The Rosemont Saga and the local swap market

March 28, 2009

While I thought that the Rosemont story would go away fast, the more that one learns, the more one realizes that this story has legs and will be around for quite a while. Finally the MSM realized that this was not simply that the DEA caught Mr. Vyasulu during a wire transfer via Rosemont to or from an account related to money laundering, but that the DEA set up a sting operation against him and as can be read in the indictment: “involving property represented by a law enforcement officer to be proceeds of specified unlawful activity…”. That is, a DEA agent presented himself to Mr. Vyasulu and told him the funds came from an illegal activity, drug trafficking and he agreed not to reveal the deatils which is obviously against the law. Since these sting operations are not set up at random, I have no doubt that there was a suspicion that justified this and the authorities simply wanted to have a clear cut case before they moved on it.

And while Mr. Vyasulu made the transfer via Rosemont, of which he is a principal, the only action so far has been against him personally and the freezing of Rosemont’s  accounts. But I am sure, there will now be a long process of investigating all of the accounts and looking at all suspicious transfers that originated the sting operation. Whether the suspicions had or not something to do with Rosemont’s business in Venezuela is hard to tell, but we will know more in the next few days, as more announcements are made.

Because Rosemont was definitely acting as something more than a simple money or fund transmittal service which is oriented to small amounts and certainly does not usually have the elements of settling accounts between account holders and the like. Rosemont was being used both as a bank and as a settlement system at the simultaneuously and this is clearly not within the scope of Florida legislation for money transmittal. In fact, Florida legislation states that any funds received have to be transferred out within ten days of receipt, which means that Rosemont had to be very careful to have all account holders remove funds periodically to be in compliance with this. And this money transmittal business was intended by the legislator to be used for smaller amounts, as it required the funds to be held in deposit in sub-accounts at “FDIC protected” institutions. Since up to last summer this protection any extended to US$ 100,000, it is clear that this type of license was not meant to be used for moving the large amounts that have been reported.

But if the El Nacional reporter was able to spot the sting operation, the small headline in the front page is absolutely wrong: “Local dollar swap market continued suspended”. I don’t know where they got this information, but the market was functioning Friday. In fact the reporter could have checked either bonosvenezuela or Venezuelafx and noted that prices were changing and had changed  during the day. Obviously the market was not as active, after all, 40% of the participants had funds in Rosemont, but prices were changing because someone must have been trading something. In fact, the same article quoted other news sources out of context, telling you how far the reporter went in getting the information.

And I am sure by Monday the market will be even more fluid.

And there is no doubt in my mind that this Rosemont Saga will not stop here and we will revisit the topic in the next few days.

10 Responses to “The Rosemont Saga and the local swap market”

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  2. moctavio Says:

    Yes, I meant Fincen. Yes, you are not required to register, but then you can’t do third party transfers the way that people were doing it via Rosemount. The person selling the security in the swap has to be the person receiving the funds. You seem to forget we have a bank too in Pto. Rico.

  3. Xiphias Says:

    M: Did you read point 32 of the DEA declaration in Venepiramides? It says that Vyaluzu is a criminal, and since he is the President of Rosemont, it was assumed that he owned and controlled all the companies that had sub-accounts with Rosemont, which looks like a very long shot to me. With respect to the regulatory aspects, I think you are confused, FINRA has nothing to do with bank accounts, money transmitters or other money services businesses, you might have meant FinCEN, however, broker-dealers without operations in the US (just a bank account) are not required to register with FinCEN according to FinCEN itself. A completely different case is your case, because you have a settlement/clearing agreement with a US broker-dealer (e.g. Pershing), and in those cases it is mandatory. In addition, it seems that the definition of Money Transmitter (by FinCEN) excludes broker-dealers: “the acceptance and transmission of funds as an integral part of a transaction other than the funds transmission itself (for example, in connection with a sale of securities or other property), will not cause a person to be a money transmitter.” Be well.

  4. moctavio Says:

    Funny, you dont even give real emails, how would you know if I replied?

  5. moctavio Says:

    Yes, the daily details have been covered by Venepiramides more extensively than I can and I dont see it like you as two parts. In fact, the Makled charges were filed the same day as the Caracas International charges.

    What is new, is that in early November 49 accounts were confiscated, but the Court does not say why, until they do there is little new to write. However, the largest of these account belonged to Rosemount and many of those frozen also were in Rosemount. While the accounts in Rosemount have been “thawed” this is not strictly right, all of those participating in Rosemount were violating FINRA rules and will be fined before given their money back. So, it is hard to write something nright now, I am waiting for the final chapter which is likley to be the shut down of the bank of Nogueroles in Pto. Rico.

    But Vaysulu was as responsible as the other ones. As for the banker on the Board, first I hear that part of story and I would not write about it, as I dont really know those details.

  6. Xiphias Says:

    At the end, it was a Venezuelan banker with an offshore bank in Puerto Rico the one responsible for the mess. And Makled’s banker still sits on the Board of the Vzlan bank!!!. I am not saying that Vyaluzu is not a criminal, but the Makleds did not have bank account w/ Vyaluzu, and it was not Vyaluzu the one who ordered to wire the funds from the Makleds’ account to Heptagon’s. Was it… Jorge? Your silence with respect to the most recent developments in Puerto Rico is not consistent with your incisiveness when it comes to financial/economic matters, in particular after you initial dissertation about Rosemont and Money Transmition. Any particular reason?

  7. Megalops Says:

    Some interesting information:

    It seems everything started with a Bank in Venezuela with close ties with a local broker-dealer both with close ties with a Bank in Puerto Rico that was acting as something more than a simple off-shore bank, all of them with something more than regular clients.

  8. Megalops Says:

    Miguel: Try to get hold of the PR Warrant. It presents a very clear picture.

  9. expaticus americus Says:

    Ken, perhaps reading “Narco-Dollars for Dummies” might be in order. You’d learn a lot and develop a fuller understanding of this situation:

    The photo of Richard Grasso (Chairman of the New York Stock Exchange) in Colombia meeting with the leadership of the FARC is worth it’s weight in gold, and generates a lot of reasonable questions that most leaders in the US would rather not answer.

    Then too, this article offers some insight that helps the lay-person understand how the financial system in the US really works:

  10. Ken Price Says:


    Any time drugs come into the USA, money flows back. There are fewer money shipments than there are shipments of drugs, so the DEA finds it easier to choke off the flow of funds than the flow of drugs. The thought seems to be that if the drug dealers can’t be paid, the economic incentive to send drugs goes away. Pretty hard to argue with that line of thinking. Besides, eventually, you have to deposit the money in a bank, and that’s when it pops up on the DEA radar screen.

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