By Brazil Stock Guide – The Rio de Janeiro state audit court opened a probe into Cedae’s investments in Banco Master certificates of deposit, citing signs of irregularities and demanding explanations from executives
Rio de Janeiro’s state audit court, known as TCE-RJ, opened an investigation into investments made by Companhia Estadual de Águas e Esgoto (Cedae) in certificates of deposit issued by Banco Master, after a case rapporteur cited “strong indications” of “serious irregularities.”
The probe was requested by councilor Rodrigo Nascimento and approved unanimously by the court’s plenary. In his decision, Nascimento questioned the lack of a robust technical justification for concentrating investments in Banco Master, while other financial institutions offered similar securities with comparable returns and liquidity.
“I understand that there are strong indications of serious irregularities in the financial investments made by Cedae in Banco Master, which require the presentation of defense arguments,” Nascimento wrote.
According to the case file, the investigation is based on a complaint filed by state lawmaker Luiz Paulo (PSD), who said Cedae allocated 218 million reais ($218 million) in CDBs issued by Banco Master.
Nascimento said internal reports used to justify the investments were overly generic, describing the broader economic environment without focusing on the company’s specific needs.
“Furthermore, it is observed that the financial investment reports presented by Cedae are generic, addressing the economic situation broadly and not specifically to the company’s interests. For this reason, such reports do not appear suitable to support decisions related to the company’s investments,” he added.
The rapporteur also flagged what he described as an excessive concentration of funds in Banco Master compared with other institutions. According to the ruling, Cedae invested more than 200 million reais in Banco Master, while holdings in two other banks — Mercantil and Agiplan — totaled about 23 million reais, representing slightly more than 10% of the amount allocated to Master.
“Although there are similar securities in the company’s investment portfolio, the concentration in Banco Master is significantly higher than in the other institutions,” Nascimento wrote.
He also noted that Cedae kept its investments in the bank even after reports emerged of financial stress at Banco Master.
The audit court requested clarifications from Cedae Chief Executive Officer Aguinaldo Ballon, Finance and Investor Relations Director Antonio Carlos dos Santos, and other executives and officials tied to the company’s financial management, legal department, audit committee and board structures.
In a statement, Cedae said it is providing all requested information to the court and that the investments followed the company’s financial policy guidelines.
“Cedae is providing all clarifications requested by the TCE,” the company said.
“The applications strictly followed the rules established by the financial investment policy,” it added.
“The investments were reported monthly to the Boards of Directors and Fiscal Council, the Audit Committee and the Executive Board,” Cedae said.
Luiz Paulo said the court’s decision was appropriate and argued that other state-linked entities also had ties to the Banco Master group.
“Rioprevidência invested in Banco Master. Cedae invested in Banco Master. All payroll-deducted loans [for state employees] are with Credcesta, which is also part of Banco Master’s conglomerate,” he said.
“The Banco Master is a third-tier bank in the Central Bank’s classification. Evidently, [the financial institution] has become almost a preference here in the state of Rio de Janeiro, specifically in the Executive Branch,” he added.
“Given all these indications, the best thing in the world is to shine light on these indications. This is called transparency,” Luiz Paulo said.
Cedae’s Banco Master investments are also under investigation by the Rio de Janeiro state public prosecutor’s office.
Note: No stock tickers were available in the source material. Banco Master and Cedae are not publicly listed companies.
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