Banco Master CEO Denies $2.4 Billion Fraud as Bank Is Liquidated

(Bloomberg) — The chief executive of Brazil’s failed bank, Banco Master SA, has denied fraud charges that pushed the lender into liquidation last Tuesday, one of the largest of its kind in the country.

Daniel Vorcaro’s lawyers said there was no fraud in the operations investigated by Brazilian authorities. They also said Vorcaro was never investigated by Brazil’s central bank.

In the statement, the lawyers referred to the 12.8 billion reais ($2.4 billion) mentioned in the local media as fake loan portfolios that Master allegedly sold to Banco de Brasilia SA.

Banco de Brasilia, which is controlled by Brazil’s capital, said Friday it had replaced more than 10 billion reais from such portfolios, with the remainder not directly exposed to Banco Master.

“The basis of the investigation into Daniel Vorcaro is a fact that, to this point, has not existed,” Vorcaro’s lawyers said in a statement Saturday. “A fraud of 12 billion reais is out of the question.”

Vorcaro was arrested last Monday by Brazilian federal police on charges that his bank organized fraudulent loan operations that were later sold to Banco de Brasilia SA. The manager’s lawyers said the portfolios targeted in the investigation were not effectively transferred and that Banco de Brasilia effectively acquired other portfolios not involved in the investigation.

“In cases of operations that did not comply with the standards, Banco Master initiated a process to buy back the remaining balances by replacing portfolios created by third parties in good faith,” their representatives said.

Vorcaro was arrested Monday night at Sao Paulo airport, where authorities said he was trying to flee the country. He later denied trying to escape and said he was leaving Brazil for a potential business deal.

Hours after his arrest, Brazil’s central bank placed Banco Master into liquidation; It was a dramatic new twist for a bank that has grown rapidly over the past few years using what critics describe as opaque and risky assets.

Master’s liquidation will lead to the country’s deposit insurance fund, known as the FGC, paying investors who bought Master’s bonds. The FGC said the lender’s approximately 1.6 million creditors owe about 41 billion reais, but that amount could be as high as 55 billion reais, a person familiar with the matter told Bloomberg News on Tuesday.

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