Daniel Vorcaro, a flamboyant entrepreneur from the provinces, experienced a meteoric rise as he attempted to transform a modest Brazilian bank into a financial heavyweight. His ascent was as dramatic as his eventual fall.

At 42, Vorcaro reveled in the luxuries of newfound wealth, channeling funds into ventures like a lavish hotel and a football team. His bank, Banco Master, expanded rapidly, drawing attention from elite financial circles in Latin America’s leading economy. Despite lacking a major international foothold, the bank audaciously secured prime office locations in both London and Miami.

Beneath the glitz, however, troubles were brewing. Vorcaro now wears an electronic ankle monitor after spending 11 days in police detention. His arrest occurred in São Paulo as he prepared to board a private jet to Dubai, amidst a probe into an alleged R$12.2 billion (US$2.3 billion) fraud involving Banco Master and a state-run bank.

Just hours post-arrest, Brazil’s central bank mandated the liquidation of Banco Master, following shortly after a R$3 billion rescue bid for the beleaguered institution by a group of investors. Vorcaro, through his attorneys, has asserted his innocence and is reportedly cooperating with the investigation, denying any intention of fleeing.

The collapse of the bank marks the largest financial failure in Brazil over the past 30 years, according to Bruno Carazza, a professor at the Dom Cabral Foundation. “Master was a small, obscure bank that experienced explosive growth by exploiting weaknesses in Brazil’s financial system,” Carazza explained.

The fallout from this scandal has sent shockwaves through Brazil’s financial industry and reached the corridors of power in Brasília, where Vorcaro was known to have ties with key political figures.

The son of a property developer from the state of Minas Gerais, Vorcaro was an outsider to Brazil’s traditional financial elites of São Paulo and Rio de Janeiro. He followed his father into the family real estate business before making the jump to finance in 2017, when he led a group that bought the troubled lender that went on to become Banco Master.

Master was originally founded in the 1970s as a brokerage, but became a bank in the 1990s before running into difficulties. After Vorcaro’s acquisition, it took off, making a push in personal and payroll loans and changing its name from Banco Maxima in 2021.

Though dwarfed by Brazilian banking giants such as Itaú Unibanco and Bradesco, Master looked to challenge incumbents on Avenida Brigadeiro Faria Lima, São Paulo’s version of Wall Street. It retained as advisers a former finance minister and ex-governor of Brazil’s central bank, while hiring the law firm of a supreme court justice’s wife.

Key to its ascent was offering high-yield savings instruments known as bank certificate deposits, or CDBs: a popular fixed-income product in Brazil with maturities typically ranging from a month to five years.

Banco Master paid much higher rates than similar institutions — up to 130 per cent of the interbank lending benchmark. Retail investment platforms helped it raise tens of billions of reais this way, reassuring individuals that they were covered up to R$250,000 by an industry-backed deposit guarantee fund.

Because it borrowed expensively, Master needed to make strong investment returns to pay people back. Proceeds were often ploughed into assets that sceptics considered risky and hard to sell, such as debts owed by public-sector bodies and judicial payment orders.

Vorcaro also backed distressed company turnarounds. As Master acquired other small banks, its assets soared from R$3.7bn in 2019 to R$86bn by March this year. 

Alexandre Chaia, founding partner and portfolio manager at Carmel Capital, said some assets on the institution’s balance sheet appeared overvalued. “To pay the returns it was proposing, Master had to buy riskier assets, which consequently can cause liquidity problems, as happened,” he added.

Vorcaro’s spending started to attract attention. Gossip columns reported on trophy properties and a lavish debutante party thrown for his daughter in 2023. That year, he purchased a minority share in his hometown soccer club, Atlético Mineiro.

“He had a very extravagant lifestyle, even for a banker. I don’t know how he could pay for it,” said a businessman who had dealings with Vorcaro.  

Other alarms sounded well before things came to a head. Asset manager Warren Investimentos blocked Master products on its platform in 2023 due to concerns about the large volume of high-rate issuances and a lack of transparency over its assets and responsibilities within the company.

“We didn’t have any corporate information. It was a governance black box,” said portfolio manager Frederico Nobre. 

The FT experienced similar issues in February this year when reporting on the bank’s lease of the top floor of 22 Bishopsgate in the City of London.

People familiar with the matter told the FT at the time that Banco Master had signed up for the capital’s most expensive rent, at £122 per sq ft, despite no known operations in the country. But the FT struggled to get Banco Master to acknowledge it had done so, before the lender eventually gave a response saying it had no plans to occupy the space. “We suspended the plan to set up office in London,” it said, citing a change in business strategy.

According to an internal report by the Brazilian central bank a few months later, Master was facing liquidity issues as far back as July 2024, and Vorcaro resorted to divesting assets — including to a public lender called BRB.

A turning point came in March when the lender agreed to sell a 58 per cent stake in itself at 75 per cent of its book value — roughly R$2bn — to BRB, which is controlled by the regional federal district government in Brasília.

Vorcaro said the deal would resolve funding problems. But to critics, the proposed takeover, creating an entity with about R$100bn in assets, smacked of a public bailout.

Leading private-sector banks had passed over the opportunity, people in the sector said. “It’s very clear that there was a lot of political pressure for that deal to be done, not business logic at all,” said a senior banker. 

Ultimately, the central bank blocked the transaction in September after months of assessing whether BRB had the capacity to absorb Master. By then, regulators and law enforcement were digging into what they considered suspicious activities. 

A court document seen by the FT, granting search and seizure warrants, said a police probe identified the alleged sale of falsified credit portfolios by Master to BRB totalling R$12.2bn.

Investigators believed that managers at the state-controlled bank were complicit in the scheme, which allegedly involved shell companies and was designed to improve Master’s liquidity during the acquisition process, the document added.

Central bank officials also suspected crimes based on evidence that some of the payroll loans included in the portfolios did not exist, according to the internal report seen by the FT.

Four other Master executives were also arrested and later released, while the judge temporarily suspended BRB’s chief executive and finance officer, who were subsequently dismissed. During the raids, police seized R$230mn in high-end goods, including a private jet, cars, watches, jewellery and artworks.  

Vorcaro was photographed leaving prison in flip-flops, a white T-shirt and baseball cap, with a Bible in his hand.

His lawyers reject all the allegations and say he himself was never investigated by the central bank. “The fundamentals behind the probe against Daniel Vorcaro are a non-existent fact until this point,” the lawyers said in a statement. “There is no R$12bn fraud.”

The banker’s defence team also said the loans at the centre of the allegations were generated by a third party and not definitively transferred to BRB. It added that Master had “in good faith” replaced assets lacking standard documentation with others not subject to investigation. 

BRB said it always conducted its activities in line with applicable compliance and transparency standards. The public lender added that more than R$10bn of the assets referred to had been substituted or liquidated, and that the remainder had no direct exposure to Banco Master. The Brasília-based group also said it had commissioned an independent investigation, “reinforced internal controls” and was a creditor in the liquidation process.

As Master is wound down, the central bank has said there is no wider systemic risk. With 1.6mn investors holding Master’s fixed-income products, the guarantee fund expects to disburse R$41bn — about a quarter of its total assets. The bill will be picked up by the rest of the banking sector.

Although the actions of the central bank were hailed by some as proof of its independence, others said the watchdog should have acted sooner and called for reforms to prevent gaming of the deposit guarantee fund.

As the portfolio manager Nobre put it: “Master found a loophole and acted according to the system’s incentives to gain.”