Hungary's State Audit Office (ASZ) has filed a criminal complaint over multiple suspected offences related to the financial management of the foundations controlled by the National Bank (MNB). A new 373-page report published on its website reveals major mismanagement of public funds, lack of oversight, and questionable investments.

Investigative news site Direkt36 leaked the main findings of the report a few days earlier claiming that serious financial mismanagement by MNB foundation led to hundreds of billions of forints of losses and that billions ended up benefiting the son of the recently departed central bank governor Gyorgy Matolcsy and his close associates.

The business circles aligned with Adam Matolcsy have also reaped huge profits from real estate investments by MNB foundations and its asset manager Optima, including the "wasteful" reconstruction of its headquarters.

Following the expiration of Gyorgy Matolcsy's 12-year mandate as MNB governor, his successor, former finance minister Mihaly Varga, promptly initiated sweeping personnel changes at the bank and promised an inquiry into the opaque operation of MNB foundations.

At a recent press conference, Varga said he would examine "all legal avenues" concerning the last-minute transfer of ownership of Optima to an equity fund tied to an associate of Adam Matolcsy. The transaction took place on February 28, the last day before Gyorgy Matolcsy's mandate expired.

The audit focused on the Pallas Athene Domus Meriti Foundation (PADME) and its asset manager, Optima Befektetesi, which controlled nearly HUF500bn (€1.25bn) in assets, a significant portion of which came from public funds.

Optima Befektetési was set up to ensure professional management of the funds, support investment decisions, and oversee foundation-owned properties. Initially, PADME bought government bonds but following 2016 they began gradually selling them off to comply with ECB regulations which prohibit central banks from directly financing the state through bond purchases.

The asset management and investments were conducted via an opaque corporate and investment structure comprising directly or indirectly owned companies and private equity funds. This setup, according to the report, made it nearly impossible to accurately assess the actual value of the assets.

The report also scrutinises Optima's acquisition of Polish property company GTC, which, by 2024, had paid more than HUF40bn for ten properties tied to business interests associated with Gyorgy Matolcsy and his close ally, Balazs Szaraz.

The report criticises the decision-making process as well. The board of trustees approved the acquisition of GTC shares within a few hours, based on a "highly flawed preparatory document that failed to properly assess risks and expected returns", the ASZ report notes.

Until 2024, the MNB's management did not exercise effective oversight over the foundations or Optima.

The ASZ report highlights the role of private equity funds in managing the foundation's assets, concluding that an extremely complex, cross-border corporate network was constructed without any rational justification. The use of private equity funds may have been aimed at concealing investments from public scrutiny, it added.

In a key finding, the report noted that Optima issued bonds worth HUF814bn between 2021 and 2023, with valuations exceeding their true market worth. This alone may have caused up to HUF150bn in losses.

The report also highlights the controversial renovation of the MNB's HQ in central Budapest, which cost HUF82bn, almost 1.5 times the original cost estimate. The lucrative contract was awarded to the business associates of Adam Matolcsy.

By early 2024, the foundation was facing a severe liquidity crisis. In a letter dated January 18, the supervisory board warned Matolcsy that "the foundation's ability to fulfill its purpose and remain solvent is in immediate jeopardy."

According to a recent investigative report by Valasz Online, Adam Matolcsy allegedly issued instructions for the MNB-managed investment fund under the alias "Petra Kovacs".

The opaque operation of MNB foundations has been known for a long time. Reports by independent media have detailed the astonishingly lavish lifestyle of Adam Matolcsy and his associates, including extravagant spending and overseas property acquisitions, raising serious questions about the use of public funds.

In a recent television interview, economist Peter Rona, a former member of the MNB's supervisory board, claimed that he had filed a report on the suspected financial misconduct at the foundations to House Speaker Laszlo Kover and Fidesz a decade ago, but no action was taken.

Matolcsy has not publicly responded to the findings, and the MNB did not issue a statement over the ASZ inquiry.