Crack City, Sambodia and the New New Light

The Sala São Paulo — also known as the museum dedicated to the memory of DOI-DOPS, the infamous political police.

I recently considered buying a nice little bachelor apartment in the Nova Luz neighborhood of São Paulo, just down the street from the Estação da Luz train terminal and across the street from a chronically vacant blasted heath that will someday, they say, become the Disney Hall of Sambodia.

We were considering trading in our cafofo in the Vila for a town and country lifestyle — a pied a terre in town for work, a rustic home in the monkey jungles for living free.

I decided to pass. The seller — an octogenarian American sex tourist who decided to stay and bank the real estate mogul — was very enthusiastic about renovation plans for the neighborhood, but I was not convinced.

I am not a Sambodian voter, but I do pay property taxes here, and therefore reserve the right to mouth off from time to time on civic issues of a technocratic nature.

The eternally delayed transformation of Cracolândia — Crack City, Sambodia — into a Sambodian Silicon Alley called Nova Luz is the longest-running farce since Molière’s The Misanthrope.

One of the most popular posts on my Portuguese-language blog, surprisingly, has been a note about the abandonment of yet another plan for the region in favor of a new new plan that will not kick off until the middle of next year.

The note made for a nice exercise in the use of Google News Archives, with a histogram of news coverage of the project from its first incarnation as a proposal of Mayor Marta Suplicy — now a federal senator divorced from the previous Senator Suplicy — through its reformulations under mayors Serra and Kassab and down to the present day.

Having read all that, and the waves upon waves press hype about the project at the time — big tech firms were to headquarter their Brazilian subsidiaries in the area, but none ever moved in — it is hard to read the following item without a certain cynicism.

• G1 | Para Goldman, projeto anterior da Nova Luz estava ‘um pouco amador’

Interim São Paulo governor Alberto Goldman said on June 17 of this year that the plan to revitalize the Nova Luz neighborhood in downtown São Paulo “has been a little amateurish up to now.” .

Goldman made the statement during the signing of a new master plan for Nova Luz, alongside mayor Gilberto Kassab.

I principally remember Goldman as the organizer of a demonstration calling Eliane Tranchesi, the owner of the Daslu luxury boutique indicted on contraband, price-gouging, product piracy and tax evasion charges, “a political prisoner.” He called the federal raid on Daslu “an act of revenge by the terrorists who have seized power in Brazil.”

After Goldman’s remarks about the previous plan, which dates from 2005, when  José Serra was mayor, Kassab said the project was not, in fact, a plan, but rather a spirit of high hopes for the renovation of the area. “The plan should be ready in about 12 months, and during the first four months of planning City Hall will hold hearings with local residents and business owners. Our intention is to the perfect the plan,” said Kassab.

Brazilian PCAOB Debuts in PanAmericano Case

Does anyone remember the PCAOB?

Post-Enron, the Pubic Accounting Oversight Board was to audit the auditors, enforcing standards in order to avoid the sort of rubber-stamp accounting that led to the demise of Arthur Andersen.

Fairly or not, I always had the impression that the financial services industry had succeeded in extracting the teeth from this paper tiger.

Objectively, its operating budget has expanded from $110 million in 2004 to $180 million in 2010, collected as a fee from industry firms, prorated by size.

When I get a chance, it might be interesting to look at trends in enforcement actions.

I remember covering a debate at Harvard Law once between industry representatives and William McDonough, the first PCAOB chairman, whose rhetoric was astonishingly bloodthirsty. The body is now headed by an interim chairman, Daniel L. Goelzer.

Now, as the Correio da Bahia reports, Brazil has conceded similar powers to the Conselho Federal de Contabilidade, whose first case will be to explain apparent due diligence and audit failures by Banco Fator, KMPG and Deloitte Touche in the case of the Banco PanAmericano.

I’ll translate then see what details I can add.

When the state-controlled Caixa Econômica Federal bought 35.5% of Banco PanAmericano for R$ 740 million in November 2009, the shares of the bank, part of the Silvio Santos group, were worth R$ 2.1 billion on the São Paulo Stock Exchange.

Last Friday, its market capitalization stood at R$ 1.2 billion. That is to say, by this measure,  the Caixa has lost R$ 320 million. Early this month, PanAmericano announced an accounting discrepancy of R$ 2.5 billion. The case was discovered by the Central Bank using data-mining techniques.

What happened was that bank executives sold credit portfolios to other banks,but did not reflect the sales in the balance sheet, which as result was inflated by R$ 2.5 billion. The bank avoided bankruptcy only after Santos obtained a loan from the deposit insurance fund, the Fundo Garantidor de Crédito (FGC).

Early reports quoted anonymous insiders claiming that the FGC was being abused, affirming that its mandate is limited to the guarantee of bank deposits. See

• Silvio Santos: A Sambodian Case for Sarbanes-Oxley?

In a note (PDF), the fund noted that its enabling legislation allows it to insure both deposits and financial investments of all kinds. In general, when reading a Brazilian newspaper, if your mother is quoted as saying she loves you, check it out.

Santos will have ten years to repay the balance, with the first installment due in 3 years.As collateral, he put up all the assets of the group, including the SBT television network, the Baú da Felicidade retail chain, and the Jequiti cosmetics company, among others.

Owning the third-largest network in Brazil has always provided the group with the Global Tetrahedron advantage: free advertising and other synergies.

Before acquiring its stake in PanAmericano, Caixa was advised by Banco Fator and the audit firm KPMG. Deloitte has audited the books since 2001. The market has yet to understand how the discrepancy went undetected..

Silvio Santos has brought in new management for the bank, and a number of group executives have also resigned. Suspicions of fraud hover over the case. The federal accounting council today begins an unprecedented investigation to determine whether the auditors were guilty of incompetence or fraud. This is the first investigation of its kind after the passage of a law in June giving the council this power.