(Bloomberg) — The former chief financial officer of a Brazilian reinsurer was charged with fraud for allegedly spreading false stories that Warren Buffett’s Berkshire Hathaway Inc. had bought a stake in the company.
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A federal judge in Iowa on Monday unsealed an indictment against Fernando Passos, former CFO of IRB Brasil Resseguros S.A., saying he knowingly promoted the fake story in the press to push up the company’s stock price. Passos was also sued by the Securities and Exchange Commission in federal court in New York on Monday.
According to prosecutors, Passos planted false stories in the press, created phony documents and fabricated an an email exchange with a Berkshire executive to back up his claim that Buffett’s company was an IRB investor.
In a text to a colleague, Passos allegedly said Berkshire had “significantly increased its shares in IRB,” adding that “this info is confidential, but if we could send to a journalist we trust in the economic area who would publish without citing IRB as the source [that] would be excellent.”
Berkshire Denial
Passos, 39, lives in Brazil and isn’t in U.S. custody, the Justice Department said. A lawyer for the former executive couldn’t immediately be identified.
Press reports that Berkshire owned a stake in IRB and was considering expanding its holdings prompted Buffett’s company to issue a statement in March 2020 denying any investment in the Brazilian company. IRB shares promptly tumbled more than 41%.
When Passos learned of Berkshire’s denial from IRB’s director of investor relations, he responded “Damn!” and “We’re [expletive]!” according to prosecutors.
Passos and the company’s chief executive officer, Jose Carlos Cardoso, resigned shortly after Berkshire issued its denial. IRB Chairman Ivan Monteiro had already stepped down a few days earlier. Neither Monteiro nor Cardoso have been accused of wrongdoing.
An assistant to Buffett didn’t immediately respond to a request for comment on the cases against Passos.
Short-Seller Questions
Passo began spreading the fake story after a short-seller publicly questioned the company’s financial results, causing the stock to drop, according to the government. The stock rose 6% on the reported Berkshire stake.
Passos faces up to 20 years in prison if convicted on the criminal charges. The SEC wants to bar Passos from acting as an officer or director of a public company and is seeking unspecified money penalties.
The criminal case is U.S. v. Passos, 21-cr-00028, U.S. District Court, Southern District of Iowa. The SEC case is U.S. Securities and Exchange Commission v. Passos, 22-cv-03156, U.S. District Court, Southern District of New York (Manhattan).
(Updates with detail from indictment.)
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