How central bank governor György Matolcsy enriched himself at taxpayer expense, part I

April 25, 2017

This article describes in detail how the current governor of the National Bank of Hungary (MNB) György Matolcsy used his previous position as Minister of Economy under the first Orbán government (1998-2002) to privatize a state-owned company for himself and ensure orders and revenue.

“The model is simple: the foundation which is run by Matolcsy as director buys a property, then sells it a few years later to Matolcsy’s firm, a family member, or a family member’s company.”

Translation of Jenő Böszörményi’s “My wife is my straw man” published in the January 19th, 2017 edition of print weekly Magyar Narancs, (pp. 11-15).

How did György Matolcsy get his hands on a majority state-owned firm whose revenue was at its peak just when he was in his first period as minister? He reaped the profits a few years later; the properties he acquired in District XII were merely a bonus.

“The wife recognises that the shares representing her ownership according to the company register in reality represent the property and separate assets of the husband.” This astonishing – and legally questionable – sentence featured in a marriage contract dealing with the division of matrimonial assets. The wife in this case is Gyöngyi Matolcsy; the husband György Matolcsy. The shares in question represent a 75% stake in Növekedéskutató Intézet Kft. [Growth Research Institute Ltd]. The text between the quotation marks is an extract from a section on the “termination of matrimonial co-ownership” in a contract signed by the Matolcsys thirteen years ago on 1 January 2004.

We came across the extract of the document among the company’s papers. Gyöngyi Matolcsy – who featured in the documents under her maiden name of Gyöngyi László – had acquired a 75% stake in Növekedéskutató three years earlier.

This firm was established in late January 1997 under the name Privatizációs Kutató Kft [Privatisation Research Ltd] with a registered capital of one million forints (USD 5,500-tran.) by the State Asset Directorate Ownership Foundation (TA) and three private individuals: Sándor Kopátsy, György Matolcsy and Mrs. Marianna Harczi Horváth. The state foundation put up 90% of the capital, while the remaining 10% was divided equally between Matolcsy et al, with Harczi acting on behalf of the three of them and their joint stake (this will prove to be significant). Kopátsy, the forerunner and one of the inspirations for the unorthodox management of public finances, was president of the TA at the time, while Matolcsy was its secretary and director of the Privatisation Research Institute (which was related to the Ltd company in name only and was not a legal entity in its own right, but can in a way be seen as its forerunner). Matolcsy would run the firm for three years, right up to the end of 1999 when he was appointed minister. Prior to entering government on 1 January 2000, he had also worked as an economic policy advisor to prime minister Viktor Orbán.

Miraculous acquisition

Despite the firm’s burgeoning success, the foundation’s board of trustees decided in December 2000 to sell its stake, which it had risen in the interim through a capital increase to 96.67%. The company had performed particularly well in the past two years, achieving revenues of 87 million forints (USD 370,000) in 1999 and 89 million (USD 315,000) the following year, with operating profits of 24 (USD 100,000) and 20 million forints (USD 70,000) respectively. Following TA’s decision in December, after the holiday season, the owners decided on the basis of expert opinion presented at a January shareholder meeting to value the firm at 40 million forints (USD 1.3 million). Three private individuals were able to buy TA’s stake in the company: György Matolcsy’s spouse Gyöngyi László paid 30 million for a 75% stake and Emese Szalai got 15% for 6 million. Mrs. Marianna Harczi Horváth put in 2.7 million for the remaining portion, turning a 3.33% stake (held jointly with György Matolcsy and Sándor Kopátsy) into a 10% share. Emese Szalai did not show up at the shareholder meeting, and was instead represented by Marianna Harczi, who conveyed her intention to buy. According to share sales contracts found among the company papers, all three buyers paid in instalments, and Matolcsy’s wife was able to acquire a controlling stake in the firm under very favourable conditions. Szalai and Harczi had to transfer a third of the price of their stakes within 7 days, and the rest within 30 days, but Mrs. Matolcsy was given a much bigger deferment: 2.5 million within 7 days, 20.5 million within 30 days, and the remaining 7 million, close to a quarter of the sale price, did not have to be paid until 31 January the following year. She could pay off the last instalment of 7 million under very advantageous conditions in “instalments and at times defined by her” – in other words, as much as she could afford when she could afford it through the year. Consequently, the TA provided 7 million forints of interest-free financing for Mrs. Matolcsy’s acquisition.

