The Securities and Exchange Commission (SEC) filed a civil complaint Monday against Fernando Passos, alleging that the former finance head of Brazilian reinsurance company IRB Brasil Resseguros S.A. led a scheme to boost IRB stock price by falsely claiming Berkshire Hathaway had made a substantial investment in the company.
Passos, concerned after IRB’s stock fell significantly following a short-seller’s public release of a letter questioning the firm’s financial results in early 2020, planted the fabricated story of Berkshire's investment with the media and IRB’s stock price rose by more than 6% in the 24 hours after the reports. A week later the shares dropped by more than 40% after Berkshire denied it was an investor.
The SEC is alleging violations of the antifraud provisions of the Exchange Act, and seeking civil money penalties as well as an order permanently barring Passos from being a director or officer of any public company. Passos separately also faces criminal charges.
At the time of the alleged scheme, Passos was the “most senior financial officer and was responsible for IRB’s communications with investors,” according to the SEC complaint. A citizen of Brazil, Passos is also identified as the former chief financial officer of IRB, according to the U.S. Department of Justice’s website.
Passos took several steps to bolster the false story that Berkshire was an investor and had sharply increased its position when Berkshire Hathaway “in fact, held zero shares of IRB stock,” according to the complaint.
For instance, Passos fabricated a fake shareholder list showing Berkshire Hathaway was the fourth largest shareholder of IRB as of Feb. 18, 2020 and also fabricated an email dated Feb. 21, 2020 “purported to be from IRB’s CEO to a Berkshire executive, thanking Berkshire for its recent investment in IRB,” according to the complaint.
He also “misrepresented” to investors that Berkshire had invested in IRB and sent text messages urging IRB’s communications and marketing manager to work with IRB’s public relations’ firm to leak the false information without attribution to IRB. The communications manager ultimately sent the fake email to IRB’s public relations firm, the complaint states.
On Feb. 26 and 27, 2020 Brazilian media reported on the purported investment and on Feb. 27 a U.S. news outlet issued a report titled “IRB Climbs Amid Report Buffett's Berkshire Increased Stake,” the suit states. From the close of trading on Feb. 26 to the close of trading on Feb. 27, IRB’s stock price increased by more than 6%.
On March 3, 2020 Berkshire issued a press release denying that it had ever invested in IRB. After IRB’s director of investor relations forwarded a copy of Berkshire’s public denial, Passos “responded with the Portuguese equivalent of: ‘Damn’ and ‘We’re [expletive],’” according to the complaint.
IRB did not immediately respond to a request for comment.