Altice employees raised red flags years before corruption probe

Billionaire Patrick Drahi said he was shocked and disappointed when he learned last summer that a handful of business associates, including his right-hand man, had been arrested as part of an expanding corruption probe that threatens to unravel his Altice telecommunications empire.

Even so, staff, unions and outside consultants had voiced concerns for years about the company's relationships with some of its biggest vendors, according to more than a dozen people, including current and former employees, as well as meeting transcripts, correspondence and an audit report reviewed by Bloomberg. Altice executives at the highest levels were informed of loose governance, potentially rigged bidding on contracts and alleged nepotism linked to Armando Pereira, according to the documents and the people, many of whom asked to remain anonymous to discuss private information.

Pereira, who co-founded Altice with Drahi in 2002, is at the heart of the three-year-long Portuguese investigation that was made public last July, and its fallout has spurred internal investigations throughout the company, touching executives around the world. So far, four people have been arrested and about 15 employees have been suspended by the company as a result of the probe, which centers on alleged efforts to rig the group's local procurement process. Pereira has been accused by prosecutors of laundering money, accepting kickbacks and committing tax fraud, and is currently under house arrest. His lawyers have said he's the victim of a trial by the media which has found him "guilty in public opinion" and that the "reality is not so simple," according to a statement issued in July. They declined to give further comment for this story.

Zed Jameson/Bloomberg

The investigation comes as Drahi has put large swaths of the Altice empire up for sale as it struggles to finance $60 billion of debt accumulated through years of acquisitions. The Portuguese probe has weighed further on Altice's bonds and stalled the sale of assets including European data centers. The investigation is ongoing in Portugal and could take years to resolve. French and U.S. authorities could potentially also open similar probes, people familiar with the matter have said.

Pereira, a former chief operating officer of Altice Europe, has long held influential roles in the business, including responsibilities for the technical side of operations and heading procurement. 

Concerns about Pereira first started emerging shortly after Drahi installed him as executive vice president of French wireless carrier SFR, which Drahi bought in 2014 and eventually became Altice France. Members of the CFDT trade union confronted Pereira in 2017 at an official works council meeting, attended by the company's chief executive officer and human resources representatives, about allegations that he awarded contracts to companies he or family members owned in decisions that bypassed the usual chain of command, according to a transcript of the meeting. 

They also described Pereira's "systematic interference in decision-making," "financial opacity" and "confusion between personal interest and the company's social purpose," according to the transcript. 

"We asked him if he was going to work in the interest of the company or his own interest," recalled CFDT representative Olivier Lelong in a recent interview. An Altice representative declined to comment on the meeting.

'Fraud risk'

Auditor Deloitte raised additional concerns in 2019 in an annual report for Altice Europe, which included the French and Portuguese operations and was publicly traded until Drahi took it private in 2021. 

The report pointed to "fraud risk" related to how management could override internal controls put in place to prevent corruption, including the ability to make "manual adjustments" to transactions outside of the established billing system. 

Deloitte emphasized this in a letter to the board the same year, without mentioning specific executives, describing "significant deficiencies in internal control," including the ease with which individuals could manipulate accounting records. 

Altice said these are common risks identified by auditors and that Deloitte ultimately gave a "clean" opinion on the financial statements. The company later replaced Deloitte as its auditor with KPMG International. The decision was questioned by shareholders, with one asking in a meeting whether it was because of how "pointed" Deloitte was in its assessment of governance issues at the company, according to minutes from the meeting.

Altice USA 

On the other side of the Atlantic, employees at Altice USA also raised concerns about the company's procurement process long before the Portuguese probe began. A handful of vendors kept winning contracts to build new fiber networks despite not always offering the best value or quality of work, according to people familiar with the matter. Some senior employees who complained to managers about the unfairness of the procurement process were pushed out of the company, the people said. Altice didn't respond to the specific allegation. 

The Long Island City, New York-based company was formed from Altice's 2015 acquisitions of Suddenlink and Cablevision, which created the fourth-largest U.S. cable operator and helped fulfill Drahi's vision of a cross-Atlantic cable giant. The company was publicly listed in 2017 and the following year was spun off, although Drahi's holding company maintains a stake. 

In response to the Portuguese investigation, Altice USA launched its own internal probe, suspended some supplier and vendor relationships and sidelined several executives with ties to the parent company. 

