Brazil's federal legal office, the Advocacia-Geral da União (AGU), and Supreme Court Justice Gilmar Mendes are tightening the squeeze on the "precatório industry" that Banco Master used to secure easy profit, with backing from members of the judiciary, according to G1. The AGU won a ruling freezing a case over R$ 4.7 billion of these court-ordered debts, with the money returned to the National Treasury until a final decision. On Wednesday, Sept. 23, the oversight council of the judiciary, the CNJ, canceled R$ 4.7 billion in precatórios from companies that sold credits to the bank, G1 and Poder360 reported.
Precatórios are debts that Brazil's federal, state and city governments must pay after losing a lawsuit with no appeal left. The case gained substance from data taken from the phone of banker Daniel Vorcaro, Master's owner, showing contacts with lawyers tied to judges in search of rulings to validate precatórios and pre-precatórios bought by the bank. Vorcaro put R$ 14.3 billion into these credits, which needed court wins to produce profit, G1 reports.
A split vote at the Supreme Court
Gilmar Mendes was one of the justices Vorcaro approached to seek a favorable vote. In the ruling, the court's most senior member voted against the banker's thesis, joined by André Mendonça; Edson Fachin, Kassio Nunes Marques and Dias Toffoli voted in favor. Gilmar decided to take the question of whether these precatórios are valid, mainly those of ethanol mills, to the full bench as a general repercussion case; the dispute involves R$ 103.4 billion in indemnities to the sugar and ethanol sector, G1 reports. The justice says he opposes the industry built on doubtful debts: there is a regular precatório market, he argues, but the cases tied to Vorcaro have, at the very least, questionable origins.
How the money flowed
In the mechanics described by G1, Master bought precatório credits from companies, mostly in sugar and ethanol, at a discount, paying less than the papers could be worth once the lawsuit ended. Then, through financial fraud or unreal value declarations, the bank booked these "precatórios receivable" as assets above their real worth. The inflated equity justified capital injections, met formal solvency requirements set by the central bank and drew in investors, while the bank accumulated a billion-real liability covered by low-grade guarantees.
On the regulatory front, the National Monetary Council (CMN), which sets financial market rules, tightened the terms for buying this kind of judicial debt after a request from AGU chief Jorge Messias. In his view, the problem started earlier:
"This precatório factory was created during the Bolsonaro government, when measures of the previous administration created an environment favorable to this kind of business, which was harming public coffers," Messias told G1.
The tightening has two sides. Mills and companies holding real claims against the federal government are likely to face tougher checks and longer waits, since the whole precatório market is now under suspicion. On the other side stands the taxpayer: every batch canceled before payment keeps billions of reais in the Treasury rather than settling debts of doubtful origin.