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Reports: Adviser to Brazil presidential frontrunner probed for alleged fraud

Brazil's federal prosecutors are investigating Paulo Guedes, the main economic adviser to Brazilian presidential candidate Jair Bolsonaro, for his alleged involvement in fraud in several state-owned pension funds, various media outlets said Oct. 10.

Guedes, who likely would serve as finance minister should Bolsonaro win the presidency, allegedly siphoned 1 billion reais from the state-owned entities in a span of six years, Folha de S.Paulo reported. Reuters and the Financial Times cited separate sources confirming the Folha report.

The criminal investigation is looking at whether Guedes committed crimes of fraudulent or reckless management, Folha said. The economist is also being investigated for potentially transacting unrated securities when moving resources from the entities. The state-owned pension funds include Banco do Brasil SA's Previ, Caixa Econômica Federal's Funcef and Banco Nacional de Desenvolvimento Econômico e Social's BNDESPAR.

Guedes reportedly made the fraudulent deals in 2009 with executives who have ties with the leftist Workers' Party, or PT, and the Brazilian Democratic Movement, or MDB. Brazil's current president, Michel Temer, is a member of the MDB.

In 2009, one of Guedes' investment firms launched two funds that received the money from the state pension funds, according to documents obtained by Folha. HSM Educacional, an education investment company said to be controlled by Guedes, allegedly collected the money invested by the pension funds and also acquired a 100% stake in another company, HSM do Brasil. The latter company was allegedly used as a front instead of a legitimate business, with investigators looking at excessive payments it made for speakers at various events as well as exorbitant personnel expenses.

Bolsonaro, a member of the right-wing Social Liberal Party, advanced to an Oct. 28 runoff vote for Brazil's presidency after leading the first round of the election with about 46% of the vote. He will face Fernando Haddad, the Worker's Party candidate, who gained over 29% of the first-round vote.

Guedes is said to be responsible for swaying Bolsonaro toward his current market-friendly stance, given that the presidential candidate was formerly supportive of a state-run economy as well as the 1964 military government. Bolsonaro is not named in the investigation, although Guedes is the first of his advisers to be linked to a major corruption issue.