Stocks, lies, and conference calls: the scandal of reinsurance firm IRB Brasil

Forget Showtime’s hit TV series “Billions,” the biggest financial market drama of 2020 is happening in Brazil—and it even has stocks master Warren Buffett starring in a leading role.

The story revolves around IRB Brasil RE, the former state-owned company that became Latin America’s biggest reinsurance group. After going public in 2017, shares in IRB rose 371 percent in the years that followed, only to plunge 60 percent in one month—half of that nosedive coming in a single day.

It all started when private equity firm Squadra Investimentos questioned how profitable the company actually was, a spark that evolved into a public accounting battle. Things went really sour after IRB’s management confirmed rumors that Warren Buffett’s conglomerate Berkshire Hathaway had become a shareholder—a lie that led to changes in the firm’s corporate governance and a series of questions from Brazil’s Securities Commission.

Is IRB Brasil the new Enron?

Nearly 20 years ago, U.S. energy group Enron went bankrupt after a series of accounting frauds became public. The company’s stock crashed, employees lost their pension funds, U.S. markets acted to install measures to provide better governance. 

IRB shareholder Renoir Vieira sees the Brazilian reinsurer’s woes as more of a market manipulation case than Enron-level accounting fraud. “We did not find any problems [in the balance sheets] (…) The company needs to regain the market’s confidence and the only way to do that is replacing its management, increasing transparency and the involvement of minority shareholders,” he told The Brazilian Report. Despite the crisis, Mr. Vieira has increased his stake in IRB and shares in the company now make up 11 percent of his family’s investing portfolio.

Levante Investimentos stocks analyst Eduardo Guimarães echoes this view. “I don’t think it is similar to (…) Enron. IRB is a company that has a competitive edge in a good business. The awful governance is what is questionable,” he said. 

The analyst says he dropped IRB Brasil from his dividend portfolio as soon as the first doubts arose in early February. He now recommends investors stay away from the company. But the struggle is not over for everyone.

Mr. Vieira is...