Uruguay, a nation known for its love of red meat, is facing one of its biggest-ever retail investor fraud cases, with companies peddling cattle investments accused of bilking savers out of hundreds of millions of dollars.
Beef is a major industry in Uruguay, whose national identity is tied to ranching and bountiful weekend barbecues. For a quarter of a century, a handful of firms leveraged the sector’s prestige to collect nearly US$500 million from patrons in return for stakes in cattle ventures.
Now about US$300 million belonging to nearly 6,000 investors is missing after a trio of companies went into court-appointed receivership or sought to restructure amid a massive shortfall in assets. Many investors who thought they had purchased cows discovered they own few if any animals in their name.
Conexión Ganadera, the largest casualty, “probably began as a viable project. At some point it started to lose money. Liquidity became its main problem,” outside accountant Ricardo Giovio said in a webcast with investors. “It ended as a Ponzi scheme.”
Lawyers representing Conexión Ganadera’s founding partners and the other two companies, República Ganadera and Grupo Larrarte, said this week their clients wouldn’t comment on the fraud accusations at this time.
Most of the investors are urban, middle-class Uruguayans for whom the countryside was synonymous with prosperity and stability, said María Laura Capalbo, a partner at legal firm Bragard and chair of the national bar association. “This is a social crisis. There are people who put all their money in these companies,” said Capalbo, whose firm represents some of the investors.
US dollar returns that at times topped 10 percent a year combined with the image of respectability and business acumen cultivated by the companies’ founders enticed entire families and circles of friends in a country where word-of-mouth recommendations still carry weight. The result is a black eye for a sector that manages almost 12 million cattle, leading to calls for greater regulation to protect investors.
Oscar Spalter, a cardiologist with a specialisation in lifestyle medicine, is one of about 4,200 investors in Conexión Ganadera. Between 2021 and last year, he sunk more than half of his savings into six- and 24-month contracts that promised seven percent and nine percent annual returns, respectively. In the process, he became a registered cattle owner, complete with a government assigned symbol for branding his cows.
But while investors like him were putting in money with what they thought were guarantees of a safe return, the industry was sinking deeper into trouble. The brutal 2022-23 drought cost the farm sector more than US$1.7 billion, while cattle investment companies were leasing grazing land at a steep premium. The post-pandemic surge in global interest rates also dented their appeal.
Conexión Ganadera’s external accountant said on January 28 that it owed about US$384 million to investors but had only US$158 million in assets. After coming to terms with the anger and sadness that followed that revelation, Spalter volunteered to help a small group of fellow victims deal with their trauma.
“What happened in the past is in the hands of the lawyers,” he said. “We have to look to the future. We don’t have to make ourselves ill, even though they took a big part of our money.”
For generations, ranchers, cattle brokers and banks provided the credit that made ranching a linchpin of the economy. Cattle investment companies started tapping retail investors as a new funding source after devastating outbreaks of foot-and-mouth disease and a banking crisis in the early 2000s. As export markets reopened once the disease was eradicated, the steep depreciation of Uruguay’s currency and cheap land made ranching a lucrative business. Uruguayans traumatised by bank failures were also looking to park their money outside the traditional financial sector.
The Carrasco and Basso families founded Conexión Ganadera in 1999 as a vehicle to channel the savings of urbanites to credit-starved ranchers. The company managed just a couple of thousand animals during its first 15 years of operations, but in the mid-2010s growth exploded with the firm overseeing almost 125,000 cattle in recent years, according to a company document.
Competitors piled into the business as the global commodities boom stoked demand for beef. The three firms that went bust paid fixed interest rates in an activity subject to the whims of nature and gyrations in global meat prices. The consistency of those payouts puzzled ranchers who wondered if they had discovered a bulletproof business model that others had missed.
The aggressive marketing of cattle investments structured like regulated bonds or certificates of deposit led to at least 11 probes by the central bank since 2018. Those investigations led the monetary authority to order several companies, including Republica Ganadera, to cease advertising certain products or to stop collecting money from the public. The central bank also warned investors that cattle contracts fell outside of its purview.
Grupo Larrarte was the first to fold when it entered receivership last October after a scathing television documentary that included testimonials of investors who said they were defrauded. The company has a $12.3 million shortfall between assets and liabilities, newspaper El Pais reported, citing a report prepared by the court-appointed receiver. Founder Jairo Larrarte said in an email sent through his lawyer that he expects to submit a restructuring plan to creditors soon.
Republica Ganadera requested protection from creditors to restructure its business in November, which it blamed on drought and the panic caused by the Grupo Larrarte report. The company’s approximately 1,450 investors were missing about $70 million and most of their cattle, according to company documents reviewed by Bloomberg.
In February, the courts ordered Conexion Ganadera and several related companies into receivership and slapped a $250 million asset freeze on members of the Carrasco and Basso families.
In coming months the courts, the debtors and dozens of lawyers representing creditors will decide whether to restructure the firms or proceed with their liquidation to repay investors with a steep haircut. The bankruptcy process is separate from ongoing criminal investigations by public prosecutors. Meanwhile, the biological clock is ticking on thousands of cattle that need to be counted and cared for if victims hope to recover any meaningful sums of money.
The authorities should consider regulating investment products like those at the heart of today’s crisis to protect retail investors, said Pablo Rosselli, a partner at consulting and economic research firm Exante. “These were companies that captured public savings with financial instruments that looked a lot like debt securities,” he said.
by Ken Parks, Bloomberg
Comments