Archive for March 7th, 2011

SEC charges MK funds with Ponzi Activity

March 7, 2011

Last week I wrote about the PDVSA Pension Funds and its activities investing in some fund run by Francisco Illaramendi, wondering what the relationship between PDVSA, its pension funds and the Illaramendi funds was and asking aloud whether the Government or PDVSA would ever investigate or answer these questions.

Well, today, the US Securities and Exchange Commission filed an amendment complaint in the case, which increases the need for answers from both PDVSA and the Venezuelan Government in the case.

The SEC now accuses the Funds of misappropiation and misuse of investors assets, saying that Illaramendi and MK Capital Magement have used both Funds as vehicles for Ponzi activity, paying off old investors with new investors money. According to the SEC, the US$ 540 million held in the Short Term Liquidity fund, where PDVSA’s Pension Fund had 90% of its assets, were actually “substantially less” because funds were used to pay off investors in the MK Venezuela Fund.

The SEC further charges that Illaramendi attempted to hide the missing assets by providing the Commission staff with a false letter from an accountant in Venezuela to verify the existence of at least US$ 275 million. According to the SEC, these assets do not exist.

The complaint charges that the liabilities of the funds “vastly exceed the actual assets held by the funds”. The funds had supposedly experienced investment losses and the “gap” is as much as hundreds of million of dollars.

Besides these new accusations, the SEC extends the accusations of investment in private equity transactions, including lending to ventures without documentation.

The SEC also says it interviewed a “Pension Fund” Executive. The Pension fund Excutive said did not know about the loans.

A Pension Fund or a PDVSA Executive? Didn’t Rafael Ramirez say PDVSA had nothing to do with running these Pension Funds in the National Assembly? In the memo below, saying the investments were fine to pensioners, it is signed by none other than PDVDA’s “Internal Director of Finance” who signs here as President of the Pension Funds. Note also the suggestion that this is a “mediatic” campaign in point 8

These charges against the funds and Illaramendi raise the same questions as last week, except magnify the need for PDVSA and the Chavez Government to explain who was involved and who authorized investing pension money in these funds and how was this handled.

Will we hear something this time, or much like the Antonini suitcase, it will  all be buried once again?

Note Added: No sooner (minutes) after posting this, Setty tells us that Illaramendi has pleaded guilty. Will he reveal his PDVSA collaborators?