Mexico Arrests 4 in Wide-Ranging Stock Probe

The government has arrested four prominent stockbrokers and is investigating 148 others on charges of illegal trading stemming from the historic crash of the Mexican stock market in October, 1987, a spokesman for the attorney general confirmed Tuesday.

The spokesman said federal police detained Eduardo Legorreta, head of Operadora de Bolsa, the country’s second-largest brokerage firm, on Monday night. Also arrested were Jaime Ceballos Cervantes, also of Operadora, and two brokers from Mexicana de Inversiones y Valores--Juan Carlos Fernandez Cueto and Jose Francisco Rodriguez Dupont.

The move against two major brokerage houses came five weeks after the jailing of Joaquin Hernandez Galicia, the powerful chief of Mexico’s oil workers’ union. Observers say it is intended to show that President Carlos Salinas de Gortari’s government will be evenhanded in its fight against corruption. The arrests also are meant to demonstrate the administration’s commitment to economic reform, they say.

“There is a cleanup process going on, and it reflects balance. You can’t just clean the unions,” said economist Rogelio Ramirez de la O, publisher of the monthly newsletter Economic Analysis for Company Planning. “Can these changes alone clean up? No, but the message matters a great deal, and it is definitely going to increase the prestige of the president.”

On Monday night, Treasury Secretary Pedro Aspe Armella announced that he was asking the attorney general to take appropriate action against 152 stockbrokers from 25 firms. Other brokers are expected to be fined or to have their licenses revoked.

The four brokers arrested are accused of selling expired Mexican Treasury bills, investing customers’ funds without their consent and selling stock owned by their brokerages to clients at a loss to the clients.

1,200 Complaints

Aspe said the National Securities Commission has received more than 1,200 complaints from investors who claimed they were cheated by brokerage firms around the time of the October, 1987, crash, when Mexico’s stock market index plummeted by 74% in less than 40 days. In the eight months before the crash, the market index rose by 626%.

“We are convinced that the market did not fail--that the problems attributed to it correspond to the irregular activities of a few individuals,” Aspe said.

He said the government will now conduct permanent audits of all brokerage firms.

In spite of the arrests, trading on the Mexican market was stable Tuesday.

“The government was extremely careful,” said Luis Rubio, director of the Institute of Banking and Finance. “They only went after specific operations that were clearly illegal so there would be no loss of confidence in the market. . . . He (Salinas) is cleaning up without destroying everything along the way. It was not a political massacre.”

The business community is expected to continue to react cautiously to the arrests. Among industrialists, Legorreta and the stockbrokers are looked down upon as newcomers and nouveaux riche who failed to invest in production.

Legorreta reportedly was a heavy contributor to and fund-raiser for Salinas’ presidential campaign last year. His brother, Agustin, is president of the Business Coordinating Council, the most important private sector organization, and both are activists in the ruling Institutional Revolutionary Party.

Proceso magazine reported last year that at the peak of the market boom, Legorreta began construction on a $1.7-million mansion with swimming pools and a private dock on an artificial island near Puerto Vallarta. The magazine also reported that Legorreta bought a $1-million yacht to park in his dock.

Last month, the government jailed union boss Hernandez Galicia and dozens of his associates in the allegedly corrupt oil workers’ union. The arrests were popular but, while they weakened the powerful union, the new pro-government leader, Sebastian Guzman Cabrera, also has been accused of corruption.