Brazilian Markets Rise After Scandal
RIO DE JANEIRO, Br (AP) _ The nation’s stock markets rallied Tuesday despite a financial scandal that rocked trading and forced the government’s top banker to resign.
Late in the day, a federal court rejected a prosecutor’s request for the arrest of Naji Nahas, the super-investor blamed for upsetting the markets by bouncing $31 million in checks used to purchase stock futures.
Nahas has been barred from leaving the country.
To the surprise of analysts, stock markets began to recover from a week- long tailspin that saw share prices plunge by more than 34 percent on average.
The Rio de Janeiro Stock Exchange rose 10.5 percent on Tuesday, the first gain since the scandal became public June 9. The Sao Paulo market rose 15.3 percent.
″We’re all perplexed by the rise. It’s possible that the market was so low that any trading at all would seem like a big jump,″ said Kleber Paulistano, a spokesman for the Brazilian Securities Commission. The commission is roughly equivalent to the U.S. Securities and Exchange Commission.
In Brasilia, the capital, President Jose Sarney planned to appoint a replacement for Elmo Camoes, who quit Monday as head of the Central Bank, Brazil’s equivalent of the U.S. Federal Reserve.
Camoes was forced to resign when the stock brokerage run by his son was involved in the scandal because of speculation by Nahas.
Paulo Cesar Ximenes, the No. 2 official at the finance ministry and a long- time bank functionary, was expected to replace Camoes, Central Bank spokesman Murilo Murca said.
The center of the furor is Nahas, a 42-year-old multimillionaire businessman and the No. 1 investor in Brazil’s $30 billion stock market.
According to the Securities Commission, Nahas bounced checks worth $31 million to several brokerages for the purchase of stock futures.
The commission said Nahas had borrowed heavily to invest in blue-chip stocks, taking advantage of a rule that allowed him to pay five days later. Meanwhile, he pumped up the stock’s price by buying large amounts of common stock, so the shares he received later were worth more, it said.
But when banks restricted credit for that type of operation, Nahas’ checks to several brokerages were returned for lack of funds.
One of the brokerages was Capitanea Distribuidora, 99 percent owned by Camoes.
″Capitanea has a large debt with Nahas. And since he’s not paying his debts, there’s a risk the government will have to close down the brokerage,″ said Paulistano, the Securities Commission spokesman.
″Because he was such a big investor, brokerage houses allowed him to run up big debts. Now all the brokerages that dealt with Nahas are in trouble,″ Paulistano said.
He said 29 brokerages were under investigation for irregularities.
″This is just the tip of the iceberg. He has lots of financial obligations that will be difficult to honor,″ Paulistano said.
On June 12, the Commission declared a one-day stock market holiday to prevent panic among investors. Rio de Janeiro Stock Exchange President Sergio Barcellos sought federal help, but the government refused to bail out the brokerages or the Rio Exchange.
On Saturday, Barcellos announced he was taking a leave of absence indefinitely from the presidency of the Rio Exchange.
The Justice Ministry has barred Nahas from leaving the country.
In Sao Paulo, Brazil’s financial center, Judge Joao da Rocha Mattos of the 12th Federal Court ruled Tuesday that Najas could not be arrested because there was not sufficient evidence to show he was responsible for stock manipulation.
In his 11-page decision, Judge Mattos added Nahas had made it clear he would cooperate with law officials and not leave the country.
Federal District Attorney Paulo Eduardo Bueno had requested preventive detention of Nahas.
Nahas, a Lebanese immigrant whose business interests range from mining and farming to real estate and insurance, is a common sight in Brazilian society pages. In 1984 he hosted Saudi Arabian arms merchant Adnan Khashoggi on a visit to Brazil, when he met with then-President Gen. Joao Figueiredo.
The Commodity Futures Trading Commission of the United States also has linked Nahas with Texas billionaires Nelson Bunker and William Herbert Hunt in their ill-fated try to corner the world’s silver bullion market.
Nahas’ attorney, Murilo da Silva Freire, said Tuesday that one of Nahas’ investment companies filed for protection from creditors.
The company, Selecta Comercio e Industria S.A., was one of several firms owned by Nahas that operated on the stock market and was the hardest hit by the crash.