Coronel: Venezuela's Latest Half-Billion Dollar Scandal
Over $500 million of PDVSA Workers' Retirement money seems to be missing. Two of the three people arrested by the SEC and FBI have now pled guilty. The latest was Juan Carlos Guillen Zerpa, an accountant in Venezuela who the SEC says was paid $1 million to fake cover for $275 million in missing funds. "Guillen was not a lowly accountant, " says former PDVSA Director Gustavo Coronel. "He was the Head of BDO Guillen, Martinez & Asociados, the Venezuelan affiliate of BDO International, the world’s fifth largest international accounting and financial consulting firm."
By Gustavo Coronel
A May 4, 2011 newspaper report in the Stamford Advocate brought news from Bridgeport, Connecticut about a Venezuelan accountant admitting in federal court to his role in a Ponzi scheme that “cost investors in a Stamford-based hedge fund hundreds of millions of dollars over five years.” The accountant was identified as Juan Carlos Guillen Zerpa, 44, and the fund was the Stamford-based Michael Kenwood Fund. Guillen plead guilty to one charge of conspiracy to obstruct of justice by defrauding the Securities and Exchange Commision.
In Connecticut, the name of Juan Carlos Guillen is not a household word and the fraud, although very significant, sounds like a local affair. However, in distant Venezuela, this is developing into one of the many major financial scandals connected with the Hugo Chavez government and Petroleos de Venezuela (PDVSA), the Venezuelan-owned state petroleum company.
The essence of the story is as follows, as described in the WARRANT FOR ARREST DOCKET NUMBER 3://mj 31(w/&)of the District Court of Connecticut: “This is a fraud scheme occurring in Connecticut and elsewhere from approximately 2006 to 2011 to defraud investors and creditors of various hedge funds advised by these and related entities. Part of the investigation is focused on a person who will be referred to herein as a confidential human source (the "CHS") [known to be Venezuelan principal owner of the funds, Francisco Illaramendi, who turned State's Evidence], Guillen and others, including a former Venezuelan banker living in Florida who will be referred to herein as the "Middleman."
Guillen, the Middleman and others all participated in a conspiracy to falsify an asset verification letter on behalf of STLF that purported to verify that Illaramendi’s Short term Liquidity Fund [STLF] was owed money by various Venezuelan companies. The letter attested that the loans in total amounted to at least approximately $275 million, when the CHS, Guillen and the Middleman all knew that no such loans were owed to STLF.
The letter, which will be referred to herein as the "Fictitious Asset Verification Letter," was false.
The conspiracy included providing the Fictitious Asset Verification Letter to the SEC in the course of its official investigation. The co-conspirators also caused the Fictitious Asset Verification Letter to be supplied to the business advisers appointed by the district court in connection with a civil suit filed by the SEC and styled SEC v. Illarramendi , et al., 3:11-cv-00078 (JBA) (hereafter, the "SEC Action")”).
What makes this fraud a major scandal in Venezuela has to do with six main aspects:
(a), The money defrauded by the Funds essentially belonged to the Employee’s Pension Fund of Petroleos de Venezuela, some $500 million;
(b), This fraud had been going on from 2006 to 2011, six long years, under the very eyes of the Board of Petroleos de Venezuela that, by statutes of the Pension Fund, is obliged to approve every movement made regarding the investment of the money;
(c), the Pension Fund was under the direct responsibility of Petroleos de Venezuela’s Finance Director, Eudomario Carruyo, who is well-known to the principal owner of the hedge funds, Francisco Illaramendi; (d), Illaramendi had, in fact, been retained by the Venezuelan Petroleum company in 2004 to oversee the management of the pension fund, precisely the year the fraud started;
(e), the president of the state-owned petroleum company, Mr. Rafael Ramirez, has inexplicably denied that the Board of the company had any involvement in how the pension fund was managed; Mr. Ramirez also inexplicably denied that Mr. Iallaramendi had ever any relation with the company, when, in fact, he had been hired by the company in 2004;
(f), the “accountant” mentioned in the Connecticut press is far from being an ordinary accountant. He is a Managing Partner of BDO Guillen, Martinez & Asociados, the Venezuelan affiliate of BDO International, the world’s fifth largest international accounting and financial consulting firm.
In their website, this Venezuelan affiliate of BDO describes its philosophy of doing business as follows: “ In the ever-changing business world, it is important to have the services of reliable professionals, prepared to develop creative solutions to a wide variety of economic situations. That is why BDO Guillén Martínez & Asociados is always striving for the total satisfaction of its clients, by offering them high-quality professional services with a highly trained staff employing the latest methods”. Guillen proved to be very creative, indeed, and no doubt employed the latest methods.
We are not suggesting that BDO International had anything to do with this disgraceful affair. This could well be a personal initiative of Guillen with no relation to his company. What this scandal shows is that Venezuela has become a moral cesspool, not only restricted to the public sector but to the private sector as well. Money is dancing like a devil in Venezuela, without control, without accountability. Those who are well connected with the regime have thrown the moral compass by the side. What prevails today is a dance of million promoted by a despot.
Venezuelan justice will not move a finger. Fortunately, U.S. justice will.
Gustavo Coronel was on the Board of Directors of PDVSA from 1976 to 1979. He was Chief Operations Officer (COO) and acting CEO of the Corporacion Venezolana de Guayana (CVG), the $35 billion Venezuelan government conglomerate designed to exploit and run all of Venezuela's mineral, metal and mining operations, from 1994-1995. He was President of Puerto Cabello -- Venezuela's main port -- from 2001 to 2002.
Coronel was author of the Cato Institute study "Corruption, Mismanagement and Abuse of Power in Hugo Chavez's Venezuela" and was the Venezuelan representative to Transparency International from 1996 to 2000. In 1994, he founded Pro Calidad de Vida, an NGO promoting anti-corruption techniques in government and civic education for children in Venezuela, Panama, Paraguay, Mexico and Nicaragua.