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Multi-million dollar fines to the most powerful Chilean businessmen

Multi-million dollar fines to the most powerful Chilean businessmen

Posted by José Peralta on September 12, 2014

Chile’s stock exchange regulator (SVS) ruled on Tuesday that two of the nation’s most influential businessmen — Julio Ponce Lerou and Leonidas Vial — must pay fines of US$90 million and US$20 million, respectively, for illegal stock market transactions.

The SVS’s two-year investigation into the dubious shell game trading practices — called the “Cascadas Case” — also resulted in fines for various cohorts of the two businessmen, bringing the total charges to a record-breaking US$164 million.

Ponce Lerou controls 32 percent of mineral giant SQM — Chile’s largest non-metals mining company — by way of several businesses traded on the Chilean stock exchange. These include Global Mining, Pampa Calichera and Potasio de Chile, which are controlled by two other firms owned by Ponce Lerou: Oro Blanco and Nitrates of Chile. These two businesses, in turn, are controlled by Norte Grande.

The SVS investigation kicked off in September 2012 when regulators questioned suspicious trades between 2009 and 2011 carried out by SQM and several of its component companies, all controlled by Ponce Lerou. Ponce Lerou is a former son-in-law to dictator Gen. Augusto Pinochet and one of Chile’s richest businessmen. While brokerage firms were thought to have knowingly facilitated the trades, no charges were initially leveled against them.

Ponce Lerou’s co-accused, Vial, led one of the nation’s most reputable brokerage house years and was a former president of the stock exchange.

In January of this year the SVS expanded its investigation to include Vial, alleging that his brokerage house helped facilitate the SQM subterfuge through two of Vial’s investment companies: Inversiones Saint Thomas Ltda. and Agrícola e Inversiones La Viña, in violation of Article 53 of the stock exchange laws prohibiting fraudulent transactions.

The suspect SQM trades reportedly cost Chile’s privately held pension funds (AFPs) US$800 million in losses. Under Chilean law, all workers must invest their pension contributions to a privately owned and operated AFP.

“The bad practices … are the result of poor regulation regarding how AFPs use the stock market, shortcomings in the oversight capabilities of the SVS and because of a lack of transparency and competitiveness in the stock exchange,” then-Sen. Ximena Rincón, now Secretary General to President Michelle Bachelet, said back in February. “This harms workers who have invested their money in the AFPs.”

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