The Chilean Securities and Insurance Supervisor (SVS) announced on Wednesday that it would be pressing charges against more than a dozen executives at Chilean retail giant La Polar.
The company has been engaged in a massive credit scandal after admitting to unilaterally renegotiating the debt of thousands of mostly low-income customers who held credit cards from the retail store.
News follows a five-week investigation by SVS. Eighteen former La Polar executives currently face the prospect of jail time or fines of up to US$714,000.
“All of them are accused of breaking the Law of Securities and the Joint-Stock Company Legislation,” SVS Superintendent Fernando Coloma on Wednesday.
SVS said the charges are based on the “provision of false information regarding the financial situation of the company to the SVS and to the market in general.”
La Polar executives have also been charged with failing to abide by due diligence and inappropriate use of privileged information.
The dragnet has not just affected former La Polar employees. British auditor PricewaterhouseCoopers (PwC) has also been charged for having transferred shares of La Polar while knowing about the company’s financial situation.
The background of the scandal originated in July 2010, when the Chilean National Consumer Service (Sernac) detected 123 complaints against La Polar.
The complaints came from customers who had signed on to the department store chain’s credit card service. The reports claimed that La Polar had been making changes to the terms of payment without advising the customers.
“Consumers complained about readjustments made on their accounts” reads an event chronology on the Sernac website. “Having never accepted these modifications, the changes included quotas and sums which had been defined by the company and made the debt less manageable. Some consumers remained unaware of these changes until receiving collection letters or showing up on DICOM,” a credit rating agency that blacklists consumers with poor credit.
According to documents accessed by Chilean daily La Segunda, payment term modifications were standard practice and generally took place without advising clients.
“I quit for reasons which had been dragging on since 2006, which was when the issue of the readjustments started,” reveal statements by Rolando Harnisch, former deputy finance manager at La Polar.
In the document, Harnisch describes how his boss at the time, Julián Moreno, forewent the use of official petitions, and instead asked supervisors in person to make the readjustments.
“It didn’t matter if the clients were contacted,” he adds. “We were still told to make the readjustment.”
Harnisch also said that 65% of the portfolio was made up of high-risk creditors, a statement that echoes previous reports from anonymous sources and recent investigations into the scandal.
The accused have 10 days to present their defence, and have the right to a probationary period. SVS Superintendent Coloma told local press on Thursday that the entire process could last up to six months.
One of Chile’s largest retail stores, La Polar reported a net income of 63.7 million dollars in 2010. Nine years after it introduced its credit card division, it has been targeted by critics who have accused it of engaging in predatory lending.
By Ivan Ebergenyi – The Santiago Times