1 April 20Th 2016 Daniel Kahn Criminal Division Fraud Section
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April 20th 2016 Daniel Kahn Criminal Division Fraud Section / FCPA Coordinator 10th and Constitution Ave., NW Bond Building – 4th floor Washington D.C. 20530-0001 FAX 202 514 7021 [email protected] From the year 2000 to date, Alfonso De Angoitia Noriega, Board member, former CFO, President of the Finance Committee and Executive Vice-President of Grupo Televisa, S.A.B., a NYSE listed company, has allegedly committed accounting fraud; violated the Foreign Corrupt Practices Act; created money laundering schemes to hide potential revenue from shareholders and conspired to compete against the Company in the advertising market. He has done so with the collaboration, contribution and presumed alliance of Salvi Rafael Folch Viadero, the actual Chieff Financial Officer of the Company. Both members of the board of Grupo Televisa S.A.B. knew while undertaking these action that they were required to comply with the Securities and Exchange Commission’s rules and regulations, which are designed to protect the investing public. A. SUMMARY 1. Alfonso De Angoitia Noriega (AONA620117HDFNRL06) Executive Vice President, President of the Finance Committee and Board Member of Grupo Televisa and Salvi Rafael Folch Viadero (FOVS670816HDFLDL04) Chief Financial Officer and Board Member of Grupo Televisa S.A.B. a registered entity in the NYSE, have participated in a fraudulent scheme to conceal revenue from stockholders using assets from Grupo Televisa; they have registered costs not related to the operation of the Company in different business units and subsidiaries created with the sole purpose to conceal personal expenses for their benefit and profit; they have violated the Foreign Corrupt Practices Act throughout 2005 to 2016; and they have even conspired to create entities that compete in the advertising business with the Company and have not disclosed this conflict of interest to shareholders. 2. Alfonso De Angoitia and Salvi Folch, in conjunction with other company employees and or former employees of Grupo Televisa and its subsidiaries have not registered up to $14 billion pesos in revenue from state governments, political parties and third parties since 2000, while utilizing the company’s infrastructure, inventories in Broadcasting TV, Publishing and other subsidiaries. They have participated in improper and fraudulently accounting. To do so, they have allegedly established parallel companies to compete in the advertising business with Grupo Televisa and have limited the participation of the company in the outdoor 1 advertising business claiming that it is not a strategic asset, while they have personally invested in these ventures, without consent or knowledge of the Corporate Governance or Audit Committee. B. CONSPIRACY TO COMIT FRAUDALENT ACTIVITIES DESIGNED TO MISLED INVESTORS. 3. On or around the fall of 2002, Alfonso De Angoitia was advised by his legal counsel to design a strategy to reduce his exposure to the Sarbanes – Oxley act of 2002. The CFO certification pursuant to section 906 was singled out as a mayor concern, since Grupo Televisa Financial statements where not accurate. The Company had failed to cancel upfront advertising commitments that it could not allocate throughout the year. These inventories where called “ carry overs” in Grupo Televisa’s Accounting Department, and when a commitment was made it was registered as revenue. The non executed sales where turned into credits or discounts for next year, effectively creating a snowball that overstated sales. The problem arose through 1999 to 2002, when Alfonso De Angoitia did not register the cancelation of those inventories in order to demonstrate higher sales and a fictitious EBITDA with the purpose of eliminating certain covenants that the Company had at that time. The same corporate practice was carried in Cablevision and Publishing subsidiaries in order to demonstrate higher sales. However, this practice was more pronounced in the INTERNET division named ESMAS.COM who was directed by Salvi Folch. More sales in the INTERNET division gave the company a higher valuation by market analysts and bond holders, at the time that the market gave a strong approval of the INTERNET business in media. This strategy, was crafted without consent or participation of other business units; therefore a central accounting and the replacement of administrative personnel were executed in order for the Finance Vice Presidency, to control all bookkeeping records. As a result Grupo Televisa ended up having two systems and different flows of financial and operational information. This brought infighting with managers and directors who did not understand why their business units showed different revenue and cost numbers at the end of the quarter. One example is Ramón Alberto Garza García, a respected journalist hat came from Grupo Reforma, the leading newspaper in Mexico. He was head of the publishing division from 1999 to 2001 and complained that his cost structure was lower, and actual sales had risen with him. However the accounting department allocated Corporate Expenses, CAPEX from other units and additional costs of the failed revenue they had registered from previous years, to the publishing unit. This did not reflect his handling of business and he eventually resigned from Grupo Televisa due to differences in his compensation (linked to performance). During this time revenues and inventory from advertisers always where overstated in a range from 5% to 7%. A way to confirm this is to review the contracts from top advertisers like Pepsico, Procter & Gamble, Colgate-Palmolive and Kimberly Clark and review their expenditure on advertising versus inventories. 