Central Bank liquidates two more firms linked to Banco Master

Brazil’s Central Bank (BC) on Thursday (3) ordered the extrajudicial liquidation of Trustee and Banvox DTVM, fund administrators linked to the Banco Master ecosystem, bringing to 21 the number of financial institutions that have been placed under intervention during Gabriel Galípolo’s tenure at the monetary authority. Of that total, 15 are connected to irregularities allegedly orchestrated by Daniel Vorcaro.

In the wake of the police operations Compliance Zero, which is investigating irregularities at Master, and Hidden Carbon, which is investigating the infiltration of organized crime into the economy, the Central Bank has been carrying out a broad cleanup of Brazil’s financial system. With other smaller securities distributors (DTVMs) that operated around Master and have already been targeted by the Federal Police still in operation, it is likely that this process is not yet over.

According to the Central Bank, the liquidations of Trustee and Banvox were prompted by “the existence of serious violations of the legal rules governing the activities of the institutions.”

Following the Real Plan and the effects of Proer (the private-sector bank restructuring program) and Proes (aimed at state-owned banks), Brazil was for many years recognized as having a solid and well-regulated, but also concentrated, financial system. In 2016, the Central Bank under Ilan Goldfajn began a process of innovation and opening up, which was greatly expanded during Roberto Campos Neto’s tenure, amid a digitalization process that brought new competitors into the market. With the goal of promoting competition and inclusion, this movement brought several advances, such as Pix, open finance, and the expansion of fintechs.

The flip side of the coin is that lower requirements, including capital requirements, led to a proliferation of new “players,” some of which—whether intentionally or not—had weaker controls. In several cases, the customer onboarding process was weakened. Operations by the Federal Police and Federal Revenue Service revealed the infiltration of organized crime into fintechs, hacker attacks became frequent, and, as the cases linked to Master indicate, many institutions were used for fraud.

“It is obvious that these efforts have cycles: there is a time when you have to go on the offensive and introduce more products, and another time when you have to move a little more toward defense and protect what is happening,” Campos Neto said at an event this week. “I think the Central Bank was right to know when to attack and when to defend. The measures have been very good in terms of providing protection.”

Trustee and Banvox are owned by Maurício Quadrado, a former business partner of Vorcaro. They also appear in the Carbono Oculto investigations, which are examining a multibillion-real scheme involving money laundering, tax evasion, and fraud in the fuel sector linked to organized crime. Quadrado, in turn, was the target of a search warrant during the second phase of Compliance Zero, launched in January.

In the statement announcing the liquidation, the Central Bank said it would continue taking “all appropriate measures to determine responsibility, within the scope of its legal powers.”

In a statement, Trustee and Banvox said there were no irregularities in the structure of their operations or violations of capital-markets regulations. They also claimed that they had never been notified by the regulator of any need to bring their activities into compliance on those grounds.

“Trustee and Banvox had been providing all the clarifications requested by the monetary authority in recent months and addressing all questions related to the investigations involving Banco Master,” the companies said in a statement. According to them, the Central Bank’s decision “came as a surprise to the companies, which, moreover, did not have any of their executives named in the complaint filed by the Public Prosecutor’s Office in Operation Carbono Oculto.”

Sources familiar with the matter say Quadrado’s DTVMs had been providing the Master liquidator with information about funds involved in possible corruption schemes. The executive has always maintained that he left Master nearly a year and a half before the scandal erupted. What the Central Bank liquidated was Banvox DTVM, not Banvox Holding, which houses other businesses. It was the holding company that was a partner of Master, using a debenture issuance to acquire its stake in the bank.

Trustee administered funds that were used by Master, including vehicles through which Vorcaro’s group conducted business with businessman Nelson Tanure, purchasing stakes in distressed companies. Trustee funds also participated in the controversial coordinated purchase of shares in Ambipar, which drove up the company’s stock price in 2024.

The liquidation of Trustee and Banvox should have a limited impact on investors. Since they had already appeared in Federal Police investigations months ago, a process of winding down the funds was already underway. According to data from Anbima, Trustee held R$66.9 billion in assets in July of last year, a figure that had fallen to R$23.2 billion by the end of July this year. Banvox, meanwhile, had R$19.8 billion a year ago, compared with R$7.5 billion now.

In January, the liquidation of CSBF DTVM, formerly Reag Trust DTVM, owned by João Carlos Mansur, brought the activities of one of the country’s largest investment-fund and fiduciary-services administrators to a halt. At the time, the administrator had R$352.9 billion under its umbrella and ranked 11th in Anbima’s ranking.

Mansur this week made a plea-bargain proposal to the Office of the Prosecutor General (PGR), which could end up implicating other players in the financial sector. With the collapse of Reag, Sefer, and the companies belonging to the Master conglomerate, many funds were forced to move to other administrators. Another plea deal that could shake up the sector is that of Antonio Carlos Freixo Júnior, known as “Mineiro,” of Entrepay, who was also involved in business dealings with Master.

Meanwhile, a major question mark remains over Banco de Brasília (BRB), which could increase the Central Bank’s list of interventions and raise the bill for the Credit Guarantee Fund (FGC). Nearly three weeks after a hearing at the Supreme Court (STF), there has been no progress in negotiations to save the bank controlled by Brazil’s Federal District.

To obtain a R$6.6 billion loan from the FGC, the district government needs a guarantee provided by the major banks, but private institutions say they cannot accept funds from the State Participation Fund (FPE) and Municipal Participation Fund (FPM) as collateral, and there is no clear way out of the impasse.

BRB got into trouble after purchasing nearly R$12 billion in fraudulent loan portfolios from Master. In testimony to the STF, the contents of which became public on Thursday, Vorcaro said he had tried to reach an agreement with the Federal District bank as a way of protecting himself from “pressure” he said he was experiencing from other players in the banking sector, who, in his view, were bothered by his growth.

Another potential source of problems is Digimais. The bank owned by Edir Macedo, founder of the Universal Church of the Kingdom of God, had been experiencing difficulties in recent years, but it was also engulfed by the Master case. The institution is facing legal proceedings after assigning a R$659.8 million portfolio to a fund, which later said it had found problems in 42% of the bank credit notes (CCBs) that had been transferred, some of which originated with Master. In June, Digimais was targeted by the Federal Police’s Operation Miragem.

Two months earlier, BTG had announced an agreement to acquire Digimais. However, the deal depends on a multibillion-real loan from the FGC, which will conduct an auction under a “stalking horse” structure. The guarantee fund, in any case, remains reluctant and has been conducting an extensive due diligence review of Digimais to understand what problems may exist within the institution.

In addition to the liquidations, the Central Bank is likely to announce further changes to the FGC’s rules. Galípolo has been saying that it is necessary to make further progress in aligning compensation between distributors and customers. He has also previously said the process is an ongoing agenda with no finish line.