György Matolcsy with his wife Gyöngyi Matolcsy (née. Gyöngyi László)

The 40-million-forint selling price established on the basis of a professional opinion was, as it happens, something of an undervaluation. On the basis of the financial reports, the value at the end of 2000 should have been closer to 50 million forints (USD 1.8 million). The balance sheet total was 51.5 million, with liabilities of 17 million, but besides this there was 13.6 million forints in the firm subsequently  paid out in dividends to the new owners. (The former owners – the TA and Kopátsy-Matolcsy-Harczi trio – did not take dividends at any time during the four years since the firm was established. So the company was worth at least 48-49 million forints, or even more if viewed in a favourable light. Papers accessible in the company registry show that the new owners accepted the report and the decision on dividend payouts – the signature of the newly nominated director Marianna Harczi can be read on a document from the end of January. And the money could not have come at a better time, since the sales contract signed in mid-January gave them one month to raise 32 million forints, and the dividend of 13.6 million they voted for and received at the end of the month covered almost half of this.

The change of ownership and director did not interrupt in the slightest the life of the social sciences research firm, and the company continued its unbroken ascent: its net revenue rose to 100 million forints (USD 345,000) in 2001, and it collected 98 million (USD 390,000) in 2002. The numbers are even more breathtaking if one looks at the profits: in 2001, Növekedéskutató‘s business results (profits) came to 52.5 million (USD 185,000), rising to 66 million (USD 275,000) in 2002, and its post-tax profit for the two years was 93 million forints (USD 400,000), and it paid out in dividends of 12.6 and 16 million. One hardly need say that a profit of 66 million from revenue of 98 million is an unbelievably extravagant achievement! Mrs Matolcsy could count herself particularly lucky in her new investment, as in proportion to her stake, her share of the dividend in 2001 would have been 9.5 million forints, which would arrive just in time in 2002 for her to settle the outstanding 7 million that she owed the TA. The three lady owners received dividends totaling 42.2 million forints in the first three years, of which Matolcsy’s wife’s share was 31.7 million. This sum exceeds somewhat the agreed sale price for the company. During this time, the company’s own capital grew threefold to 100 million forints. An in all, Gyöngyi Matolcsy et al pulled off a fantastic piece of business: they got a return on their investment in record time, while the publicly funded Ownership Foundation (TA) foolishly “let go” the goose that laid the golden egg.

Moreover, the three ladies entered the world of social science research without any known experience of the field. Mrs Matolcsy graduated in business administration, Marianna Harczi got a diploma from the University of Heavy Industry’s metallurgical polytechnic wing in Dunaújváros, while Emese Szalai is a specialist in fitness acrobatics and health tourism. Harczi was an owner of the company from the beginning, and at the time of the transaction she was also a member of the TA’s board of trustees, and one of its officials (secretary). Szalai had been involved with the foundation’s work since 1999, and was a member of its board of control. However, two months after acquiring her stake in the company, Szalai found a good job at Magyar Turizmus Rt [the Hungarian tourist board], becoming part of its board of directors and project director. Their earlier life did not suggest they were destined to make such a success of a sociological research firm. Of course, it is true that the owner of a firm does not necessarily have to understand the activities it carries out. Looked at from this point of view, their results are astounding, especially when one is aware that Növekedéskutató worked with only a handful of people. In 2001, for example, it had only four employees.

Növekedéskutató‘s reports do not show where its orders came from, though it is a fact that in the years following the fall of the Orbán government in 2002 and the end of Matolcsy’s mandate as economy minister the company’s revenues fell dramatically. It scarcely reached 15 million forints (USD 67,000) in 2003 and closed the year with a loss of 20 million (USD 90,000). Thus Növekedéskutató scored its greatest successes in those year when György Matolcsy was working either as an economic policy advisor (1998-1999) or as economy minister (2000-2002). It is also a fact that its run of success ended promptly when Matolcsy left office.

The real owner

It turns out from the Matolcsys’ 2004 marriage contract that the stake in Növekedéskutató that Mrs. Matolcsy bought in 2001 actually belonged to György Matolcsy, and so its profits also pertain to the current president of the central bank. “The wife [Gyöngyi Matolcsy] recognises that the shares representing her ownership according to the company register in reality represent the property and separate assets of the husband [György Matolcsy].” The key parts of this self-revelatory piece of text are the words “recognises”, “in reality” and “separate assets”. According to a source in the legal profession, the text of the contract says in effect that “on paper my wife was the owner, but in reality it was always me”. “They actually wrote this down, which is quite strange for a minister,” the lawyer added. The source noted that they could have arranged it such that the stake in the business would be transferred to the husband upon termination of conjugal joint-ownership, but that is not what happened. Instead, they specified that it had always been the separate property of the husband. But “an asset cannot serve as the separate property of the wife in 2001, then in 2004 as the separate property of the husband”.

