The Cyprus Stock Exchange and the Securities and Exchange Commission have jointly suspended Suphire Securities & Financial Services from the Floor for at least six days pending investigations into the CYP 9.2 mln shortfall discovered in the EAC Provident Fund managed by the Suphire Group.
The Exchange authorities are also investigating claims of a further shortfall of CYP 650.000 made by the Provident Fund of the Cyprus Airways pilots union.
The Financial Mirror has learned that the shortfalls were discovered after officials at the EAC and the CAIR pilots’ provident funds found discrepancies between the reported holdings as stated by Suphire at the end of December 31, 2004 with those of the CSE’s Central Depository.
Analysts closely monitoring events also added that the problems are directly related to the 12% annual guarantees given by Suphire to the provident funds of the EAC, the pilots, the Cyprus Forest Industries and the doctors union among others, that were instrumental in helping Suphire grab the asset management contracts of many other funds.
According to unconfirmed reports, the firm had been providing 12% annual guaranteed returns since 2001. Officials from Suphire were unavailable for comment
With most of the guarantees backed by banks, analysts believe Suphire must have faced repeated margin calls by the banks to continue to provide their guarantees.
The fact that EAC Chairman Georgos Georgiades referred to guaranteed returns and “many years of mutually beneficial cooperation with Suphire”, confirm suspicions relating the problem with the guaranteed returns.
The resignation by Nicholas Papadopoulos, the son of President Tassos Papadopoulos, from the Suphire Board just three months ago, on December 13, 2004 citing “a personal workload”, has also raised serious concerns about good corporate governance.
EAC BLACK HOLE
The Provident Fund of the Electricity Authority of Cyprus claims that after checking the records submitted by Suphire with those of the CSE at the end of 2004, it discovered that many bank shares previously owned by the Fund had been sold, orders to purchase other shares ignored, and other discrepancies noted, thereby creating a shortfall of CYP 9.2 mln.
EAC Chairman Georgos Georgiades and Vice-Chairman Andreas Louroutziatis, who is also president of the Provident Fund management committee, told Deputy Attorney General Petros Clerides and members of the House Finance Committee as well as the Chairman of the SEC, Marios Clerides, that last Thursday, Rea Andronicou, the wife of Yiannos Andronicou and a principal shareholder in Suphire had provided personal guarantees of CYP 9.5 mln to the EAC with the promise that by April 15, the shortfall would be covered.
“We told them (Suphire) that the personal guarantees of Mrs. Andronicou were not sufficient, which is why we asked either for bank guarantees or the return of our shares,” said EAC Chairman Georgiades, who insisted that the Provident Fund will eventually recover its money “one way or the other.”
He would not reveal the details of discussions with the Deputy Attorney General, but would not rule out filing charges against the fund management firm.
CAIR BLACK HOLE
The Treasurer of the CAIR Pilots Provident Fund, Tassos Christofides, told reporters that there was a discrepancy with Suphire over a CYP 1.3 mln shortfall, of which CYP 800.000 were recently settled by Yiannos Andronicou.
“However, we are still waiting for some CYP 450.000 in bonds and the countervalue of CYP 280.000 in equities still missing.” The missing bonds are believed to belong to the pilots union and were an investment in Laiki Bank bonds.
The share price of Cyprus Forest Industries (CFI) dived 12% on Tuesday to a fresh record low of CYP 2.51 on no trades, probably because of fears that the company would have to shoulder the cost of bailout of its staff provident fund, if any shortfall is not met by Suphire.
NO STATE HELP
Finance Minister Makis Keravnos and Government Spokesman Kypros Chrysostomides told reporters that the government was actively following developments, but cautioned that there is no issue of the state bailing out the EAC staff.
“The EAC Provident Fund, which is guaranteed by the EAC, has a separate management committee and there is a Superintended of Provident Funds who is supposed to monitor the activities of the funds, and as such I don’t see the government offering any bailout to the EAC staff,” both Keravnos and Chrysostomides told reporters separately.
SUSPENSION
The Chairman of the SEC, Marios Clerides revealed that SEC officials who attempted to enter the Suphire offices in central Nicosia to start a thorough investigation of the way the financial services division of the CSE listed group operates were unable to do their work after Suphire asked for legal advice before allowing the SEC officials in.
The financial services law (EPEY) gives the firm the right to refuse the SEC entry to its offices. The SEC decided to proceed with a partial suspension of the activities of Suphire Securities & Financial Services for six days after a meeting with the firm’s lawyer, Constantinos Kallis.
However, Marios Clerides was adamant that SEC officials will be able to check “all the accounts” at Suphire, adding that even if the shortfalls are covered, he is still worried about the operational procedures at the firm, which led to the shortfalls in the first place.
“I will not rest until we find the real answers to the many questions arising from the way Suphire has been managing the assets of third parties,” he said.
Under the suspension order imposed by the SEC, Suphire Securities & Financial Services is prohibited from accepting orders on behalf of third parties or engaging and executing orders in capital markets transactions. The firm is also banned from trading on its own account or on account of funds under management.
CONSPIRACY?
The silence maintained by Suphire and Andronicou has resulted in one way of reporting of events by all the media, including the Financial Mirror, since despite repeated attempts to secure some explanation from Suphire, no official was willing to come forward to make any comment.
However, some analysts even believe that the current smear campaign directed against Yiannos Andronicou is a second wave of pressure following his arrest and 24-hour detention last year on issues of property transfer, which were later proved that they did not warrant an arrest.
