- XP is a Brazilian Nasdaq-listed fintech company. Our research uncovers that the company is running a massive Ponzi scheme facilitated through certain derivatives sales to retail clients, which are funneled through special funds and misrepresented as proprietary trading profits.
- At the center of the scheme is a XP fund called GLADIUS FIM CP IE (“Gladius”) that returned over 2,419% over the last five years with unbelievably low volatility.
- The returns from Gladius and its affiliated fund COLISEU FIM CP IE (“Coliseu”) are higher than XP’s earnings. Without Gladius and Coliseu, XP would be unprofitable.
- The secret to Gladius’ profitability is a product called COE which stands for Certificado de Operações Estruturadas. COEs are predatory investment products that XP pushes aggressively on its Brazilian retail clients.
- We consulted with XP formers and people from Brazil who have knowledge of Gladius’ inner workings. They confirmed to us that Gladius is unduly paying out new premiums it receives from the sale of COE products to XP as profits.
- According to XP’s former employees, the scheme only continues to work as long as XP is able to sell more COEs. As soon as the inflows stop growing the system falls apart and XP could be liable for enormous obligations it cannot meet. Insiders outright called Gladius a “Madoff-like Ponzi scheme”.
- Our suspicion that Gladius is employing nefarious means to produce its fantastic returns is strengthened when looking at other Brazilian funds in the same field. Other comparable funds from XP competitors only produce mediocre returns that are in no way comparable to Gladius’.
- Gladius is hiding behind a highly complex structure and uses a wide variety of asset classes. XP describes Gladius to function as a tool for XP’s structured business, market-making, liquidity managing and tax optimization. Only a few insiders are aware of the true nature of Gladius and the underlying scheme.
- According to our research, the magnitude of cash flow that Gladius produces cannot be explained through profitable operations alone, but it is likely to involve nefarious activities, including predominantly what XP insiders describe as a Ponzi scheme.
- The validity of Gladius’ profits is further undermined by the fact that if such profit opportunities were to exist in the Brazilian market, then other leading global liquidity providers (e.g., Citadel) would also be active players in the space. Their absences speak volumes.
- Given Gladius’ incredible returns that nobody else seems able to replicate, the insider allegations, and XP’s reliance on these returns, we believe investors and regulators should be concerned and demand answers.
Introduction
XP Inc. is a Brazilian financial services company centered on investment management, advisory and digital financial services. XP went public in December 2019 on Nasdaq in New York. XP’s financial performance, and specifically returns of some of its funds have raised doubts among investors. We believe to have uncovered the secrets to the profitability of XP’s funds.
At the heart of the matter lie the XP owned funds Gladius and Coliseu. Coliseu might generate most of its returns from its participation in Gladius.
Suspiciously High Returns
Since 2019, Gladius returned 93.3% on average per year. The most long-term successful hedge fund of all time, the quantitatively managed Renaissance Technologies only returned 39.1% on average per year.
Given the notorious struggle of funds to provide alpha without added risk, we can safely assume that Gladius’ returns have another source than genius prop trading alone.
Source: maisretorno.com
Most cited explanations for these high returns and low risk focus on Gladius’ role for XP as a vehicle to account for operational gains from market-making activities and liquidity management. Such Retail Liquidity Provision (“RLP”) funds that are tax-beneficial for the banks and brokers are common practice in Brazil. However, none of XP’s competitors‘ RLP return even nearly as much as Gladius.
The following chart shows a comparison of XP’s RLP funds with competitor funds that we identified as their largest RLP funds.
Brazilian competitors with RLP funds include regional industry giants like BTG Pactual, Itaú Unibanco, Banco Bradesco and Banco Santander Brasil that have a revenue bases and resources each about ten to thirty times exceeding XP’s. If a non-fraudulent strategy can provide Gladius-levels of returns on Brazilian liquidity, why would the giants not copy this strategy? Why are other players not moving in to participate in this highly profitable action? Our research indicates that Brazil is not a particularly attractive or profitable market for market makers.
