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Special Release - International Crisis

Prof. Dr. Édison Freitas de Siqueira

From March 9th to 13th 2009, the main economic issue in the national press and Brazilian TV news was the important "Provisional Measure" (presidential decree)(MP) Number 449/2008.

This MP was edited and approved by Congress for more 60 days of validity. The MP was named on its title as "LAW AMENDING THE LAW ON FEDERAL TAX INSTALLMENT ORDINARY Card tributaries, WAIVER GRANTED where SPECIFIC, INTRODUCING THE TRANSITION Tax, among other provisions" (Plateau: www.planalto. gov.br, icons "Legislation" and then "Provisional Measures").

Following the suggestive title of the Act, the press and Congress assumed, mistakenly, that it would have the primary purpose  of "regulating the forgiveness of tax debts of individuals and companies to the limit of $ 10 thousand, and yet , share in installments other debts of the same nature up to 60 months, with provision for reduction of fines and interest observed to selective criteria, repeating, in part, the granting of benefits that led the Congress to reject - in full - the former Presidential Decree MP38, proposed during the government of then President Fernando Henrique Cardoso.

The MP 449 was taken before the Congress on March 3rd  2009, it was appreciated by the staff of the Chamber of Deputies (House of Representatives), because the provisional period of 60 days had expired, within which the Presidential decree is valid and under effect. Therefore, on 05 March 2009, the Congress was unable to examine any other Bill or MP before the MP was not voted No 449/08. The agenda was clear, with the agreement of many smaller political parties decree 449 will be valid for another 60-day period.

There is nothing unusual about the issuing of Presidential Decrees (MP) in Brazil; they are used as a technical justification for the arbitrary use of power in the presidential system. There are more than 400 Presidential Decrees issued per week in 2008.

In fact, the MP 449/08 has carried visceral problems because, differently from what has been published across the nation, its purpose, aims above all, to settle the situation of some unlawful expropriation of more than 27 billion dollars held by the public company Eletrobrás, transforming such misappropriation of funds belonging to third parties in capital gain in favor of the ones who also had eccentricity and bad taste to this tax-free.

The private company Eletrobrás is composed - in Brazil and abroad - and holding of almost 20 subsidiaries, with a revenue over 80 billion dollars a year. The partners are Brazilian and foreign individuals and companies. See the list of partners at:

Considering the fact that there is super-structure and financial training. Since 1976, there are enough financial reserves for the payment of dividends on Eletrobrás accounting books, and as recorded in the minutes of the company`s shareholders meetings, the company voluntarily stopped paying dividends and debts to its minority shareholders holders, preferred shareholders and debentures bearers. This scheme deviated these funds and transformed them in  stocks which increased the participation of some partners, which are: Caixa Economica Federal, BNDES, Banco do Brasil and BNDESPAR, as indicated in the audit report under investigation at the SEC,  FBI, and PCAOB and, under Federal Supreme Court secrecy

The total amount of dividends that were not paid to minority shareholders is likely to reach more than 20 billion dollars. As the matured debentures were not converted into shares, on its books  Eletrobrás attributed a value to them - and that is a reserve/fund of more than more than $ 7  recorded in the company`s  balance sheets 1976. Adding these liabilities the final amount is 27 billion dollars, which represents approximately 1 / 3 of the annual revenues of the company. This correlation debt / turnover is more than considerable, is not possible to justify such tremendous default and fraud.

Nor there is any legal or moral argument for, through a presidential decree to legalize an international robbery of more than U.S. $ 27 billion, especially when the shareholders and creditors of debentures are mostly people and companies from the USA, Canada and Brazil.

Take the text of the Explanatory Memorandum of the MP 449/08 "- President ... There is, however, that the art. 195-A, inserted in the Bill No. 11638, 2007, the Bill 6404 of 1976 created an obstacle to the enjoyment of the exemption for these values to determine the outcome of the company and which may form the basis for calculation of mandatory dividends. Thus, for such exemptions to be maintained without losing of the purpose for which they were created - the capitalization of companies - the articles are 18 and 19 of the Project were included in the Bill, which exempts such values as the income tax, provided they were kept in profit reserves account, despite of the fact they have already been recorded as the result of the company."... Presidential House, website: (www.planalto.gov.br, icons "Legislation" and then "Provisional Measures...").

As claimed in the explanatory memorandum for the MP 449/08, the bill seeks to ensure legalization for the un-payment of a default for small group of companies that are members of the majority group Eletrobrás shareholders in disregard the domestic and international rules regarding the governance of public companies that trade shares on the Stock Exchange of New York and São Paulo. For example, the Brazilian Corporations Act and the U.S. Sarbanes Oxley act and Securities Exchange Act of 1934, the Resolution No. 109 of the Central Bank of Brazil, among other national and international rules.

