Archive for March 9th, 2011

Veneconomy Editorial on PDVSA and the Illaramendi Fraud

March 9, 2011

Those Who Authorized Him Are to Blame

From the Editors of VenEconomy 

No sooner is the Venezuelan Government recovering from one scandal than it is plunged into another.

The latest is the scandal of the PDVSA Workers’ Pension Fund revealed by the US Securities and Exchange Commission (SEC). According to the SEC, a large part of the US$500 million managed by the Venezuelan investment advisor, Francisco Illarramendi, has apparently been lost.

Now for a bit of background. Readers may well recall that, since 1999, Francisco Illarramendi has been the confidential financial advisor of three of the Chávez administration’s finance ministers (Tobías Nóbrega, José Rojas, and Jorge Giordani), besides acting as the financial advisor of PDVSA-America, PDVSA’s affiliate in the United States and the sole owner of Citgo Corp.

Apart from this complicated network of consulting services that Illarramendi has been providing to the Chávez administration, six years ago, he founded MK Capital Management, LLC, an investment consulting firm operating in Connecticut, USA, and he also set up two hedge funds, which were not registered with the SEC. And, surprise, surprise, the main client of one of those hedge funds was the PDVSA Workers’ Pension Fund.

The person responsible for the PDVSA Workers’ Pension Fund is PDVSA’s finance director, under the supervision of the company’s Board of Directors, who, five years ago, handed over some US$475 million from the pension fund to Illarramendi for him to administer.

It so happens that, in January this year, the SEC accused Illarramendi of misappropriation for having taken US$53 million he was administering to make highly speculative investments in recently founded companies.

If that was a serious charge, it was dwarfed by subsequent accusations by the SEC that Illarramendi had been using a Ponzi scheme, in which the money obtained from new investors was used to pay back previous investors; in other words, a pyramid scam similar to –albeit on a smaller scale- to Bernard Madoff’s or Robert Allen Stanford’s.

To complicate things still further, the SEC has also accused Illarramendi of conspiracy to obstruct justice for deliberately misleading the SEC by submitting a false certificate signed by a Venezuelan public accountant that purported to verify the existence of US275 million in assets that did not actually exist.

Francisco Illarramendi is being held in the United States and has pleaded guilty to a federal court. That could be bad news, as Illarramendi will be sentenced without there being an opportunity to learn all the details of this scandal and without it being revealed who is at the head of this network of corruption.

Minister of Energy and Oil-President of PDVSA Rafael Ramírez and PDVSA Finance Director Eudomario Carruyo owe the country an explanation of why Illarramendi was given full discretionary powers to “administer” the monies from the Workers’ Pension Fund without any supervision or control and with no audit.