Archive for March 1st, 2011

PDVSA, its Pension Funds and the SEC freezing a US Investment Fund

March 1, 2011

This post dedicated to Setty. My friend, if this stuff was fiction, nobody would believe it…

I will not bore you with the details, Setty has done an outstanding job in covering (and uncovering!) them, but basically a fund in the US, a very capitalistic hedge-like fund, is halted from operations by the SEC. It turns out that 90% of the money in the fund is money from PDVSA’s employee pensions funds. Then, it turns out that the fund was involved in illegal foreign exchange operations. But with whose money?  PDVSA or the PDVSA pension funds? And when the investment funds are stopped from functioning, two private companies in which the funds invested (the very reason for the SEC intervening) need money that was coming to them, but the money is trapped in the funds.

Who comes to the rescue?

None other than PDVSA, who is willing to “help” on demand, just like that

So, what gives?

The funds are managed by a Venezuelan, Francisco Illaramendi, who acted as an adviser to PDVSA in the past. But these days, he seems to be a vehicle for PDVSA acting. Except that initially PDVSA was hiding behind its pension funds. Or so it seems.

This leads me to ask a simple question: Who was PDVSA acting for, the funds or PDVSA? Who made money from the deals, PDVSA or its employee funds? Why did the funds invest in a company developing small nuclear reactors? Was Illaramendi simply acting on PDVSA’s orders? How was he being paid? (Other than getting US$ 482 million into his funds)

The funny (not funny ha, ha, just weird) thing is that Minister Ramirez said last week in the National Assembly that PDVSA had nothing to do with the managing of the funds. Union workers and pensioners say they have seen no information on how the funds are managed for years, ever since PDVSA’s Treasury Depratment took over its management.

And Ramirez looked very uncomfortable answering these questions. And he should. What the funds/or PDVSA/or Illaramendi were doing was simply illegal in Venezuela and the details of the flow of money could be even more illegal.

But nobody knows. Nobody answers, nobody says anything. Nobody questions it. The Comptroller is nowhere to be seen. Ditto the Prosecutor.

But this memo from the fund’s lawyer shown by Setty is simply priceless, almost as good as a suitcase with $800,000 in cash, opened at customs in a Buenos Aires airport.

It reads:

“As MKG has indicated, in order for STLF (Short Term Liquidity Fund) to conduct Venezuelan currency transactions in the permuta market, it must furnish its own Bolivars…”

Except the permuta market has been illegal since May, so what the hell is this lawyer talking about?

but then, this same memo, dated Jan. 04th. of this year says:

“MKG has stated that the Bolivar providers need to be paid, in no small part to assure that they will be willing participants to future transactions requiring Bolivars”

This says, we have been involved in transactions which are illegal in Venezuela and need to pay our counterparties in order to keep participating in them.

And PDVSA was right in the middle of things. And this is all managed from PDVSA’s Treasury Department and PDVSA’s pension fund contributed 90% of the money to the investment fund.

Not clear enough for you? How about:

“STLF purchased Bolivars from non-US participants at an agreed exchange rate, to be paid at this point in the transactions”

Jeez, last year in May, the Chavez Government shut down 46 brokers and jailed people who were doing legal transactions and banned currency exchange transactions and these guys are doing them now, with PDVSA money to boot?

As far as I know, the only country that trades and accepts Bolivars is Venezuela, where any of these transactions is illegal. Where do these Bolivars flow? In Belaruss? Or Zimbawe? Or is it Lybia? I bet it is more likely to be in Caracas.

And PDVSA is in the middle of all this?

No wonder Ramirez and Giordani talked openly about lowering the parallel market! They are apparently running it!

The revolution never ceases to amaze me!

(P.S. And don’t forget, these same funds invested US$ 1.15 billion dollars in the PDVSA 2017 bond earlier this year. Add it up: US$ 1.15 billion plus 482 billion is 1.632 billion. How much money do these funds have? Is this the revolutionary idea of “diversification”?)

Lonely at the top for Hugo Chavez

March 1, 2011