Therefore, the MP 449/08, affected the whole Brazilian society and the international securities market, because it embodies exactly what caused and causes the greatest financial crisis of the world, which occurred due to the lack of appropriate oversight by the press and / or by official entities, as governments, companies, banks and investors that participate in the international securities market.

Certainly our Members, our Senators, the Press and the Brazilian population did not realize the seriousness of the negative impact that could represent the adoption of the MP 449/2008. To voting of this bill went on without any disclosure and discussion of the issues surreptitiously inserted in the text of the bill proposed, turning the MP 449/08 into an illusion. This maneuver, or the way the law is written, reminds us very much, in a grotesque manner, of the epic "Trojan horse".

Let us see what is inside of our grotesque version of the "Trojan horse" between the arts. 18-22 in Chapter III, under the name "Transition Tax Regime," the MP 449/08 provides something that has nothing of transitional and has nothing about the regime of taxation. What is happening in the literal examination of these articles is the villain attempt to settle a major international fraud in the securities market, involving the manipulation of accounting books, of the financial system, and of income and illegal movement of capital, with the sole aim to consolidate gains and illegal management practices to amounts exceeding 27 billion dollars.

These misappropriated reserves are worth billions of dollars that were transferred to companies that are partners of Eletrobrás and that have their Directors and Presidents hired, kept in office or fired by the controller shareholder of Eletrobrás. The damage done is against the other partners and debentures bearers entitled to shares of Eletrobrás, most of these companies and Pension Funds from Canada, the USA and Brazil, most of them bought shares or debentures that are trade in the New York Stock Exchange, or the São Paulo Stock Exchange (Bovespa).

The fact that the controlling shareholder of Eletrobrás also controls or has controlled - in direct or indirect ways  - the nomination of directors for the business groups: Vale, Embraer, Embratel, Petrobras, Oi-BrasilTelecom, Banco do Brasil, Caixa Econômica Federal, BNDES, BNDESPAR, and more than 34 private pension funds in Brazil. The above organizations,  many times become reciprocal partners of investments and mutual fund, including decisive participation achieved in the establishment of the JBS Friboi and AmBev, among other companies.

The operations of these business groups, banks and private pension funds are under the supervision of the Brazilian Securities and Exchange Commission (CVM). It occurs that the directors of the Securities Commission (CVM) are chosen for the job, keep in office or fired by one single center of power that is also the controller shareholder, which makes this oversight suspicious or at least illegitimate for any action, even if the agents comply with the law involved. These acts and bills are wrong and against the law and the system, because it creates an outrageous conflict of interest.

- How can subordinate entities monitor their superiors?

The financial and accounting fraud practiced against the Brazilian and foreign private shareholders of Eletrobrás  is also contrary to the interests of the securities market. The damage is described in detail on the Auditing Report published and registered in the Brazilian National Library under the number 448272, Book: 841, Sheet: 432, along with other evidences that can be seen on the link http://www.direitosdocontribuinte.com.br/eletrobras/documents.html. All these events are under investigation by the the SEC - Securities and Exchange Commission, FBI - Federal Bureau of Investigation, PCAOB - Public Company Accounting and Oversight Board, Attorney General of the U.S. Government.

It is important to notice that among the harmed victims of the Eletrobrás fraud there are associations of judges and several other pension funds of more than one of the U.S.A. states, which have become victims that bought shares of Eletrobrás in the New York Stock Exchange.

Imagine what these North American retired judges would think if they found out that bills are tailor made  in Brazil with the intention of misleading minority shareholders, debentures bearers, Courts and the Congress. Certainly this fact affects all companies that use the Brazilian stock market and the opening of capital in order to expand its business and capturing large volume reserves to ensure the unchangeable constitutional order that (Art. 3 CF) establishes the general principle of the Brazilian republic to promote, above all, economic growth and to generate employment.

The most amazing about all of this is to realize that national news coverage does not disclose the most important or the real objective of the Presidential Decree MP 449/08. The headlines of almost 100% of the news for over a week, treated only to disclose that the amnesty law debts goes up to 10 thousand Brazilian Reais, forgetting to mention their points of greatest impact nationally and internationally. In this context, with all the respect to the national press, it should truly follow the Article 4 of the Code of Ethics for Brazilian Journalists ..." The fundamental commitment of the journalist is to the truth in reporting the facts, this should guide the journalistic work to the precise determination of events and their correct disclosure."


Read others articles of the Professor Dr. Édison Freitas de Siqueira

The greatest conflict of interest in the brazilian securities market.
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Opinion on the reasons and solutions for the billionaire world crisis.
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Glossary of concepts and terms discussed in the article - Opinion about the world crisis.
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Flowchart showing the interlocking of power of more than US$ 350 billion
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The billionaire Eletrobras case – World Bank’s “ROSC” report and the press
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International Frauds: Madoff  Case x Eletrobrás Brazil
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Auditing firm finds fraud at ELETROBRAS
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MADOFF Scandal, a little portrait of the fraud in the international stock market and financial system.
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