According to a criminal lawyer, the aforementioned extract from the contract does not exclude the possibility that false details not corresponding to reality were given to the company registry, and the company registry data is based on inaccurate deeds of association containing false information – which would also give rise to the suspicion of illegality. According to the statutes of criminal law, “a person who collaborates in entering into public documents any false information concerning the existence of, changes to, or the termination of rights or obligations is committing the falsification of public documents”, in the present case, into the deeds of association of Növekedéskutató Intézet Kft. In any case, no one can now investigate whether a crime was committed, as on the one hand information corresponding to reality was entered in 2004 into the company register as a public register, and secondly, the five-year period of limitation has expired. Nevertheless, this is to our knowledge the first case in Hungary where a public document proves that a politician used his wife as a straw.

It seems impossible to understand why a politician would take such a risk. At the time the stake in the firm was sold, Matolcsy was economy minister in Viktor Orbán’s first government, although the law at the time did not prohibit a government leader from acquiring stakes in a financial enterprise (it only prohibited company directors from holding public office). Matolcsy may have seen it as politically questionable and open to attack if a minister should acquire a stake, and a majority stake at that, in a company he himself had previously set up while on the board of directors of the state foundation that was selling it, a foundation over which all the evidence suggests he retained influence through confidantes even after resigning his position. (What is more, he retained a minimal but cleverly disguised interest in the firm – see the section “Hidden ownership”).  This could easily give the impression that

the minister had privatized the nicely inflated company for himself, and used a high ranking public office to ensure orders and revenue.

However, the acquisition in the wife’s name even spared him the formality of entering it into his ministerial declaration of interests, and thus drawing attention to it and showing the sources of financing for the transaction. The prime ministerial cabinet office has so far not acceded to our request for Matolcsy’s declarations of interest from the period 2000 to 2002. According to their statement, the documents were returned to Matolcsy when he left office, in line with the rules in effect at the time, and there were no copies. So there is now no way anyone can confirm whether or not the acquisition of a stake in Növedekéskutató or dividends from the firm appeared in the declarations of interests.

And for what reason would Matolcsy later buy the firm in his own name, given this modus operandi could have continued? The fact of the 2004 contract dealing with the “termination of matrimonial co-ownership” might be explained by a cooling of the relationship between György and Gyöngyi Matolcsy: husband and wife may have drifted apart to such an extent. A lawyer told us that it is not typical for the parties to a marriage to draw up contracts about the termination of co-ownership while maintaining their matrimonial cohabitation. Of course the statutes of civil law do not exclude the possibility that a couple should hold assets both jointly and separately even during a marriage. However, according to our source, it is rare that they would terminate co-ownership, which usually happens during a divorce. Or perhaps when a marriage has gone sour but the social circles in which the couple move would not countenance the breaking up of the marriage. The political and public sub-culture of the self-proclaimed Christian Fidesz-KDNP party is one such social circle, or at least prefers to present itself as such. It can scarcely be disputed that a high ranking politician in this circle cannot allow himself to digress from the values he has publicly professed (or, if you prefer, their appearance). At such a time, the emotional ties are replaced by a business agreement, and everyone goes their own way while maintaining the marriage for form’s sake.

Hidden ownership

When Privatizációs Kutató Kft was set up in 1997, György Matolcsy took a 10% stake jointly with Sándor Kopátsy and Marianna Harczi, with the stake shared equally, one-third each. The law on business partnerships allows for a membership stake to be registered jointly by more than one person. At such times, one of the owners of the joint stake is nominated to represent the group’s interests during the operation of the company. This happened in this case, where Marianna Harczi was the representative.

When the limited company was registered, only the name of the representative of the joint holding was entered into the company registry, not that of Matolcsy or Kopátsy – in other words, the public registry does not indicate that Matolcsy was an owner of Privatizációs Kutató Kft from the start. In not one of the later documents that can be accessed at the company registry is there any reference to the joint ownership of the stake, and any indication of the part owners also disappeared without trace from the later deeds of foundation. At the same time, there is no document in the company registry that suggests Harczi bought out her partners.

