The Public Prosecutor opened two inquiries after the CMVM expressed theirs suspicions of a criminal operation performed just days before the BdP made a 2.2 billion bond transfer from NB to BES.
The Portuguese Securities Market Commission (CMVM), the “police” of Portugal’s capital market, sent a statement to the Attorney General’s Office expressing their suspicions of a crime of insider trading involving the purchase and sale of Novo Banco‘s bonds. The Public Prossecutor confirmed to ECO they “received two notifications from CMVM, which generated two inquiries”.
The case goes back to December 29, 2015, when the Bank of Portugal (BdP) decided to transfer five series of notes totaling 2.2 billion euros from Novo Banco to the insolvent estate of Banco Espírito Santo. By then, authorities started gathering information about a suspicious transaction worth 64 million euros, performed a few days before the transfer.
The Attorney General’s Office also confirmed to ECO that the “inquiries are being investigated and, for now, there are no defendants”. Under discussion is an alleged crime of insider trading, involving a Portuguese insurance company which could’ve had access to information only held by the Bank of Portugal, and allegedly used it illegally. When contacted by ECO, both BdP and CMVM refrained from commenting.
A lucrative sale three days before Christmas
The story begins on December 22, 2015. On that day, according to information gathered by ECO, a Portuguese insurance company sold a set of bonds from Novo Banco worth 64 million euros, and which matured in 2018. The bonds at issue payed a 4.75% coupon, and were sold to a large foreign financial institution, in an operation which was made via an investment bank headed in London.
The problem is that a week later, the Bank of Portugal issues a statement to the market, announcing the transfer of five series of bonds from the transition bank Novo Banco (including the operation maturing in 2018, with a 4.75% coupon) to the bad bank BES — because the ECB demanded a capital reinforcement for NB, after first failing to sell the transition bank. For those who purchased bonds a week before, this implied a loss of almost all of the capital invested.
Nosedive worth millions: evolution of 4.75% coupon bonds of 2018
According to ECO, this investor formalized last week a new formal complaint about the issue to the CMVM, which referred the case to the Public Prossecutor. If the seller made the negotiations based on information that had not yet been made public, the operation may be considered a crime of insider trading: the announcement of the transfer of NB bonds to BES was only done on December 29, and the sale took place on the 22nd.
The Portuguese Securities Code (Código de Valores Mobiliários) defines and predicts the punishment of crimes of insider trading “with a prison sentence up to 5 years or with a fine”.