While the total loss in the biggest broker scandal in Hungarian history slowly but surely approaches EUR 1 billion, Károly Szász has been honoured with the Middle Cross of the Hungarian Order of Merit, a highly valued state award. He was director of financial oversight authority PSZÁF from 2000-2004 and 2010-2013, after which it was annexed to the National Bank. The bank denies all responsibility for the scandal because, admittedly, it has been going on for the last decade and a half. It’s really strange though that a supervisory organ with such a good management must be put in order.
PSZÁF, which had been working individually before, was swallowed up by the Hungarian National Bank (MNB) 16 months ago. MNB vice-president László Windisch explained in length in an interview with weekly magazine Figyelő how the bank is going to put the “manure stall” (the term was used first by Prime Minister Viktor Orbán) in order, and why it cannot be blamed for the things that have been covered up for all those years.
However, the thing is that those same people are still working for the financial authority who did not feel any inclination to shut down fraudulent practices in the broker community not only during the eight years when the social-liberal governments were in power, but also between 2010 and 2013 when Fidesz ruled with a two-thirds majority.
Kulcsár scandal sends its greetings
The most dazzling character in this story is the former president of PSZÁF, Károly Szász. The economist was installed to lead the authority at the time of the first Orbán government in 2000. The so-called Kulcsár scandal earned him a good beating on the open street and a layoff by the Medgyessy government. When Orbán returned with his two-thirds majority he again entrusted Szász with the leading position, but he had to go after three years due to the ambitions of the new MNB president, György Matolcsy.
During the Kulcsár scandal the multinational K&H bank was used to clean the black money of Hungarian nouveau riche and to multiply it in a pyramid game – during the lawsuit the case was presented in a way as if the broker Attila Kulcsár embezzled two digit billion numbers on his own account. (The case is actually being renegotiated at first instance). In the scandal concerning brokering company Buda-Cash, investment firm Hungária Zrt. and the Quaestor group, which issued “fictitious” bonds through its small daughter company, the amounts are maybe even ten times as high as those embezzled a decade ago.
There was one similarity discovered by the supervisory authority between the companies involved in the current scandal: the same company acted as an auditor for all of them – a certain Gyimesi & Co, according to hvg.hu.
Windisch claimed to Figyelő that the supervisory authority acted very quickly. So quickly that the permits were revoked on the same day when the reasonable suspicion was presented, and they could even estimate the suspected loss caused. However, he rejected the idea of scaremongering.
As it is known, MNB had HUF 90-100 billion (Buda-Cash) and HUF 150 billion (Quaestor) invested at the moment of the exposure, which they were placing at risk. This might be “peanuts” for the supervisory organ, since they are controlling a market with a total volume of HUF 26,000 billion. The victims probably have a different opinion.
The theory according to which the increased interest of the state in fighting fraudulent companies is somewhat calculated, was confirmed in an indirect way by Mihály Varga, Minister of National Economy, when he pointed out that government bonds are the “safest form of investment”.
He announced at a joint press conference with the Government Debt Management Agency (ÁKK) that the government offers attractive alternatives for investors. The new PMÁK series of five-year government bonds pays 4% over the average yearly inflation, for example.
In addition Varga emphasised that no broker would be needed as a mediator for realising such investments. The government bonds can be ordered directly by the state treasury, moreover they do not charge a fee for the electronic securities account management. György Barcza, the general manager of ÁKK, estimated that the population owns state bonds to the tune of HUF 2,500 billion.
Shadow of Questor falls over Győr
It’s also interesting that neither the National Deposit Insurance Fund (OBA) nor the Investor Protection Fund (Beva) could protect the impacted clients in the case of the Quaestor group, because when someone decides to buy bonds they must consider the risk of administering a loss.
According to MNB, the question is whether this is considered as fraud due to the “fictitious” bonds issued, since the Quaestor group did approve the correctly registered bond issuing program in the value of HUF 60 billion but they did not know about a further amount of HUF 150 billion. (Experts pointed out that even the “official” HUF 60 billion was backed up by a small company with minimal self equity, which apparently did not disturb the MNB as supervisor. However, it’s not that hard to calculate how high the turnover generated by the company has to be in order to be able to produce the promised interest for this amount of bonds continuously.)
The Quaestor group is owned by a certain Csaba Tarsoly, who spent HUF 30 billion to build the ETO Park complex, which is the sole privately owned stadium in the Hungarian first league at the moment. The honorary citizen title that Tarsoly earned in 2013 expressed how much he meant for the city of Győr, however he renounced the title in writing due to the dramatic happenings these days.
His football club ETO has pleaded for bankruptcy protection and its main sponsor, Audi Hungária, has waived sponsoring the professional club due to the degrading circumstances, and in future will limit collaboration to the financing of young talent.
Numerous institutions and individuals in the Győr region were clients of Quaestor, which for many people was a synonym of the prosperous city. Now it’s threatening to become a grave for forints by the billion.