In December 1998 the registered capital was raised from one million to 3 million forints, with the Tulajdon Alapítvány (TA) putting up all the additional capital. Matolcsy’s stake thus fell to 1.11% (as did that of the other two part-owners, Kopátsy and Harczi). As we wrote, Harczi increased her stake to 10% when Matolcsy’s wife acquired a stake in the firm in her own name. On the basis of the above information, this stake continued to be jointly owned by Matolcsy, Kopátsy and Harczi. That is, all three increased their stake together, thus Matolcsy’s stake returned to 3.33%. This is interesting because the owners took dividends totalling 42.2 million forints (!USD 190,000) from the firm between 2001 and 2003. This meant 3.33%, or 1.4 million forints for György Matolcsy. When Matolcsy bought Harczi’s stake in 2006, he was in fact buying out the other two joint owners (the sale price is unknown). Matolcsy has guarded the secret carefully: when declaring an interest in a company in the declaration of wealth, one has to indicate the “share at inception”. Matolcsy, however, usually writes 90% (sometimes 100%), as though he only became an owner in 2004 (or 2006). The share of ownership at inception, however, is correctly 3.33%.

Who’s got the money?

So Matolcsy et al divided up the profits at the beginning of 2004. We have no further details, with one exception: the house on Svábhegy that had formerly been jointly owned fifty-fifty became the exclusive property of Gyöngyi Matolcsy. According to the title deeds, the transfer of title was legally “the division of matrimonial joint assets”. With regard to Növekedéskutató, the application of the provisions of the contract dealing with the termination of matrimonial co-ownership – that is, the registration of the name of the real owner – was handled at a general meeting in January 2004. Thus 75% of Növekedéskutató was registered in the name of György Matolcsy. At the same time, he bought out Emese Szalai, with whose 15% stake Matolcsy formally increased his stake in the firm to 90%. As we have seen, Szalai paid Tulajdon Alapítvány 6 million forints for the stake in 2001, while the sales contract available in the company registry shows Matolcsy paid only 4.5 million (1.5 million less). The firm’s own capital was 78 million forints (USD 379,000) at the time, of which 15% is close to 12 million. So Szalai did not strike a particularly good deal, getting only a third of the real value. Unless Szalai had only bought in on somebody else’s behalf, namely György Matolcsy, and it was in his interests that she acquired a stake in the firm.

Matolcsy become the sole owner of the firm two-and-a-half years later, when he bought Marianna Harczi’s 10% stake in the business, but no details of the sale price are available in the company registry. Harczi also left the firm – although not Matolcsy’s orbit – and Matolcsy personally assumed company director duties and promptly renamed the firm Magyar Gazdaságfejlesztési Intézet (MGFI) [Hungarian Economic Development Institute].

Following the change of government in 2002, MGFI never recovered its previous form. Although it saw average annual revenue of about 28 million forints between 2003 and 2010 (the total revenue was 230 million), it lost 8 million forints altogether. After Matolcsy entered government in 2010, he clearly had no more time for the firm (Gyöngyi Matolcsy became director), and the average annual revenue fell to about 5 million, and they could barely keep the firm above the break-even point. In March 2016, Matolcsy transferred MGFI to his eldest son, Máté Huba, and his wife Zsófia Matolcsy-Szittner, who changed the firm’s name to Mém Műhely Kft. Details of the sales price are not visible in the company papers, but will be revealed in the central bank president’s 2016 wealth declaration, which has to be published soon. However, before the transaction, Matolcsy took another significant dividend. This was the only dividend payment in the period when Matolcsy was formal owner of the firm, when in the financial year 2004 he voted to pay himself 44 million (USD 215,000) from the cash reserves. It is clear from looking through the firm’s financial reports that the source of this sum dated from the successful years 1998 to 2002. Since, as we have seen, the company was running at a loss after 2002, its own capital and cash reserves swelled during Matolcsy’s first term as minister, and he had 96 million forints (USD 240,000) at his disposal at the end of 2002, which later did not fall below 80-85 million. Matolcsy invested the money partly in real estate (see the section “Property migration”) and partly in treasury bonds (for example 68 million [USD 310,000] in various securities in 2006). The dividend payment in 2014 was made possible by the capital reserves that had been set aside and accumulating for a good decade. The establishment of the firm was already unusual, in that a director of a state foundation carved himself a little piece of the new enterprise.

So it was in a fairly adventurous way that the president of the central bank, György Matolcsy, became the owner and received income from a company he had set up himself. The foundation later divested its stake to buyers who were closely linked to the seller and, what is more, were able to get the firm at a favourable price and under very favourable conditions. As is shown above, Matolcsy was already the real majority owner at that point. In light of the subsequent trading of stakes in the firm, there are grounds for concluding that the entire firm was already his by then, and the profits from the business belonged to him. Meanwhile, Matolcsy was economy minister in Viktor Orbán’s government, and the firm performed unbelievably well.