We think the answer is that these returns come from a nefarious scheme.
Why Gladius and Coliseu Matter
XP operates six funds with net asset values of over R$ 1 billion (US$ 173 million). Only Gladius provides widely unrealistically inflated returns, and Coliseu, the next best fund, provides alpha while participating in Gladius. Only these two funds pay net nominal out to XP, their only shareholder, while XP net contributes to the realistically performing funds, as detailed in the table below.
Source: maisretorno.com, audit files via sistemas.cvm.gov.br. Retrieved on March 6, 2025.
XP seems on closer inspection highly reliant on the cash flows from Gladius and Coliseu, which exceed XP’s net income in every year since 2021.
Source: SEC filings, CVM filings
XP took value amounting to R$ 27.66 billion (US$ 4.80 billion) out of Gladius from 2020 to 2024 and Coliseu from 2021 to 2024. During this period, XP’s corporate net income was only R$ 17.52 billion (US$ 3.03 billion). Without receiving cash from these two funds, XP would have a negative cumulative net income over the last years.
The net asset value (“NAV”) of the funds peaked in 2022. From this we can infer that—whatever XP does to gain these high profits—does not scale up with NAV.
The Secret to Gladius’ Returns
We consulted with Brazilian experts, XP formers, and other people close to the matter. We were told that the secret to Gladius returns is in fact a Ponzi scheme based on a product called COE (Certificado de Operações Estruturadas). COEs are hybrid securities for private investors combining fixed and variable income assets in structured contracts, pioneered by XP and regulated since 2013. They often times promise a client guaranteed principal and some potential upside over a 3-to-5-year horizon. Initiated to service high net worth clients, COEs are now aggressively marketed to small-ticket retail clients in the post-COVID era with 1.25 million more Brazilian clients from June 2021 to June 2022.
Firstly, COEs are predatory to retail clients because their complexity is used to overprice them in hidden ways. But more importantly for XP and their Ponzi scheme, COEs bind the clients’ liquidity to XP for several years.
The Brazilian market has seen significant growth in selling and packaging these COEs, with it growing from R$8.5 billion (US$2.4 billion) in assets under management by 2016 and BRL14.2 billion (US$2.9 billion) by 2023.
According to the former insider, XP funnels the majority of its cash flows associated with COES through Gladius and COLLISEU. Insiders described to us how XP is effectively using the cash flows from COE products to run an extremely risky Ponzi scheme.
The COE Ponzi Scheme
An expert with intimate knowledge of Gladius’ strategy and with deep understanding of XP’s leadership dealings told us that Gladius and Coliseu is taking cash inflows from COE products and uses them to pay profits to XP. The secret to Gladius’ profitability is that it books cash inflows from COE products as profits. The following quotes in this chapter are a collection from our series of interviews.
“What we see with these high returns [in Gladius and Coliseu] is it’s a wrong performance metric because what we actually see is the amount of nominal inflows in cash in Brazilian currency.”
Gladius’ and Coliseu’s “high performance is not the result of the fund, but it’s because they are putting money month after month to make the wallet huge. It’s the cash flow that’s coming into the fund that makes this a big cake for everybody.”
Crucially, the expert described that the scheme necessitates ever growing inflows from COEs. He and “professors outside and here in Brazil as well, we are considering it a Ponzi scheme because the business is not growing for itself. It’s growing because XP keep capturing more [Brazilian] investors for the fund.”
“It’s kind of like Madoff. You know Madoff? Yeah, the guy kept the money. Yeah. It’s kind of the same story.”
This scheme obviously introduces enormous risks to XP and COE investors.
“The risk lies in their [XP’s] ability to continue attracting funds from Brazil. Without sufficient capital, they may struggle to meet obligations such as paying off debts or fulfilling future financial commitments.”
