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In October 2016, Bloomberg reported that KKR had written down its investment in Brazilian data-center company Aceco to zero, amid allegations of pre-acquisition fraud and corruption that the former sellers disputed. KKR’s account blamed alleged misconduct; Jorge Nitzan’s lawyer blamed Brazil’s economic and currency crisis and KKR’s management after the purchase. The write-down was reported by people familiar with the investment, not established here by a public filing, and it did not settle the competing legal claims.
What KKR bought—and what Bloomberg said it lost
KKR completed its acquisition of Aceco in 2014. Bloomberg described the deal as valued at about $700 million including debt and as KKR’s first investment in Brazil. In its October 13, 2016 report, Bloomberg said KKR had written down its $475 million investment to zero, citing people familiar with the matter.
A write-down is an accounting recognition that an investment’s recorded value has fallen. The report did not establish that KKR had received no proceeds, that a court had assigned responsibility for the loss, or that the legal claims were resolved. Bloomberg’s account of the figure was based on unnamed sources, rather than a public filing verified here.
What the reported investigation alleged
Bloomberg described findings from a KPMG investigation conducted for Aceco’s board. Those reported findings concerned payments and accounting practices during 2012–2014. They were allegations in an investigation, not findings by a court or arbitral tribunal.
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| Reported figure | What it referred to | Attribution and qualification |
|---|---|---|
| More than 57 million reais, or about $16 million | Payments described as improper, including payments to entities characterized as sham entities tied to government officials | KPMG investigation for Aceco’s board, as reported by Bloomberg in October 2016; alleged payments from 2012 to 2014 |
| At least 37 million reais | 2013 revenue reportedly affected by accounting irregularities | KPMG investigation, as reported by Bloomberg in October 2016 |
| At least 102 million reais | 2014 revenue reportedly affected by accounting irregularities | KPMG investigation, as reported by Bloomberg in October 2016 |
| 682 million reais | Aceco’s reported net revenue for 2014 | Aceco’s reported results, as described by Bloomberg; Bloomberg also said Deloitte later withdrew support for the validity of Aceco’s reported 2013 and 2014 results |
Bloomberg said the KPMG investigation also alleged that Aceco allocated charges to existing work, including 2014 FIFA World Cup assignments; inflated margins on at least two major projects; shifted cost overruns from over-budget projects to assignments that were under budget; and accelerated revenue without justification. These descriptions remain attributed allegations. Bloomberg said KPMG declined to discuss specific findings because of client confidentiality; Aceco’s representative and Nitzan’s lawyer did not comment on those findings.
Bloomberg reproduced this characterization from the reported KPMG document: “The magnitude of the misconduct, the manner in which the misconduct was carried out, the fact that senior management was directly involved in the misconduct, including tracking its financial impact, and the fact that the misconduct occurred in connection with Aceco’s largest and most prominent projects reflects that this misconduct was systemic.” The underlying report is not independently examined here.
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Why the parties gave different explanations
KKR said it believed the sellers had defrauded it and that it was seeking recovery of losses related to alleged fraud and corruption by former management. In Bloomberg’s October 2016 report, KKR said: “We believe we were defrauded by the sellers of Aceco and are seeking to recover losses related to fraud and corruption by former management of the company.”
Maria Cristina Cescon, lawyer for Jorge Nitzan, offered a different account in an emailed statement to Bloomberg. She argued that Brazil’s economic crisis, depreciation of its currency, and KKR’s post-acquisition management hurt the investment. Cescon wrote: “KKR bought control of Aceco just before the catastrophic meltdown of the Brazilian economy and government (Aceco’s primary customer) and the significant depreciation in Brazilian currency. Its timing could not have been worse and was exacerbated by its post-acquisition mismanagement. Now KKR is trying to undo the deal and blame others for its mistimed acquisition.”
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Three legal and investigative tracks unfolded
Arbitration over the sale
KKR pursued arbitration against former sellers, including General Atlantic and members of the Nitzan family, alleging that they had failed to disclose accounting fraud. The requested relief was described as recovery or reversal of the transaction. Exame reported in 2016 that a request to freeze Nitzan’s assets was denied while arbitration continued. Those developments do not establish the result of the arbitration.
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A separate dispute over company control and debt
A dispute over control of Aceco developed alongside the arbitration; it was not the same proceeding. Reuters reporting republished by Investing.com described a conflict involving Auckland, KKR’s acquisition vehicle, debt payments to Banco Bradesco, and Nitzan’s purchase of most of that debt. Exame reported in November 2016 that Nitzan had regained control by enforcing acquired debt, after which a court ordered KKR back to managing Aceco. That contemporaneous report describes a change in management control at the time, not the eventual or present ownership and control status.
Brazilian law-enforcement inquiry
Bloomberg reported that Brazilian law enforcement opened an investigation after a whistleblower approached police. According to Bloomberg’s account of the KPMG investigation, KKR Latin America head Jorge Fergie received an anonymous email on May 11, 2015 alleging that Aceco had manipulated its accounts and bribed officials; a second whistleblower reportedly came forward in November 2015. The cited report does not establish a final police finding or disposition.
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How the dispute developed
| Time | Reported development |
|---|---|
| 2014 | KKR completed its acquisition of Aceco in a deal Bloomberg valued at about $700 million including debt. |
| May and November 2015 | As described by Bloomberg from the KPMG investigation, an anonymous email raised allegations in May, and a second whistleblower reportedly came forward in November. |
| 2016 | KKR pursued arbitration against former sellers. Exame reported that a request to freeze Nitzan’s assets was denied while the arbitration continued. |
| October 2016 | Bloomberg reported the write-down to zero and described the competing allegations, investigation findings, and legal disputes. |
| November 2016 | Exame reported a court order returning management of Aceco to KKR after Nitzan had regained control through acquired debt. |
What the 2016–2017 reporting does—and does not—establish
The contemporaneous accounts describe a reported investment write-down, allegations of accounting misconduct, competing explanations for Aceco’s losses, arbitration, a court dispute over control, and a police investigation. They do not establish the eventual result of the arbitration, the final outcome of the court proceedings, or the disposition of the police inquiry. No claim about those later outcomes follows from the 2016–2017 reporting summarized here.
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