CARACAS -- Juan Carlos Guillen Zerpa, 44, the Venezuelan head of the Venezuelan affiliate of BDO, the world's fifth largest accounting and consulting firm, pled guilty in a plea bargain to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission (SEC), over a fake $275 million asset verification letter he was paid $1 million to execute by Francisco Illaremandi, a Venezuelan investment adviser who ran Michael Kenwood Asset Management.
According to the SEC, a large part of the US$500 million managed by Illarramendi has apparently been lost. llarramendi lived in New Canaan, Connecticut and ran several hedge funds that handled money for Venezuelan state oil company Petroleos de Venezuela (PDVSA) worker retirement funds.
In 2006, one hedge fund he ran lost millions of dollars and rather than disclose to investors the truth about the losses, Illarramendi intentionally chose to conceal this information by engaging in a long-running scheme to defraud and mislead his investors, creditors, and the SEC to prevent the truth about the losses from being discovered.
According to some people familiar with the investigation, there is some evidence that some of the money may have been missing before PDVSA ever handed it over to Illaramendi's funds.
As part of the scheme, Illarramendi got in contact with Guillen (and others, still awaiting trial) and created fraudulent documents, including a fictitious asset verification letter falsely saying that that one of the hedge funds, the Short Term Liquidity Fund (STLF), had at least $275 million in credits as a result of outstanding loans to Venezuelan companies, when Illarramendi and Guillen knew it did not have any such credits.
Guillen is a resident and citizen of Venezuela, and he was the Managing Partner -- as well as being a name partner -- of BDO Guillen Martinez and Associates, the Venezuelan affiliate of BDO, the world's fifth largest accounting and consulting firm.
According to the FBI and SEC, in late 2010, Guillen agreed to prepare the asset verification letter that would falsely state that the hedge fund had made $275 million in outstanding loans to Venezuelan companies. A co-conspirator still awaiting trial then worked with other persons to create a fraudulent list of loans and to incorporate this list in the asset verification letter to be signed by Guillen.
According to the FBI, in January 2011, in his role as accountant and head of the local affiliate of major international accounting firm BDO, Guillen executed this fictitious asset verification letter for $275 million and sent it to Illarramendi.
When the U.S. Securities and Exchange Commission began investigating the gaps at the hedge fund, in an effort to deceive and mislead the SEC and to prevent the SEC from learning during the civil action that the asset verification letter was false, Guillen, Illarramendi and others sought to create fake documentation to falsely support the fraudulent letter.
Guillen then also participated in a telephone call with representatives of the SEC in January 2011 in which he intentionally lied that the fake $275 million asset verification letter was accurate and true, when he knew they were false.
"Guillen expected to be paid $1 million for his willingness to sign the false asset verification letter," said the FBI. "As partial payment for his services in the conspiracy, a co-conspirator sent $250,000 to be transferred to a third party for the benefit of Guillen."
Guillen faces a maximum term of imprisonment of 20 years and a fine of up to approximately $2.5 million. He has also agreed to forfeit the $250,000 to the government. U.S. District Judge Stefan R. Underhill who took Guillen's guilty plea, has scheduled sentencing for July 22, 2011.
Guillen has been detained since his arrest by FBI special agents on March 3, 2011, in Florida. After posting a $1.35 million bond and pleading guilty, Guillen was released into home confinement under electronic monitoring. He will be confined to an apartment in Miami, Florida while awaiting sentencing.
On March 7, 2011, Illarramendi waived his right to indictment and pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment adviser fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC. He awaits sentencing.
This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Senior Litigation Counsel Richard J. Schechter and Assistant U.S. Attorney Paul A. Murphy.
“The U.S. Attorney’s Office, FBI and our Connecticut Securities, Commodities, and Investor Fraud Task Force partners will pursue aggressively individuals who attempt to obstruct the SEC and its critically important mission of protecting investors and the integrity of American capital markets,” said David B. Fein, the United States Attorney for the District of Connecticut.
Fein also acknowledged the substantial assistance provided by the U.S. Attorney’s Office for the Southern District of Florida.
None of the other partners in BDO's Venezuelan office -- Rafael J. Gonzalez O., Jose Martinez, Alfonso Jauregue, Carlos Benitez, Humberto Briceno Leon, Alejandro Silva Febres, Rafael Simon Arocha Urbina and Jose Armando Mejia Betancourt -- have been implicated or charged, but the company's website has been shut down.Gustavo Coronel: Venezuela's Latest Half-Billion Dollar Scandal
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