The National Bank suspended the licence of another brokerage on Tuesday, on suspicion that HUF 150 billion of funds could have been embezzled, making it the biggest broker scandal in Hungarian history. The action came a day after inspectors of the national police questioned nine suspects over the Buda-Cash brokerage affair, in which HUF 100 billion is unaccounted for.
Until Tuesday Buda-Cash had filled the headlines but in the morning the National Bank announced the suspension of the operating licence of Quaestor Securities Trading and Investment Company because of irregularities discovered during an audit.
An oversight commissioner was soon appointed at Quaestor. National Bank deputy governor László Windisch told a meeting of Parliament’s economy committee that Quaestor may have accepted oversubscription of as much as HUF 100 billion for a planned HUF 60 billion bond programme, and the brokerage may not have sufficient coverage in assets against the bonds.
Quaestor Financial Hrurira, a member of the Quaestor Group, filed for bankruptcy protection on Monday as clients panicked by the Buda-Cash scandal raced to sell their securities. Quaestor Financial Hrurira, which has no connection to the Buda-Cash scandal, said the decision was of a technical nature, giving it time to find a solution in the best interest of securities holders, but according to press reports the request for bankruptcy protection was only filed after the National Bank audit had already discovered the irregularities.
Damages resulting from the scandal are thought to reach HUF 150 billion. The Quaestor group, including Quaestor Financial Hrurira parent Quaestor Pénzügyi Tanácsadó, has more than 200,000 clients and employs more than 600 people.
The central bank is proposing legislation to shorten the time between full checks of financial companies, tightening controls of auditors and requiring identification of clients in transactions involving Hungary’s clearing house, Windisch told the parliamentary committee.
Budapest Stock Exchange suspended the trading rights of Quaestor, which may not take new client orders, but the oversight commissioner could close open positions in the interest of clients. While the oversight measures are in force, clients’ right of disposal over their securities and financial assets will be suspended in the interest of clearing up the irregularities.
The Ministry of Foreign Affairs and Trade said on Tuesday that it had terminated all contracts with companies connected with the chief executive officer of the Quaestor Group, including contracts for the operation of Hungary’s trading house in Istanbul and its visa centre in Moscow.
In the Buda-Cash scandal, police said that as well as questioning nine suspects, one further person had been questioned as a witness and several house searches conducted. The investigation was launched under suspicion of fraud and violation of accounting rules.
Press reports on Monday said several people had been detained including the general manager of Buda-Cash. János Bánáti, the counsel for stakeholder and CEO Péter Tölgyesi, told state news agency MTI his client had been taken into custody on suspicion of a HUF 60 billion fraud and other crimes. Bánáti said another big stakeholder and former CEO of Buda-Cash as well as the brokerage’s deputy CEO had also come under suspicion.
Earlier on Monday Antal Rogán, head of ruling Fidesz’s parliamentary group, proposed setting up an ad-hoc parliamentary investigative committee to look into the Buda-Cash case. The National Bank of Hungary (NBH) recently revoked the licence of Buda-Cash and a number of banks with which it has ties. Damages resulting from the scandal are thought to reach HUF 100 billion.
János Veres
An investigation into the Buda-Cash affair should also examine the role of the central bank, former finance minister János Veres said. “Deficient” regulatory oversight by the central bank under the governing Fidesz party and the bank’s governor György Matolcsy had allowed funds of more than 100,000 clients to disappear, Veres asserted. Two-thirds of the losses had been incurred by banks that received their licences after the supervisory authority PSZÁF was merged with the National Bank, he said.
Veres said an amendment passed in 2009 mandating screenings of financial organisations at least every five years had been a tightening rather than a loosening of the law. He said Fidesz lawmakers at the time had supported the amendment and no changes had been made to it since.
Parliament’s budget committee, which was to have been briefed on the Buda-Cash scandal on Monday, took the item off the agenda. Nine governing-party MPs voted in favour of removing the item and five opposition MPs voted against. Neither Matolcsy nor Minister for National Economy Mihály Varga responded to an invitation to give a briefing at the meeting.
Sándor Burány, (Socialist) head of the budget committee, told reporters before the meeting that the reason why the scandal was relevant for the committee is that it involved public funds, and compensation would require “heavy payments” from central coffers. Lajos Szűcs, an MP of the Fidesz party, had argued that it was sufficient to address the issue in Parliament’s economic committee, where former finance ministers and financial regulators had been invited.
Radical nationalist party Jobbik said the scandal could have been uncovered as early as 2010 if a motion by Jobbik to make screenings at financial institutions more frequent had been passed, but these motions had been rejected by Fidesz.
