The CNMV opens disciplinary proceedings against Codere for "accounting inconsistencies" in several subsidiaries

The National Securities Market Commission (CNMV) has opened a sanctioning file against Codere for the "accounting inconsistencies" that the group recognized at the end of 2019 in several of its subsidiaries in Latin America. The procedure could lead to a "very serious" infringement of the Securities Market Law, as admitted in its latest annual accounts by the Spanish betting multinational, which is in the process of being liquidated.

Codere explains in that document that on September 23, the CNMV notified it that it had decided "to initiate an administrative sanctioning procedure against Codere, SA and others, for the possible commission of a very serious infraction typified in article 282.2 of the Market Law de Valores, as responsible for the accounting inconsistencies contained in the financial statements of the company corresponding to the first half of fiscal year 2019".

That article of the Securities Market Law includes the infractions "for breach of the obligations of transparency and integrity of the market" that the listed companies must reflect in the annual report, the audit report or the semi-annual accounts. In October 2019, the Spanish multinational announced that it had detected certain "inconsistencies" in the published results of some of its Latin American subsidiaries.

He did so months after the departure of the group's board of directors from the Martínez-Sampedro family, founders of Codere and confronted with their current management after seeing their participation reduced to a minimum as a result of the company's debt restructuring process .

A subsequent analysis commissioned by Codere from the firm EY confirmed that the group had underestimated its losses by more than 15 million euros as a result of these inconsistencies, detected in the financial accounts of the subsidiaries in Mexico, Colombia and Panama. According to Codere, these losses were "intentional and coordinated by a small group of people in Mexico", by modifying income and costs in their accounting operating systems, and "without the knowledge of corporate management in Madrid", according to a report commissioned by the company to Kroy y Álvarez y Marsal. The group would end up declaring losses of about 62 million in the whole of 2019. The figure shot up to over 200 million already in 2020, as a result of the closures due to the pandemic.

Among the prohibited behaviors included in the article of the Securities Market Law that has motivated this sanctioning file is that of omitting financial information "when there is an interest in concealment or serious negligence, taking into account the relevance of the communication not made and the delay incurred", as well as the provision to the CNMV of "regulated financial information with inaccurate or untrue data, or misleading information or that omits relevant aspects or data".

Codere, with whom has contacted without receiving a response, explains in the document sent to the Spanish regulator that on October 22, it presented allegations against the initiation of the sanctioning procedure, "requesting the dismissal of the same without imposition of sanction any, and since then, we have been waiting for the CNMV's resolution".

"On March 16, 2022, a communication was received from the CNMV informing Codere, SA, in liquidation, of the change of instructor in the file," adds Codere.

"On the possible files in progress, we do not give information until they are finished, in your case. The sanctions imposed by the CNMV are published in the BOE and in the registry of sanctions", the stock market regulator limits itself to pointing out, to questions about this business.

Last Thursday, the Executive Committee of the CNMV agreed to exclude Codere from trading and set the last trading day for its titles as next Friday, May 6. Codere's parent company, which in 2021 increased its red numbers by 43.1%, to 338.6 million, despite having increased its turnover by 33%, to 790.7 million, announced its entry into liquidation in 2021, after completing the financial restructuring process announced a year ago, for which it received an injection of up to 225 million, more than 350 million of debt was capitalized by its creditors and its maturity was extended to September 2026, in exchange for leaving 95 % of the company in the hands of the group's bondholders.

In parallel to its farewell from the Spanish trading floor, the group listed last year its online betting subsidiary in the United States, which jumped to the trading floor last December through the merger with the special purpose acquisition company (SPAC, for its acronym in English) DD3 Acquisition Corp.II. Recently, that subsidiary has warned there of the risk of losing your license in Spain due to the accumulation of very serious sanctions for non-compliance with state or regional gaming regulations.

Last summer, that subsidiary lamented the "negative stance" of the Spanish Government against bookmakers, reflected in the veto on the advertising of these companies. It is a recurring complaint of the group: at the beginning of 2020, the then president of Codere He also charged against the "radical political and social positions" towards bookmakers and the "false beliefs" about this sector.

Both Codere and the directors who were then part of its audit committee were already sanctioned in March 2015 by the CNMV for falsifying their 2012 accounts. In this case, the company was fined 100,000 euros for a very serious infraction, because those accounts contained "inaccurate or untrue" data.

In February 2013, Codere reported losses of 104.6 million in 2021, weighed down by a deterioration of assets in Spain worth 75.6 million and by the drop in income in the country. A few months later, he reformulated his accounts and raised the losses to 134 million after detecting an accounting error. A few days later, he returned to reformulate the accounts to adapt them to a fiscal "clarification" in Mexico and after facing a payment for licenses in Argentina.

After knowing the sanction, and in the successive appeals before the National High Court and the Supreme Court, Codere argued that the sanctioned conduct was the result of a technical error that was corrected immediately, and that it did not alter the company's financial situation. The National Court and the Supreme Court They confirmed the sanctions in all their extremes.

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