We learned that the company continuously is pushing and preying on retail investors to push these overpriced products onto:
“Product recycling is king! So, XP might push financial advisors to aggressively sell COEs as a safe and profitable investment and this leads to advisors earning commissions while clients roll over one COE into another often without ever seeing the promised returns. A constant flow of money without actual value creation similar to the way a Pyramid scheme operates.— There is always an optimistic narrative; the next one will be the winner and investors never sees the results.”
This means the massive outflows from Gladius and Coliseu to XP are effectively sourced from investment inputs by clients and not from operative profits or trading gains.
The Funds’ Returns Cannot Be Explained Otherwise
Insiders told us that salespeople receive 5% of a COE’s nominal as commission and the average internal profit margin after all costs for XP is about 4%. The magnitude of value outflows from Gladius and Coliseu cannot be explained by predatorily high fees for retail contracts alone. For example, in the year 2024, Gladius and Coliseu paid R$ 11.16 billion out to XP. At a net profit margin of 4%, this would imply XP sold R$ 279 billion in predatorily structured contracts to its retail clients, which is very unrealistic, because XP’s total assets under management amount to 167 billion (source: annual report 2024, p. 46) and the estimated Brazilian COE market is not much more than R$ 20 billion. This lends further credibility to the expert’s allegation that XP is running a Ponzi scheme.
Seen from another angle, we can also analyze XP’s “Results of operations with financial instruments” by observing market returns. In 2023, the average Selic rate was 13.4%, the Brazilian prime stock index, IBOVESPA, returned 21.8%, and the MSCI World also returned 21.8%. In 2023, XP had R$ 23.3B in their proprietary trading funds. (source: maisretorno.com) At a market return of 17.6% we would assume R$ 4.1B in results of operations with financial instruments, less than half of what is reported. This level of profits from alleged proprietary trading or market making seems completely unrealistic.
Source: XP’s annual report 2023
We surveyed all publicly available information with the help of AI tools, and we concluded that neither XP nor any other public source has officially revealed a convincing explanation for Gladius’ stellar overperformance.
XP Aggressively Pushes COEs on Retail Clients via Personal Advisors
XP is the leading COE provider in Brazil. XP approaches their clients over a vast network of personal advisors. Currently, XP works in the Brazilian market with a network of 18 thousand advisors. We interviewed a former investment advisor for XP, who commented on the Brazilian landscape for COEs:
“Yeah, they [BTG, Santander Brazil or Banco do Brasil] have COEs but they don’t use them much because they saw that people don’t like this kind of investment. But XP used this investment with a great storytelling, telling people why they should invest in COE. And they insist all the time. They have this kind of aggressive commercial that makes you invest with this kind of investment for pressure not because you really like it. So, they start promising a kind of percentage of return that is not normal in the market. And, unfortunately here in Brazil, people don’t have this knowledge in investment.”
Internet discussions on XP’s COEs are usually full of complaints from disappointed customers and advisors disappointed in XP. A few examples:
- “I’ve never seen anyone who talks about investments speaking well about COE. The only people I saw speaking well were the commissioned advisors who want you to invest. In fact, Rodrigo Baltar is making a series of videos showing an investment he made in XP where the advisor was not clear about the risks, he invested and now has a debt of 200 thousand reais.” (@samuelalbuquerque8015)
- “I worked at an XP investment office in 2017-2019. If there was one thing that they encouraged us to do, it was this type of structured operation. The commission was (and I imagine continues to be) absurdly higher than for all other products.” (@ramonzeraa1)
- “Dude, I used to be an advisor at XP and I joined with the idea of helping people invest better. I wanted to make a difference in people’s lives, you know? Then I saw them forcing me to push COEs on clients (because it generates an absurd amount of income for the firm) and I didn’t want to do it because I know it sucks…” (@CarlosHenrique-hl3qo)