4. With the enforcement of the Sarbanes – Oxley act of 2002, Alfonso De Angoitia did not want to continue with this constant risk. As an example, during the World Cup 2 of 2002 the Company had not registered cancelation of sales packages, as would have been a common practice. Alfonso De Angoitia claims that he was forced to report higher than actual sales to the market, because “Emilio wants to demonstrate that we beat TV Azteca on the money”, since the Company did not fare well in the ratings, to rival TV Azteca. When Grupo Televisa S.A.B. lost ratings, it would always argue that they had higher sales. 5. On 2003, the Televicentro Distribution established that the Shareholders Trust (composed by Azcarraga Trust 55.29%, Inbursa Tust 24.7%, Investor Trust 20.01%) had control of 37.84% of the outstanding A Shares and B Shares combined. The technical committee of the Shareholders Trust had effective control of Grupo Televisa. The committee’s bylaws determined that the Azcarraga Trust would appoint at least 3 of the 5 members composing the technical committee, thus controlling the Company. The Inbursa and Investors Trust was only to be consulted on matters regarding increases or reductions in capital stock; merger, split-up, dissolution, liquidation or bankruptcy proceedings; extensions of credit or Share repurchases and related party transactions. This arrangement meant that there would be more oversight on the operations and reporting of the Company. As was the case with related party transactions. In that same year, there was a discussion as for the purchase of Telespecialidades, a company owned by Emilio Azcarraga Jean for $83 million USD, the rationale to acquire this non operating entity was due to a large amount of tax loss carryforwards, the minority group argued that there was a risk if the fiscal authorities did not recognize that transaction. A third party opinion was solicited, however the Alfonos De Angoitia argued that the transaction had to go forward because the law was going to change. At the end, the tax loss carryforwards where not recognized by the authorities (Grupo Televisa did use tax loss carryforwards, from other subsidiaries). This is a simulation of a dividend, to certain shareholders, and the CFO, Alfonso De Angoitia did not want to continue with these risks. 6. Therefore, Alfonso De Angoitia proposed a complete overhaul of the organizational structure of the Company in order to achieve two objectives. One, safeguard himself from any Securities and Exchange Commission investigation by distancing himself from the day-to-day activities and avoid leaving any paper trail behind. Second, continue to have a control of the budget and CAPEX expenditure without the responsibility of his actions. First, he designed an Executive Office of the Presidency that was integrated by the Company’s President Emilo Azcarraga Jean and two Executive Vice – Presidents, Bernardo Gómez Martinez and himself. Second he created the Committee of Financial Planning that he Chaired so that all decision were proposed and taken through a committee. And third, he designated as CFO Salvi Folch, who was a former financial regulator in the Mexican Government. Salvi Folch had proved to be trustworthy, when he did not complain or argue against the “artificial sales”of ESMAS. 7. The credits and discounts to advertisers where discretionary and there where no internal controls to monitor the pricing packages, promotions and contracts with the 3 clients. The management team could not keep up in 2005 when product placements started to appear at a higher rate in television and cable programming as well as in the publishing business. This increased the difficulty of controlling company inventories as well as determining the price of goods sold and the associated cost. 8. Therefore, Alfonso De Angoitia started an internal audit unit, called the BLACK ROOM, which is in the 8th floor in the Chapultepec 28 building. It started operations in 2007; this was an internal audit operation that monitored email accounts, telephone calls of key personnel and background checks on service providers. In the summer of 2008, it acquired special equipment to interfere telephone calls and outside email accounts of employees, former employees, detractors of the company and even active Board Members. Pablo Cepeda is in charge of the operation, on paper he formally reports to Guillermo de la Mora, and all of his expenses are under that Unit.