What began as an investigation into the activities of Spanish brokerage company Gescartera has developed into a political crisis for the ruling Partido Popular (PP), and a worldwide search for embezzled funds and ‘black money’ accounts
Casualties already include the head off the stock market’s regulatory body and a senior treasury official. The fall-out comes as no surprise to Spain-watchers, since many senior public appointments over the years, under governments of different complexions, have hidden business or familial links.
The scandal began in the July when an investigation into the activities of Gescartera led to its trading licence being suspended. It is alleged that the company siphoned off some e100m of investors’ funds. It became clear this was no run-of-the-mill fraud when the list of investors was shown to include religious orders, orphans of the national security force, the Civil Guard, and the organisation for the blind, ONCE.

The government has announced that its investigations will centre on two of the investors, ONCE and the PR and media company Asesores 2000. With some 30% of the company’s funds thought to be constituted by ‘black money’ the government believes it may be able to trace fraud through these two clients’ funds. The suggestion has caused concern among some commentators, who do not believe that the net should be cast so narrowly, or that ONCE or Asesores 2000 could be involved directly.
The fate of the president of the Commisión Nacional del Mercado de Valores (CNMV) is likely to lead to more vociferous calls for an independent financial watchdog. At present the CNMV is responsible to the ministry of the economy, and its ex-chair Pilar Valiente was a political appointee. Valiente’s decision to resign, having been in post for less than 12 months, came as no surprise.
However, the fact that neither prime minister José-Maria Aznar, nor minister of the economy Rodrigo Rato chose to defend her from opposition attacks suggested hers was more than the “personal sacrifice” that she described it as.
Although she had attempted to stand her ground when the investigation opened, her position soon became untenable when arrests revealed an interesting trail of names and diary entries. The president of Gescartera was one Pilar Gimenez-Reyna, sister of Enrique Gimenez-Reyna, a deputy secretary of state at the ministry of the economy until his resignation in July when the investigation began. When the High Court investigation heard in September that officials from the CNMV had been tipping off Gescartera about a possible visit by regulators, it demanded to see Gimenez-Reyna’s business diary. Extracts produced in court appeared to confirm this, and mentioned a large number of calls to both her brother and Valiente. The latter has denied any wrongdoing and suggested the diary may have been forged to discredit her.
Meanwhile parliament has acted by beginning its own investigation and the principle shareholder in Gescartera, the young financier Antonio Camacho, has been imprisoned without bail.
Each day brings new revelations, and now Rato, Gimenez-Reyna’s old boss, is the latest to come under pressure, amid revelations about his own family company’s investments. With the support of the prime minister he is resisting calls for his resignation, but a tenacious Spanish press is unlikely to be put off the scent. Indeed, with the financial press and heavyweights such as El Pais and El Mundo delving deep, the government can hardly have welcomed the desertion of one of its most vocal supporters, the conservative Madrid-based daily ABC.
In the present climate it is possible that Aznar may well have to sacrifice Rato, as more personal and potentially political conflicts of interest emerge. Some commentators feel this may happen sooner rather than later as Rato has in the past touted himself as a possible successor to Aznar. The prime minister may decide that it would be no bad thing to remove a possible rival. His problem is that day by day the scandal gets closer and closer to the hierarchy of the PP itself. The socialist opposition has not forgotten the role of Aznar, a former tax inspector, and his colleagues in the fall of the PSOE government.
Meanwhile the exact whereabouts of the missing millions is the subject of intense speculation. Testifying before parliament, Agustin Fernández Ameneiro, a senior manager at Gescartera in charge of hundreds of clients’ investments, said he had no idea where the money had gone. Among his clients were ONCE, and the Civil Guard’s Orphans Fund. From prison Camacho has suggested tracking back via cheques from the Spanish bank La Caixa. HSBC has also confirmed it has found accounts in the company’s name in its London and Madrid branches.
Then there is the curious case of Father Teodoro Bonilla, an individual investor from Cuenca. The priest has apparently suffered losses of over E16m, but Camacho is said to have described him as “my client” and told Ameneiro that everything was under control.
The commission has also heard from Manuel Pardo, the president of the Banks’ Customers Association that the CNMV has exacerbated the position of Gescartera through its actions.
For its part the CNMV has responded to the attacks by creating a guarantee fund for investors, to be known as Fondo de Garantia de Inversiones. The company will have a share capital of Ptas27m (e667,000) provided equally by 111 finance companies. The 15-strong board will be drawn from members of the stock exchange, one representative from the CNMV and others from regional government. Set to come into being this month the company will have retrospective powers, and so may be able to help out victims of the Gescartera scandal. Its powers will, however, be limited in that it will not be able to order compensation.
One fund manager criticised the formation of the fund. “The government is responsible for the problems at Gescartera, and must also be responsible for any compensation payable. Each fund manager is responsible for his own actions, not those of others. In any event this is a duplication of effort, since investment funds have their own guarantee funds.”
The scandal has shocked the Spanish public in general and, in particular, the investment management community.
Asked about the affair, Madrid-based fund managers show their disbelief. Many of them only found out about the existence of Gescartera when the scandal first hit the national press headlines.
Although this crisis has directly affected neither pension funds nor pension fund gestoras, indirectly the consequences for this community could be significant, as investors lose confidence in the way investments are conducted and the lack of the independence from the regulatory bodies and the goverment.
At a timewhen more small investment companies seemed to have found a place in a market dominated by a few large financial institutions, the events could make investors avoid lesser-known names. “Even though this scandal hasn’t affected our community directly, from now on investors are going to feel more suspicious about all the small investment boutiques that have proliferated in the market during the last few years,” says a manager at a pensions gestora in Madrid. “The knowledge about investments and how financial markets work is quite limited among some of our clients, and they need a high level of trust in their fund managers and the system.”
This case has once again made clear that the amount of ‘black money’ circulating in Spain is still high and also that some of the strongest Spanish institutions, like the church, the Civil Guard and one of the most respectable charities, have unclear connections in the financial markets. This, added to the fact that people have lost confidence in those who shouldn’t allow things like this to happen, makes it clear that Spaniards will talk about the Gescartera scandal for years to come.