MIAMI -- Florida resident Juan Carlos Horna Napolitano was sentenced by United States District Judge Stefan R. Underhill in Bridgeport, Connecticut to 14 months imprisonment, followed by two years supervised release, for his role in conspiring to obstruct a Commission investigation relating to Francisco Illarramendi, a Connecticut hedge fund advisor, who is charged with running a $500 million Ponzi-scheme using Venezuela's state oil company PDVSA's Pension Fund. Horna Napolitano was also ordered to forfeit $935,000.
Last month, Judge Underhill had also sentenced a Venezuelan accountant, Juan Carlos Guillen Zerpa, for his role in the conspiracy to obstruct the Commission’s investigation. On December 14, 2011, Guillen Zerpa was sentenced to 14 months imprisonment, followed by two years supervised release and ordered to pay a $10,000 fine and to forfeit $315,000. Guillen Zerpa had been the head of the Venezuela affiliate of international accounting giant BDO when he agreed to a payment of $1 million dollars to create a letter fraudulently accounting for $300 million in missing PDVSA funds for Horna Napolitano and fund head Illarramendi.
Separately, on December 15, 2011, the Commission issued an Order suspending Guillen Zerpa forthwith from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice. Guillen Zerpa had been licensed as a certified public accountant in the Bolivarian Republic of Venezuela since 1989.
In January 2011, the SEC charged Illarramendi with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. On March 7, 2011, Illarramendi pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC. He is awaiting sentencing. On August 3, 2011, the Commission issued an Order by consent barring Illarramendi from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
“The U.S. Attorney’s Office, FBI and our Connecticut Securities, Commodities and Investor Fraud Task Force are committed to the aggressive investigation and prosecution of individuals who attempt to obstruct the SEC and its critically important mission of protecting investors and the integrity of American capital markets,” stated U.S. Attorney Fein.
According to court documents and statements made in court, Francisco Illarramendi of New Canaan, Conn. acted as an investment adviser to certain hedge funds. In approximately 2006, one hedge fund he advised lost millions of dollars of the money he was charged with investing. Rather than disclose to his investors the truth about the losses incurred, 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. As part of the scheme, Illarramendi and others created fraudulent documents, including a fictitious asset verification letter falsely representing 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, when Illarramendi and others knew it did not have any such credits.
Guillen is a resident and citizen of Venezuela who was the managing partner of the Venezuelan accounting firm which was the local affiliate of BDO, the world’s fifth-largest accounting network. In late 2010, Guillen agreed to prepare the asset verification letter that would falsely indicate that the STLF had made outstanding loans to Venezuelan companies. Juan Carlos Horna Napolitano, 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.
In approximately January 2011, Guillen executed the false asset verification letter and sent it by e-mail to Illarramendi. Thereafter, Guillen and Horna learned that the false asset verification letter had been supplied to the U.S. Securities and Exchange Commission (“SEC”), and that the SEC had initiated a civil action against Illarramendi and others (SEC v. Illarramendi, et al., 3:11-CV-00078). 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, Horna and others sought to create fraudulent documentation to falsely support the information contained in the letter. Guillen also participated in a telephone call with representatives of the SEC in January 2011 in which he intentionally misrepresented that the assertions in the asset verification letter about the existence of the hedge funds’ assets were true, when he knew they were false.
Guillen expected to receive approximately $1 million for his willingness to sign the false asset verification letter. Horna maintained control of a Florida bank account in the name of Jeislo Real Estate Investments, LLC. In furtherance of the conspiracy, Illarramendi caused two transfers of funds in the total amount of $1.25 million to be made into this bank account. As partial payment for Guillen’s services in this conspiracy, Horna transferred $250,000 to a third party for the benefit of Guillen.
In a letter to the Court, David E. Bergers, Regional Director of the SEC’s Boston Regional Office stated, “...the Defendant’s conduct delayed the Commission staff’s detection of a very serious financial fraud. It also resulted in the Commission staff expending additional government resources to uncover the fraud via other methods. We consider this kind of misconduct, especially by industry professionals such as the Defendant, to be particularly damaging to investors, to our capital markets and to the Commission’s investigative mission.”
Guillen and Horna were arrested by FBI special agents on March 3, 2011, in Florida. On May 4, 2011, Guillen pleaded guilty to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission. Horna pleaded guilty to the same charge on May 19, 2011.
On March 7, 2011, Illarramendi pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC.
Illarramendi -- who could face 70 years -- 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.3/7/2011 US Charges Venezuela PDVSA Pension Fund Manager with Running Ponzi Scheme
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