The National Court proposes to try former Banco Popular director Angel Rona and PwC for capital increase fraud in 2016

National Court Judge Jose Luis Calama investigation of the case has been completedpopular bank and proposes to try the former president of education Angel Ron twelve other executives and a consulting firm PrivWaterhouseCoopers for crimes related to defrauding investors and falsifying accounting records in a capital increase in 2016, resulting in investors being “deceived” because the financial statements for that year and 2015 “did not reflect a true picture of the balance sheet or assets.” The instructor submits an order to the prosecutor’s office so that it demands the opening of an oral trial within ten days.

To proceed with the abbreviated procedure, Kalama agrees to a temporary dismissal of the former president’s case. Emilio Saracho without interfering with violations of accounting rules, but, on the contrary, says the judge, took measures to check and evaluate the bank’s balance sheet.

In addition, he points out that it has not been possible to verify whether he was responsible for the “serious leaks of information” to the press that accelerated the flight of deposits that affected Banco Popular.

The magistrate also proposes that the former vice president of education be seated on the bench. Roberto Higuera, former bank CEO Francisco Gomez and audit partner of the consulting firm Pedro Barrio José María Sanz Olmeda. Also to former bank directors Javier Moreno, José María Sagarda, Jesús Arellano, Antonio Pujol, José Ramón Alonso, Francisco Juan Sanche and Tomás Pereira.

In the 178-page resolution, which constitutes a prelude to the start of the trial of the defendants, it is considered proven that on May 25, 2016, the Board of Directors of Banco Popular, chaired by Angel Rona, decided to implement and enforce the Capital Increase agreed upon at the general meeting of shareholders on April 11. On the eve of this meeting, on the same day, a meeting of the Audit Commission of the Board of Directors was held, the second item on the agenda of which was “approval of a positive report on the increase in capital.”

The resolution states that the Audit Committee prepared an opinion in favor of the extension without having any detailed written study that could be the subject of discussion. This meeting was attended by external auditors PricewaterhouseCoopers, who did not warn the members of the said commission about any problems in BP’s reporting (annual for 2015 and quarterly for 2016) due to the increase in capital.

Regarding the capital increase brochure, Kalama’s order explains that “deliberately altered financial information (which hid huge reserve deficits from investors) is offered, taken from the 2015 annual accounts (audited by PwC) and financial statements as at 31/03/2016 (with a limited report from the specified auditor).” If they had reflected provisions not reflected in the balance sheets of Banco Popular – as of 12/31/2015 and 03/31/2016, the instructor adds, “the profit and loss accounting result would have shown no less 2,500 million in losses instead of the organization’s reported profits, not including a significant change in numerous accounting ratios that are used by investors for financial analysis.

The magistrate emphasizes that PwC did not indicate any qualifications either in its audit report on the annual accounts for 2015 or in the interim financial statements as at 31 March 2016.

Regarding the marketing of the capital increase, the judge reports that, on the orders of CEO Francisco Gomez, the trading network was given veiled instructions to finance the purchase of shares for many clients, despite the fact that this was expressly prohibited. in that Banco’s popular risk policy guide. The amount financed, he adds, was not deducted from the regulatory capital that impacted the bank, so a distorted figure was offered to the market.

The Order also concerns the Thesan structure consisting of the creation of companies in Luxembourg for the sole purpose of channeling loans from Banco Popular to these companies with a view to subsequently transferring these loans to certain Popular borrowers, in order to prevent them from being classified as doubtful loans and therefore avoiding the creation of hundreds of millions of provisions. The hidden reserve deficit in the enterprise’s annual reports for 2015 remained in the interim financial statements for 2016 and was only partially corrected, the report says, in the annual reports for 2016.

Investor fraud

The head of the Central Instruction Court No. 4 of the National Court explains that the crime of defrauding investors could have been committed through the capital increase that Banco Popular sold in 2016. He notes that he has no doubt that the investors who came to sign up for the said expansion were deceived as Banco Popular’s consolidated annual accounts for 2015 and financial statements for the first quarter of 2016 did not reflect the true position of the balance sheet or assets of the said entity. These accounts, according to the magistrate, concealed a significant shortage of provisions.

Kalama describes the bank’s work as refinancing a proportion of large borrowers in default, providing them with terms to avoid formal default, or using instrumental corporate structures based in Luxembourg to maintain viable loans that were in reality questionable

The judge points out that if the questionable loans had been properly classified, Popular’s accounting losses would have exceeded 2,500 million, a figure that is accredited “only taking into account the deficits discovered in the two OSI audits and Thesan’s deficit calculation.”

According to the judge, the conscious cooperation of the statutory auditor (PWC) contributed to this situation as it did not make any qualifications in its audit report on Banco Popular’s 2015 annual accounts or in its limited report on the financial statements. first quarter of 2016.

The instructor also attributes to the investigators the crime of accounting falsification, committed sequentially in the annual reports for 2015, in the interim financial reports for 2016 and in the annual reports of the previous year.

Kalama explains that the actions of the supervisors (CNMV/BdE/BCE) remained outside the investigation since the beginning of the criminal investigation, since it was not for the judiciary to determine whether the supervision system worked correctly or not, and adds that other areas will have to reflect on whether they have fulfilled their important institutional mission or not.

Regarding the possible civil liability of Banco Santander, the judge points out that the operative part of the judgment does not mention this possibility and that, as the Criminal Chamber assumes, it will exist at the time of issuing the order to start the trial orally. when resolving this issue.