MANHATTAN (CN) – A Brazilian paper company claims in court that one of Brazil’s top investment banks held $500 million in bonds for it, but when the company asked for them, the bank refused to deliver them and cannot explain what became of them.
Industrias de Papel R. Ramenzoni S.A. sued Banco de Investimentos Credit Suisse (Brasil) S.A., formerly known as Banco de Investimentos Garantia S.A., several of its Brazilian, Bahamian and U.S.-based subsidiaries, and its successor entities Credit Suisse First Boston and Credit Suisse First Boston International Limited, in New York Supreme Court. (S.A., Sociedad Anónima, is the Spanish language version of “Inc.”)
“In 1997-1999, Ramenzoni, a Brazilian paper company, purchased Argentinean Global Bonds (the ‘bonds’) with a face value of approximately U.S. $500 million,” the complaint states. “Each transaction was ‘conceived and executed’ by what was then one of Brazil’s premier investment banks, Banco de Investimentos Garantia S.A. The bonds, most having maturity dates from 2017-2027, were to remain in Garantia’s custody until Ramenzoni demanded delivery. …
“In August 2010, circumstances required Ramenzoni to make such a demand. To Ramenzoni’s surprise, Garantia, which had been acquired by Credit Suisse First Boston, stated that it did not have the bonds, and offered no explanation as to where those bonds might be. Ramenzoni, initially believing that the bonds it had purchased did not exist, brought suit for fraud against two of Garantia’s Credit Suisse successor entities in United States District Court. In their legal brief to the District Court, however, those Credit Suisse entities labeled as ‘false’ Ramenzoni’s contention that the bonds do not exist.
“Faced with counsel’s representation to the court that the bonds do in fact exist, coupled with Garantia’s refusal either to deliver those Bonds when demanded by Ramenzoni or to explain what has become of them, Ramenzoni now brings this action to compel delivery of the Bonds and/or to obtain money damages arising from Garantia’s failure to do so.”
Ramenzoni, a family-owned business based in São Paulo, claims it acquired the bonds in the late 1990s, when Ramenzoni’s president suffered from cardiac disease and hired an outside consulting company, Brasilmec, to handle Ramenzoni’s banking and investments.
It claims that Brasilmec “had a power of attorney over Ramenzoni’s bank accounts, and plainly made the most of it,” having Ramenzoni buy half a billion dollars worth of bonds in a “highly convoluted” financial transaction orchestrated by Garantia.
Brasilmec is not named as a defendant.
According to the complaint, Garantia resold corporate bonds issued by its financing clients in the international marketplace. At the same time, Garantia’s clients used the bank’s money to buy Argentinean debt bonds, which they resold to pre-arranged buyers lined up by Garantia, such as Ramenzoni.
“At issue here is that Ramenzoni found itself on the receiving end of one hundred or so of these agreements, and thus the record owner of approximately half a billion dollars face value of bonds,” the complaint states. “What follows has been a frustrating quest by Ramenzoni to uncover just how this came to be, and exactly what has become of its bonds. To date, Ramenzoni has been greeted with a whole lot of deflection, but very little candor.”
Ramenzoni says the transactions benefited Garantia, which Ramenzoni believes earned millions of dollars in broker’s fees.
When Ramenzoni’s president recovered, he investigated the transactions initiated by Brasilmec with Garantia’s help, according to the complaint.
Much to his concern, Mr. Ramenzoni discovered that the face values of the bonds were in amounts far beyond the company’s means.
“In Brazil, as elsewhere, such transactions sometimes have improper purposes,” the complaint states. “Garantia and Brasilmec certainly both have known their share of regulatory issues, and it is a legitimate question why Garantia concocted such a complicated transaction for what should have been a relatively straightforward corporate financing. Ramenzoni, by contrast, makes recycled paper. It was not and is not conversant in this sort of wheeling-and-dealing.”
In February 2001, Ramenzoni reported the transactions to the Federal Revenue Office, the Brazilian equivalent of the IRS, and ended up with “ruinous tax penalties” on the self-reported transactions.
Ramenzoni claims that when it asked the bank to deliver the bonds, so it could pay its tax bill, Garantia’s successors claimed to have no record of the transactions, despite agreements which named Garantia as the “custodian bank.”
Credit Suisse First Boston acquired Garantia in June 1998 and absorbed all of its investment operations, management and personnel, according to the complaint.
Ramenzoni says it received no response from Credit Suisse management and began to wonder if the bonds actually existed.
After a São Paulo court ruled that the bonds existed, Ramenzoni dropped its fraud lawsuit against Garantia’s Credit Suisse successor entities in the United States.
Ramenzoni seeks damages for breach of bailment and negligence, and wants the bank to deliver the bonds.
It is represented by John Dellaportas with Duane Morris.