Yossi Benchetrit, who is Pereira's son-in-law and was head of procurement at Altice USA, was fired in August after he declined to engage with the company's investigation. Senior vice president of procurement Roberto Martinez was suspended, while Chairman Alexandre Fonseca, who ran the Portuguese business at the time of the alleged criminal activity, stepped down. Some of the vendors, including Excell Communications — Altice USA's largest network construction supplier — and Genesys USA, were allegedly financed or run by individuals named in connection to the probe by the Portuguese prosecutor's office or in local media reports.

Benchetrit and other senior members of Altice USA's procurement team pressured employees to pick Excell over other suppliers, including in states where it didn't have experience, after it was bought by Portuguese holding company Dunas de Contrastes in 2018, according to people familiar with the matter. Dunas is owned by Hernani Vaz Antunes, a businessman and close associate of Pereira's who is also under house arrest as part of the Portuguese corruption probe. 

Antunes told prosecutors in July that he made payments to individuals including Benchetrit, Fonseca and Hakim Boubazine, former chief operating officer of Altice USA, to ensure that his own companies won contracts, according to Portuguese newspaper Publico.A lawyer representing Benchetrit declined to comment, but pointed to a previous statement highlighting that his client hadn't been summoned for questioning in any jurisdiction. Boubazine and Fonseca didn't respond to requests for comment. Antunes' lawyer declined to comment.

Jack Martins, independent legal counsel for Excell, said the company won business with Altice USA on merit and had successfully installed about 25,000 miles of cable over the last three years.

"We are currently reviewing our supplier and vendor relationships and proactively pausing some capital spend until we have completed the investigation," said Lisa Anselmo, an Altice USA spokeswoman. "We believe that we have taken the prudent and necessary steps, and the findings from our internal investigation and the investigation itself have not had a meaningful impact on our business," she added.

She declined to name the suppliers with whom Altice USA had cut ties.

In February, Altice senior director of procurement, Glenn Cisek, wrote an email to construction suppliers, which was seen by Bloomberg News, telling them they could no longer work directly with Altice. Instead, the suppliers were required to subcontract with Excell or one of two companies owned by Genesys USA.

Little experience

Genesys was set up by Boubazine after he resigned from Altice in September 2021 with a $500,000 separation payment, according to a securities filing. He and business partner Denis Ryzhikov bought two of Altice USA's construction suppliers, AM Communications and Scott Fennell Inc., and incorporated Genesys USA in October 2022 — just months before it became a prime contractor to Altice.

The decision to award prime contractor status to a company with so little experience was unexpected and confusing to the employees building out the network, said people with direct knowledge of the situation.  

Boubazine and Ryzhikov didn't respond to several requests for comment.

Despite not holding an executive role at Altice USA, Pereira was very hands-on with the fiber rollout, said people familiar with the matter. He would show up to construction sites across the U.S. and order teams to use a specific "figure-8" technique for attaching cables to poles that is common in Europe but not typically used in the U.S.In a 2018 presentation about Altice group's structure, Pereira is listed on a slide titled "Altice USA Dedicated Management Team" in the role of "strategic advisor for all operations."

Altice USA's Anselmo said Pereira had never had an "active role with any executive responsibilities" at the company.

Crisis as opportunity

In 2020, a senior employee at Altice France invited five companies to bid for a contract to supply data center containers. It was something he'd done many times before for larger contracts, but this time he was reprimanded by his boss and by one of the potential suppliers, Huawei Technologies Co., according to people familiar with the matter.The Chinese company, which had been placed on a U.S. blacklist in 2019 that curtailed its access to critical U.S. suppliers, had already been promised the job, the people said. The employee considered the deal unfair and the following month was fired for "serious misconduct," which human resources attributed to his organizing of the competitive procurement, according to the UNSA union, which supported the case. The employee sued Altice France for unfair dismissal and they settled out of court, according to UNSA. An Altice representative declined to comment on the case.

In September, the French union CFDT wrote a letter to Drahi, seen by Bloomberg News, outlining how its members had "warned of the dysfunctions caused by the use of service providers directly or indirectly linked to shareholders" since Altice took over SFR eight years ago. 

"This crisis is an opportunity to completely rethink corporate governance, management methods, social dialogue and value-sharing mechanisms within the group, in order to restore meaning and recognition," the union said.Drahi will respond to union representatives in person for the first time since the probe was announced at Altice's Paris office on Tuesday.