SEC: Company Failed to Disclose Credit Risk in Investments

The Securities and Exchange Commission today announced that a Portuguese-based telecommunications company has agreed to pay a $1.25 million penalty for its failure to properly disclose the nature and extent of credit risk involved in its investments in debt instruments issued by companies of Portuguese conglomerate Grupo Espirito Santo.

An SEC investigation found that Portugal Telecom SGPS S.A.’s 2013 financial statements had multiple disclosure failures.  As a result of these failures, Portugal Telecom’s investors were unable to form an overall picture of the risks arising from the company’s investment in Grupo Espirito Santo debt instruments.  The Grupo Espirito Santo investments constituted 82 percent of Portugal Telecom’s short-term investments.  The SEC further found that Portugal Telecom mischaracterized its short-term investment in commercial paper issued by a Grupo Espirito Santo company by stating Portugal Telecom issued the debt securities instead of subscribing to them.  The SEC’s order also cites Portugal Telecom’s insufficient internal accounting controls.  Portugal Telecom is now known as Pharol SGPS S.A.

“Credit risk is material information for investors, and Portugal Telecom failed to ensure that the risks of its Grupo Espirito Santo-related investments were fully and accurately disclosed in its public filings,” said Michele Layne, Director of the SEC’s Los Angeles Regional Office.

Portugal Telecom consented to the SEC’s cease-and-desist order and agreed to pay the penalty without admitting or denying the findings.

The SEC’s investigation was conducted by Janet E. Moser and supervised by Victoria A. Levin of the Los Angeles office.  The SEC appreciates the assistance of Portugal’s Comissão do Mercado de Valores Mobiliários and Brazil’s Comissão de Valores Mobiliários.