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Charges against 18 executives and British auditor in major Chilean retail scandal

Friday, July 15th 2011 - 13:36 UTC
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PricewaterhouseCoopers allegedly transferred shares of La Polar while knowing about the company’s financial situation. PricewaterhouseCoopers allegedly transferred shares of La Polar while knowing about the company’s financial situation.

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


Categories: Politics, Latin America.

Top Comments

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  • GeoffWard2

    A salutory warning to the Brasilian credit-bubble-people.

    Jul 16th, 2011 - 08:17 pm 0
  • Sergio Vega

    Well, I hope the justice can be quick, hard and fair with all the responsible people from La Polar for their predatory business way. Also with the external Auditor company which didn´t make their work properly backing up the La Polar financial reports to the Chilean Authority (SVS) affecting dramatically hughe ammount of creditors, the most with low incomes.
    In the other hand, common people must understand that to hold a credit card is like to have a dangerous weapon mainly if you have low incomes as the most of the La Polar creditors had.
    All was planned so by the La Polar management staff offering the cards in a undiscriminated way to anyone without economic back up as an income enough to be a good payer in the long term to get a critic mass of money loans and sales to raise fictitiously the share price and after that to hide that fact they readjusted the creditors due balance by themselves without advise to creditors which meant more “ghost” profit for the company....from at least 5 years ago !!!

    Jul 16th, 2011 - 11:57 pm 0
  • GeoffWard2

    True, Sergio, good analysis;

    but in the same way as a credit bubble always bursts very publicly, a credit scam always bursts - because of your free press.

    How did the bank think it could get away with it -
    - or are the real perpetrators some other people and the bank the 'fall guys'?
    Seems unlikely, but thousands of disgruntled 'poor people' with their money stolen from them will always show up, if not in the (blind?) audit, but certainly in the media, and then the courts.

    Jul 17th, 2011 - 07:08 am 0
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