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.

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21 Responses to “Veneconomy Editorial on PDVSA and the Illaramendi Fraud”


  1. […] and his MK funds, which involved money invested from PDVSA’s pension plans (One, Two, Three). Our friend Setty has also devoted a few posts to it, here is one, there are many others. The jist […]

  2. ElGordo Says:

    Si, estos tipos son tan estupidos, que caen en la misma una y otra vez.

    Nadie se acuerda que CITGO y PDVSA perdieron cientos de millones de dolares con un “broker” con capiatl de un millon de dlalres (En Venzuela el minimo era seis o algo asi) en otra estafa que paso debajo de la mesa:

    http://venepiramides.blogspot.com/2009/05/estafan-citgo-y-pdvsa-en-cientos-de.html

    pero como dijo uno arriba, somos de verdad un pais de estupidos, nos roban todo y los defendemos.

  3. Roger Says:

    RWG he has already been there and done that with two massive mudslides that killed tens of thousands and recently with flooding. I think what is going on in Libya poses far more important questions.

  4. RWG Says:

    island canuck Says:”I’ve spent the early morning watching the incredible images from Japan. The thought keeps recurring in my mind how the local authorities here in Venezuela would manage a disaster of this magnitude.
    The thought is mind boggling & really scary.”

    It is scary. Chavez would deny U.S. help while at the same time blaming the U.S. for the disaster. Chavez would inflate what little help is given to those in need. For example, movies would be made of Chavez touring the disaster and promising housing, food, and jobs. Of course, none of this would be realized because Chavez already has the publicity he wanted.
    Cuban personnel would be given governing powers in the affected areas. Chavez will definitely take the opportunity to expropriate whatever he can.

    The bottom line is that people will die and Chavez will not give a rat’s bottom about it.

  5. Lim Says:

    The guys and girls I know from the 20,000 workers who were fired from PDVSA lost their pensions and the other benefits they were entitled to. Even if the firing offense had been murder they would still be entitled to the proceeds of the funds to which they had previously contributed (which wasn’t the case, of course). I am not sure if the pension fund you are talking about had received contributions from the unfairly dismissed employees. If so, I think that the original crime was worse than any later Ponzi scheme.

    Jens-Torsten has every right to talk out of his ass. Particularly if he gets paid for it and contributes to a KDP pension fund.

  6. island canuck Says:

    I’ve spent the early morning watching the incredible images from Japan.

    The thought keeps recurring in my mind how the local authorities here in Venezuela would manage a disaster of this magnitude.

    The thought is mind boggling & really scary.

  7. Ira Says:

    As much as I try, I can never understand the points Jens tries to make.

  8. metodex Says:

    the money will be distributed as a “donation”.
    then he will be let go,face a shot sentence or disappear.
    And they will blame it on capitalism.

  9. gd Says:

    Off topic but a great article in the Guardian (a LIBERAL newspaper Jens) about the troubling murder stats in Venezuela.

    http://www.guardian.co.uk/world/2011/mar/10/venezuela-caracas-gang-warfare-murder


  10. Ever since PDVSA fired 20,000 workers and got rid of all but one of the workers that managed these funds, PDVSA merged their managing with the Treasury of the company. The way it used to work is there was a Board made up of PDVSA management and workers and there was this unit of people with knowledge of investments. Since 2003, the Treasury people have played both roles, despite Ramirez’s denial. Note the letter in the previous post where the Director for Finance, signs as the President for the funds.

  11. Bloody Mary Says:

    Regarding the plea of guilty the question is whether this guy is assuming full responsibility, renouncing to his right of a defense, facing up to 70 years in prison, without a previous negotiation. I think this is not the case. Off course, negotiation could involve other issues different from sharing of inside information, like reduction of the time to be served….. Nonetheless, I don’t thing this is the case… He is facing a potential 70 year of prison sentence… How can be benefited from a reduction of time judged by a society highly sensitive to the criminal involved in Ponci scams (no explanation required). Moreover, why the prosecutor would negotiate a plea of guilty looking to avoid the work of presenting further evidence…… A superficial due diligence made by my 5 years old daughter would be enough to find that many hundred millions are missing (unless Ramirez and Carruyo are in charge of the due diligence)…… My personal guess is that the guy is exchanging protection for information. I could be wrong, but the silence from PDVSA does not make any sense at this point….

    Additional Q: Someone can tell me if a person different from PDVSA’s board has any supervisory role over the fund and, if this person exits, has he made any statement?…. I mean, this fund could be used as a mechanism for the disposal of criminal proceed by adding fund from other sources, avoiding US scrutiny……. Of course I can be wrong, but when you have an unreasonable lack of transparency and no action is taken by the people involved……. you may and must use your imagination…

    Jens-Torsten,
    Deleted or not deleted is only shit. Who cares?

  12. Jens-Torsten Says:

    No you can see where the wind blows from on this side.
    Kepler the astronomist shows it to all the democratic people: delete, delete! No to the free exchange of opinions. Thats the devils work he is calling for. By the way, I´m not fat. Far from it.
    For all the honest people which want to be independant informed about Venezuela and other parts of the world, here another link, which wellcomes your opinions and does not cry: DELETE, DELETE
    http://www.kalle-der-rote.de/
    Sorry just for the germans here. Use Google translater

  13. sapitosetty Says:

    The accountant was really a member of BDO Venezuela, and the arrest warrant says he wrote the letter on BDO letterhead.

  14. loroferoz Says:

    The SEC probably took (and demanded) the certificate in the same spirit that some immigration forms ask you (in sworn declaration) if you have ever been involved in terrorism / genocide/ membership in the Nazi party, or have trafficked drugs ever.

    To have another another nail at hand, useful for appending your sweet behind to the barn door.

  15. moctavio Says:

    Most accountants here are affiliated to international companies, they probably faked it.

  16. aleksanderboyd Says:

    “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.”

    Miguel: Is it that simple to fool the SEC? Mind you, does a certificate from a Venezuelan public accountant has any value, anywhere in the civilised world?

  17. Kepler Says:

    Jens-Torsten,

    Du, Penner: verpiss Dich.

    Miguel,
    I’d suggest to simply delete the fat German’s comments. He translates stuff in Germany for Saxony’s KPD, the Communist Party. In the site they even have the KPD acronyms. The KPD was outlawed in Germany in the fifties because of its extreme Stalinist views. Now they renamed themselves as “DKP”, same shit. These guys are under constant surveillance and there is good reason for that.

    If you want to see their results at Federal level, you can take a look at the numbers here:
    http://de.wikipedia.org/wiki/Deutsche_Kommunistische_Partei
    I mean: these guys are a complete joke, less than 0.2% of the electorate in Germany.

  18. An Interested Observer Says:

    jeffry is right – there could well be more to come. He might already have told in exchange for a reduced sentence.

    As for the explanation, it’s very simple. No supervision, no control, no audit = SOP. If they actually did any of those things, now THAT would call for an explanation.

  19. jeffry house Says:

    Why do you say there will be no further information because he is being sentenced? Quite commonly, defendants cooperate by telling more, and get a reduced sentence as a result.

  20. Jens-Torsten Says:

    Mir komen die Tränen vor Rührung.
    Hier eine Wahrheit aus einem anderen Teil
    http://www.lsa.k-p-d.org/resources/Was+reaktion$C3$A4re+Kriegshetzer.pdf

  21. island canuck Says:

    Well Miguel they may owe the country an explanation however if the past is any indication this will all be stonewalled & swept under the rug.

    Who’s going to force them to come clean?


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