An investigation of an unknown perpetrator suspected of embezzling funds has been launched in the case of Buda-Cash, a lawyer for the brokerage’s chief executive said on commercial television this week.
János Bánáti, the lawyer for Buda-Cash CEO Péter Tölgyesi, told HírTV that Buda-Cash’s management had not fled the country but were in Hungary and available for the authorities. Meanwhile the licences of Buda-Cash and the DRB banking group – which is tied to the brokerage – were suspended.
The National Bank of Hungary (NBH) has withdrawn the licence of Buda-Cash and reported suspected criminal activity to the police. The NBH also put a limit on withdrawals by members of the DRB Bank group, which has ownership ties to Buda-Cash.
The NBH suspects that what it has discovered in a comprehensive audit of Buda-Cash Brókerház is a series of abuses going back years, NBH deputy president László Windisch said. It was suspected that the brokerage firm had falsified all of its reports over the past ten years and was unable to account for substantial client funds. The damage could amount to about HUF 100 billion.
Windisch said the sudden January increase of the Swiss franc exchange rate is not directly related to the shortcomings found at the brokerage firm, although the exchange rate change caused losses worth about HUF 10 billion to the company’s clients. He said about 15,000-20,000 clients could be affected at Buda-Cash Brókerház and about 100,000-120,000 clients at the DRB Bank group, who can expect to receive compensation.
Budapest Stock Exchange suspended Buda-Cash rights to trade on the bourse with effect from February 24 until further notice but for a maximum of six months. Buda-Cash has held trading rights in the spot and derivatives section. With HUF 149 billion turnover, it was the eighth-biggest trader on the spot market under double-counted figures of the exchange last year, and, with trades of HUF 268 billion was the biggest trader of individual stock futures (the riskier part of the bourse – note) in 2014.
Bánáti said his client had asked to speak with the central bank’s heads before a raid last week and had informed them that some HUF 100 billion had gone missing among a “familiar” circle of people. The lawyer said the police had conducted searches and seized evidence, and Buda-Cash’s management had been officially informed of this.
The opposition Socialists demanded that the independence of former financial watchdog PSZÁF be restored. Socialist MP István Józsa said that under legislation passed by the ruling parties, PSZÁF had been “swept into” the National Bank. In addition, he said, the central bank will not allow access to its activities as a watchdog, using its independence as an excuse.
Józsa called for online supervision and a transparent watchdog reporting to both parliament and the government. He suggested that banks should undergo a full screening each year.
In reaction to his remarks, Fidesz said the suspected fraud goes back many years, but under the Socialist governments the then-independent PSZÁF had found no problem. The central bank, however, had detected the fraud during its first check.
Radical nationalist Jobbik urged an “immediate and comprehensive” investigation. MP Enikő Hegedűs called it “childish” of the government to say the abuse had not been revealed because banks undergo a full screening only once every five years.
The Dialogue for Hungary (PM) party demanded an explanation from central bank governor György Matolcsy as to how it was possible for the criminal activity at Buda-Cash to have gone unreported for so long.
Csaba Molnár, deputy leader of leftist opposition Democratic Coalition (DK), insisted the government and the central bank were both unfit to investigate the Buda-Cash case. He urged the government to compensate clients with immediate effect.
Fidesz parliamentary group leader Antal Rogán said the case was yet another “Socialist broker scandal”, referring to a previous case involving disgraced broker Attila Kulcsár that emerged during the rule of the Socialist government. Rogán said that in 2009, parliament had approved a law amendment that restricted on-site inspections of players in the investment markets and savings banks to every five years. The last such inspection of Buda-Cash took place in May 2010, before the current government was formed, and nothing significantly untoward was found, he added.
The Socialists urged Fidesz to find a solution to the situation of troubled account-holders at Buda-Cash. The party’s deputy leader, Zoltán Gőgös, said that in September 2010, Károly Szász, head of PSZÁF at the time, fined Buda-Cash HUF 3 million for failure to comply with rules on reporting financial data. By this time it was Fidesz that was in power, he noted.
Gőgös added that there is an overlap in ownership between a Fidesz-privatised state farm and Buda-Cash. Zoltán Pintér, an owner of Buda-Cash, also has a stake in a farm in Hidashát which was privatised in 2001, he said.
The green-liberal LMP party called for Matolcsy to resign. A party lawmaker said legislation should be enacted to prevent anyone “playing the stock market” with the funds of small investors. LMP criticised the government for failing to create an adequate regulator when merging PSZÁF into the central bank in 2013, and noted that the central bank still lacks a supervisory body fit to catch such shortcomings.
The economy and interior ministries have set up a working group to assess damages to the state and local governments caused by the suspension of the activities of Buda-Cash group. More than 80 local councils have accounts with financial institutions that belong to the Buda-Cash group, Minister for National Economy Mihály Varga said. The government will see that transfers from the State Treasury to the affected local councils go to other accounts, he added.
The central bank’s financial stability council withdrew the operating licences of four small banks held by the DRB banking group – DRB Bank, ERB Bank, BRB Bank and DDB Bank – after it was revealed that the value of their assets failed to provide adequate coverage to meet clients’ claims. The National Deposit Insurance Fund (OBA) will provide depositors up to HUF 30 million of compensation within the next month, and the central bank will supply the necessary resources for this.
András Tállai, state secretary at the Ministry for National Economy, said in parliament that the government is fast-tracking aid of HUF 245 million to 67 local councils affected by the Buda-Cash case. The councils will be helped so their day-to-day operations are not put at risk and they can make social service payments when necessary, Tállai said. The government had estimated that about 150,000 private individuals, more than 80 local councils and thousands of businesses were affected.
Fraud most common among financial crimes
Among financial crimes, fraud was the most common offence in 2014, representing 40.25% of all cases, the National Tax and Customs Administration says. Financial fraud had caused HUF 138.81 billion of damages in 2014, or 93.28% of the total. One year earlier, it had accounted for 89.17% of all damages. The damages caused by financial fraud cases had been higher despite the number of known cases diminishing from 5395 in 2013 to 4044 in 2014. In 2014 the total number of financial crimes had fallen 19.2% to 10,048 while the total damage caused increased 22.4% to HUF 148.81 billion.