- “Dude, do a Google search for “XP scam on client”, and in five minutes you’ll find everything you need. XP has become a scam institution.” (allansiano)
- “I have two COEs at XP, one from Morgan Stanley and the other from another large bank. Since I joined, it hasn’t changed much upwards and there are months when it’s losing to 100% CDI. I didn’t know how to analyze it, I understood that I fell for the siren song and now I have to wait until 2024/25 to withdraw and reinvest… COEs are a scam, a lot of investor risk for almost no return…” (@mauro7039)
- “What a shitty product for the customer. I have a COE from 2017. I can’t wait for 2022 to come so I can get my money back with a small profit, while the structurer made a lot of profit.” (@kyokusanagi239)
- “Very good, I understand. I was “encouraged” to invest in COE by the XP advisor, but I didn’t really understand how it worked. In one year it yielded practically nothing. Now I’ve learned! Thank you.” (@ismaelrauberschmitt7815)
- “The problem is that here in Brazil, you need to understand a little bit of everything to avoid being ripped off. You have to understand mechanics to avoid being ripped off in the workshop, electrical engineering to avoid being ripped off on the job site, finance to avoid being ripped off or ripped off. And the biggest problem is that the blame always falls on the victim.” (@DanielCastro091)
- “I entered 2 COE and gained absolutely nothing, that is designed to statistically fail.” (@danielmatos9563)
- “I’ve also had several COE offers from XP, including this one this week” (@albacampos3851)
- “Terrible!! XP deceived me with this COE 2 years ago😡” (@elf885)
(translated from Portuguese to English)
Gladius Is Hiding Behind Complexity
Annual audit reports reveal Gladius’ portfolio composition includes Treasury bills, money market holdings, fund holdings (including many ETF holding positions), corporate bonds, carbon credits, long and short positions on a wide variety of Brazilian stocks, Brazilian depository receipts and foreign stocks, stock-collateralized loans, put options, call options, cash holdings in different currencies, future contracts, swaps and other derivatives.
It is suspicious how stable Gladius’ returns are. Not only is Gladius one of the very best performing funds in the world, it also does so seemingly without the risks that are to be expected. For example, during the COVID-19-induced market turbulences on Spring 2020, Gladius never reached a negative return regime for that year, and reached pre-crash highs from March 9, 2020 within 10 days on March 19, 2020.
However, judged by the publicly announced portfolio composition, Gladius, in a stress scenario, could experience a price draw down of up to 59%. The lack of volatility indicates that the published portfolio composition does not reflect the actual holdings and profit drivers.
One must wonder again why other Brazilian broker banks’ RLP funds do not achieve returns anywhere near Gladius’.
Gladius Tries to Avoid Transparency
XP requested exemptions for Gladius from certain reporting requirements by Brazilian’s securities regulation agency CVM. Specifically, XP asked that daily and monthly reports not be published in the usual timeframe to—as XP officially claimed—prevent the early disclosure of material that makes it possible to forecast quarterly financial announcements.
This was an unusual request – effectively to keep the fund’s data semi-confidential, only updating after XP’s earnings were public. The CVM denied this request in March 2021.
We agree with the CVM that investors and customers do not suffer any disadvantage from daily fund publications that provide insights into XP’s financial performance. XP’s request is not reasonable, and we believe it is much more likely that XP asked for exemption to reduce transparency regarding Gladius for critical observers.
KPMG, Gladius’ auditor until 2021, has issued only a qualified opinion for 2018 and 2019, and abstained from an opinion for 2016, citing lack of transparency.
XP itself never mentions Gladius or Coliseu as important and they only mention COEs briefly on the Q2 2020 earnings call but stay otherwise coy about it.
Conclusion
Insider testimonies provide compelling evidence that XP is operating a Ponzi scheme, which appears to drive the extraordinary performance of the Gladius fund. No other fund in Brazil exhibits a return profile as anomalous as that of Gladius. We anticipate that XP may encounter serious challenges as investors and regulatory bodies begin to uncover its heavy reliance on a Ponzi-like structure, sustained by predatory retail products. This could lead to profound consequences for XP’s financial stability and reputation.
