Risk & Compliance

Portugal Telecom Fined Over CP Investments

The company will pay $1.2 million to settle SEC charges that it failed to disclose it had invested more than 1.6 million euros in commercial paper.
Matthew HellerSeptember 15, 2016

Portugal Telecom has agreed to pay $1.25 million to settle U.S. charges that it failed to disclose it had invested more than 1.6 billion euros in commercial paper before it was acquired by  Brazilian telecom group Oi.

The paper was issued by Espirito Santo International (ESI) and Rio Forte Investments, two companies of the Portuguese conglomerate Grupo Espirito Santo. According to the Securities and Exchange Commission, neither of the investments was disclosed prior to the completion of the Oi deal in May 2014, even though the ESI paper represented 82% of Portugal Telecom’s short term investments as of Dec. 31, 2013.

After PT disclosed the Rio Forte investment in June 2014, its shares dropped more than 11% in U.S. trading. Rio Forte defaulted on its debt the following month.

“Credit risk is material information for investors, and Portugal Telecom failed to ensure that the risks of its Grupo Espirito Santo-related investments were fully and accurately disclosed in its public filings,” Michele Layne, director of the SEC’s Los Angeles regional office, said in a news release.

The SEC alleged that PT’s year-end 2013 consolidated financial statements were misleading and inaccurate in part because they mischaracterized its 750 million euro investment in ESI commercial paper as “debt securities issued by PT Finance and Portugal Telecom.”

In fact, the SEC said in an administrative order, the paper was not “issued by Portugal Telecom but rather subscribed to by Portugal Telecom (or its subsidiary PT Finance).” ESI, moreover, was not identified as the issuer.

After the ESI paper matured in February 2014, Portugal Telecom invested 897 million euros in Rio Forte paper. The ESI investment was not disclosed until Aug. 25, 2014, when Portugal Telecom made supplemental and clarifying disclosures to its Dec. 31, 2013, financial statement.

As a result of the disclosure failures, “investors were unable to form an overall picture of the nature and extent of risks arising from these financial instruments,” the SEC said.

4 Powerful Communication Strategies for Your Next Board Meeting