THE INFORMATION PUBLISHED IN BURSA IN APRIL 2013, TAKEN UP AGAIN BY THE CYPRIOT PARLIAMENT IN SEPTEMBER Cypriot prosecutor: "Critical point" in the investigation of the acquisition of the stake of 9.7% of BT by Bank of Cyprus

The investigation of the authorities concerning the circumstances behind the acquisitions of a block of shares of 9.7% of Banca Transilvania by Bank of Cyprus has reached a "critical point", said in the beginning of this week, the deputy general prosecutor of Cyprus, Ricos Erotocritou, before a commission of the Chamber of Deputies of Nicosia, according to some information published in the Cypriot press. The Cypriot official also said that the Romanian authorities have asked for the aid of their Cypriot peers, after new evidence was uncovered. The request was approved, and a delegation from Romania will arrive in Cyprus this week and will receive assistance concerning its own investigation in this case.

The BURSA newspaper has written exclusively for Romania, in its April 9th edition, that the Cypriot authorities are investigating the circumstances in which Bank of Cyprus has come to control 9.7% of BT. This action is based on the investigation of American consulting firm Alvarez & Marsal, drawn up in the form of a report, at the request of the Central Bank of Cyprus (CBC).

The report, dated March 26th, 2013, and requested by CBC on August 21st, 2012, came as, in June 2012, Horia Ciorcilă, the president of Banca Transilvania, was acquitted of the charges of market manipulation at the Bucharest Court of Appeal, brought following the trades with BoC. According to some judicial information, the appeal of the prosecutors of the High Court of Cassation and Justice is set to be heard.

The Alvarez report stated that the evidence presented in the Romanian courts, at the time, are inconsistent with the ones found by the investigator.

The statements of deputy general prosecutor Ricos Erotocritou bring a new light in this context, because the Romanian authorities have already begun an investigation in which they need the aid of Cypriot officials.

The representatives of Banca Transilvania did not want to comment on the information in the press, and by the time the newspaper went to print, the representatives of the European Bank for Reconstruction and Development - EBRD (which holds a stake of 14.6135% in BT), those of the National Bank of Romania (NBR), as well as those of the Department for the Investigation of Organized Crime and Terrorism (DIICOT) did not respond to our enquiry for more details.

• Shares of Banca Transilvania, up almost 4% on the BSE

The news concerning the investigation doesn't seem to have affected the stock of Banca Transilvania (symbol: TLV), as it closed up 3.87% compared to the previous session, at 1.449 lei/share. Sources from the stock market told us that there was no need for the shares of TLV to be suspended, given the fact that the information does not pertain to a new investigation, but instead it brings new elements in an older investigation, in which the courts have already issued a ruling and which the investors have already priced in.

• Operation "Beatrice"

According to the Alvarez & Marsal (A&M) report, Georgios Christoforou, General Manager at Bank of Cyprus România, said that the relationship between BoC and Banca Transilvania began in 2006, when the Cypriot bank opened a branch in Romania. "The bank also had commercial relations with one of the founders of Banca Transilvania, Horia Ciorcilă, starting in January 2007, through the loans it granted to the Cypriot companies owned by Ciorcilă", the report states.

In the second half of 2008, Banca Transilvania needed additional funds and sought a possible capital injection from a strategic investor, A&M states, which adds that BT hired Merrill Lynch to find potential investors. Six were found, including Bank of Cyprus, and the due-dilligence process was performed in April 2009.

According to the A&M report, on April 23rd, 2009, Georgios Christoforou was informed by Andreas Eliades, CEO of the entire Bank of Cyprus group, that the latter has signed, together with Lefkios Joannides, Managing Director at Joannides & Co. and Yiannis Kypri, Group Chief General Manager, a confidential agreement with the representatives of BT, by which BoC would get access to the information from the database made available to the potential investors of BT. Within BoC, this opportunity was called Operation "Beatrice".

The only non-binding offer for BT was submitted by Marfin Investment Group, but the National Bank of Romania (NBR) did not approve it.

Even though BoC has officially pulled out of the process for investing in BT, in August 2009, BoC was still considering the acquisition of up to 20% of BT, according to the electronic correspondence, reviewed by Alvarez: "A document called < Draft Non-Paper on a possible Structure and Consideration for the acquisition of 20% strategic interest in Beatrice and subsequent Call Options > and which made the rounds between the Mergers and Acquisitions department of BoC and outside consultants, on June 29th, 2009, has revealed a mechanism by which BoC would have the possibility of obtaining 20% of the shares of BT, in cooperation with one or more founding members, and with < the relevant investor > (ed. note: Alvarez considers that the last expression could have been referring to the EBRD)".

On December 16th 2009, BoC announced that it bought 9.7% of BT, for 58 million Euros.

"The Cypriot investment was made through a series of structures that concealed the entire shareholder structure, which had as a possible consequence the reduction of the possible impact the news would have on the price of the stock, as the market had not been informed about the interest of BoC to acquire a significant stake in Banca Transilvania", the A&M report states.

A&M also mentions that an employee of BoC was used as a proxy for acquiring shares on behalf of the bank.

The initial intention of BoC was to buy 10% of BT, a percentage which should have increased to 20% during 2010. Nevertheless, following the initial acquisition of 9.7%, the Department for the Investigation of Organized Crime and Terrorism (DIICOT) began an investigation on potential market manipulation, as the prosecutors targeted Horia Ciorcilă (CEO and founding shareholder of BT), Claudiu Silaghi (founding shareholder of BT, deceased in 2011), Georgios Christoforou (General Manager at Bank of Cyprus Romania) and Anastasios Isaakidis (Credit Risk Manager at Bank of Cyprus Romania).

According to the investigation of A&M, financial services firm J.P. Morgan warned, in an e-mail message in June 2009, that the proposal to buy the BT stock was not compliant with the domestic legislation. In spite of the advice from J.P. Morgan, Bank of Cyprus proceeded with the next step of the acquisition of shares in BT, using various entities, which, according to the A&M report, were intended to hide the fact that the Cypriot bank was going to be the end beneficiary, the report also states.