanas also told the court that some creditors moved to request and take assets, including over 1.2 billion reais by BTG.
The court decision, which also bars asset freezes or seizures, helps prepare the firm for a bankruptcy filing, which ratings firms see as likely unless the company strikes a deal with creditors.
“The objective is to enable an adequate protection of the Americanas Group while seeking, together with its creditors, a viable alternative in light of the maturity schedule of its financial debts,” João Guerra, the firm’s new CEO, said in a Jan. 13 statement.
The protection request took bankers by surprise, and pushed BTG into action. The bank filed a motion to reverse the decision over the weekend, which a judge decided against. BTG appealed to the highest chamber in Rio de Janeiro state court on Tuesday, and also started a arbitration process arguing it had called on the 1.2 billion reais owed prior to the Jan. 13 protection decision.
Bank of America and Banco Votorantim also appealed the protection order, newspaper O Globo reported Monday.
The 3G trio has told the Americanas board they plan to keep supporting the company, according to a regulatory filing. They offered a 6 billion-real capital injection to creditors in negotiations on Friday, an amount that was seen as too low, according to people familiar with the matter. Creditors asked for more than 10 billion reais, the people said, adding that negotiations are expected to resume this week.
On Monday, Americanas hired Rothschild & Co. as its adviser in the debt renegotiation.
In the weekend filing, BTG said Americanas had tried to withdraw about 800 million reais in investments it had at the bank before announcing the “inconsistencies” to the market. The bank argued Americanas shouldn’t receive protection against creditors, because fraud should be treated as crime.
It also cited the 2019 scandal at Chicago-based Kraft Heinz Co., saying it was another case of “accounting fraud” at a company involving the 3G trio. Back then, the maker of Jell-O and Oscar Mayer hot dogs was forced to adjust its balance sheet by $15.4 billion, and was later charged by the Securities and Exchange Commission with “engaging in a long-running expense management scheme that resulted in the restatement of several years of financial reporting.”
Kraft Heinz to Pay $62 Million to Settle SEC Accounting Probe
The SEC went on to charge Kraft’s former Chief Operating Officer Eduardo Pelleissone and its former Chief Procurement Officer Klaus Hofmann for their misconduct related to the case. The firm agreed to pay a $62 million penalty to settle the probe.
(Updates legal fight developments in 14th paragraph)
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