Matolcsy may be a figure of pity in economic circles – but he has his wits about him.

Property migration

György Matolcsy and family members did not only buy a company from the Tulajdon Alapítvány, but real estate, too. At the end of the 1990s, when Matolcsy was director of the foundation, he bought at least three properties, although it is not clear for what purpose exactly. Over the years these became without exception part of the Matolcsy family’s interests, and what is more, Matolcsy had again become a member of the TA’s board of trustees at the time of the sale. The properties are situated in an apartment block built in 1989 and situated near the MOM Park shopping centre in Budapest’s District XII. Növekedéskutató bought one 65-square-metre flat from the foundation in 2003, when the firm’s majority owner was Gyöngyi Matolcsy in name, but in reality György Matolcsy. The flat was both the headquarters and the office of the foundation from 1995, and of the company from 1997. Following the change of ownership the foundation presumably paid rent to Matolcsy’s company, so that it could remain there. We can gather as much from the Tulajdon Alapítvány‘s company reports between 2011 and 2014, which show an annual rent of 1.8 million forints (900,000 forints in 2014, when it was only rented for half the year). This represents a particularly good price for a shared, seventh-floor flat. The state foundation essentially financed Matolcsy’s firm, and if this practice really went on from 2003, the foundation would have coughed up in rent more or less the sum that Matolcsy et al originally paid for the property.

At the back of the building is a 52 sqm flat, also of one-and-a-half rooms, of which György Ádám Matolcsy became part owner before 2003, and sole owner in 2004. György Ádám Matolcsy, the younger son, was 17 or 18 years old at the time of the purchase, so he could hardly have bought the pad from his own money. The property was for years the registered office of two companies owned by Gyöngyi Matolcsy: Eurotourism Bt and Ú-T Eurocon Bt. The young Matolcsy sold the flat in 2015.

Finally, there is also a 106 sqm retail unit, which was transferred from Tulajdon Alapítvány to Eurotourism Bt directly after Gyöngyi Matolcsy became the 90% owner of the former. Part of the premises were for years rented by the Tímea Tóth beauty salon for 50,000 forints a month. Tóth was then the girlfriend of Ádám Matolcsy, and is now his wife. The same location also served as the showroom for the firm Glamorous Kft., dealing in the manufacture and marketing of hairdressers’ chairs, and is today essentially identical to the beauty salon (Glamorous Spa). The sale prices of the properties are unknown, but the model is simple: the foundation which is run by Matolcsy as director buys a property, then sells it a few years later to Matolcsy’s firm, a family member, or a family member’s company. A total of 223 sqm changed hands in this way, with state assets becoming part of the Matolcsy estate.

A minute of Matolcsy absurdity

The economist politician who likes to entertain the wider public with his flashes of inspiration and his unique way of communicating them hid a real gem in the files of the company registry. Here we present word for word – abridged but retaining its essence – the opus titled Minutes of the General Meeting.

Present are: Dr György Matolcsy, member.

………. member.

The members present unanimously appoint Dr György Matolcsy as president of the members assembly. The president establishes that all members are present, and the members do not object to the members assembly. The members assembly has a quorum.  Dr György Matolcsy will take the minutes… certify the decisions.

Agenda point:

1. Approval of the 2009 report, decision on the use of post-tax profit.

The members agree on the agenda and have no other comments.

Agenda point 1:

Dr György Matolcsy distributes an executive summary of the company’s 2009 report. The members unanimously take the following decision.

So Matolcsy unanimously appointed himself president, then stated that he was without exception present. After that he asked himself whether he had any objection to holding  the members’ assembly. After a little thought he said no to himself, and selected himself to keep the minutes. He resoundingly agreed with the agenda point that he put forward, made no comment, and in the same way adopted the point “unanimously”.

For the sake of order, Matolcsy is probably not the author, but the drafter of the report. The error that arises from this absurd text is that one-man companies do not hold general assemblies – the annual report is adopted by the decree of the founder.

(Note: We asked György Matolcsy via the press office of the Hungarian National Bank about the extract from the matrimonial joint-ownership contract and the circumstances surrounding the acquisition of Növekedéskutató. The president of the central bank did not respond to our request. We will continue our report on the company business of the Matolcsy family in the near future.)