SEC accuses Stanford Group, the Duck implodes (or explodes?)

February 18, 2009

So, today the day we all thought was coming for a few years happened, as the SEC accused Allen Stanford and James Davis of massive, ongoing fraud and asked the judge to freeze their assets as well as the appointment of a receiver for them.

The announcement ends two whirlwind weeks in which the blogosphere questioned the activities of Stanford International Bank (SIB), the Antigua based affiliate of Houston’s Stanford Group, after Venezuelan analyst Alex Dalmady wrote a piece called Duck Tales in English and El Pato in Spanish.

To me this is not a surprise, for years we have been questioning Stanfords claims and high yields and as the bank revealed more and more of its supposed investment strategy, we would warn our friends about it. Then Alex Dalmady, who we knew well from the time he was the best analyst in the Caracas Stock Exchange through his monthly InvestAnalisis, wrote Duck Tales for Veneconomia Monthly, which is one of a variety of publications Veneconomia publishes regularly on the country. We published a post on it on February 9th. and little did we know the speed that it would gather until the SEC’s announcements today.

And the SEC document has incredibly strong language, charging Stanford, Davies and others with “massive fraud” and its Chief Investment Officer with “helping to preserve the appearance of safety fabricated by Stanford and by training others to mislead investors”.

As in the Madoff case, the SEC charges that only two people, Stanford and Davies, knew the details of the portfolio and that they went out of their way to to block any examination of its record. The SEC also accuses both men of not cooperating with the Commissions efforts to account for the more than US$ 8 billion in assets, the same question Alex Dalmady has been openly asking the media in his own colorful way: “Show me the money!”. In fact, the SEC calls the portfolio a “black box”, shielded from oversight.

In trying to defend itself, Stanford has not addressed the important issues over the last few weeks, hiding behind irreleveant facts, such as not having received any of the aid from the US Government for banks in problems or not having invested with Bernard Madoff. While the first one was true, simply because it was an Antigua-based bank, the SEC actually charges that Stanford didhave money invested with Madoff.

And while Stanford always assured its customers that the bank invested a substantial portion of the banks portfolio in liquid assets, the SEC charges that a large part was invested in “illiquid investments, such as real estate and private equity”. The SEC states that 90% of the portfolio was invested in such assets and 23% in private equity. SIB was in the end a hedge fund that paid improved fixed income rates, but advertised itself as a bank.

The SEC charges that fraudulent behavior may have been going on as far back as 1995, as the Bank’s portfolio’s returns were claimed to be above the 12% level year after year, paying investors always 5% above those returns (But, of course, the deposit rate was fixed before the returns were achieved). And if this was tough to believe, Stanford claimed to have lost barely 1.3% with its diversified portfolio in 2008, in a year that the S&P 500 dropped 39% and the European Dow Jones Stock Index lost 41%, while claiming to have over half the assets in stocks.

The whole fee structure of SIB was simply impossible to sustain. According to the SEC, SIB would pay Stanford Group in the US a 3% fee for the sale of the CD, financial advisers would be paid a 1% for the sale of the CD’s and would receive an additional 1% per anum in “trail” commission for the CD’s after the first year.

These are all very strong words from the SEC. The defendants are called “reckless’ repeatedly and accused of “misrepresenting” products all the time.

This is indeed a sad and tragic ending to something a lot of people have suspected for many years. In Venezuela, Stanford was extremely aggressive, with fancy offices of their “advisory” service in at least three cities and fourteen other offices through a local bank owned by Stanford Group which was supervised by the local Superintendent of Banks and thus was managed as a bank should be. In fact, many of us have suspected for a long time that this local bank was only acquired in order to give legal presence to SIB’s activities in Venezuela.

It is estimated that Venezuelans had US$ 3 billion at SIB, but today I was told that a US consulting group told a large US bank two years ago that Venezuelans had 80% of the deposits at SIB. This would imply that US$ 5-6 billion were owned by Venezuelans. Sounds large, but given that SIB pioneered its CD’s in Venezuela and began copying the structure and model elsewhere only recently, I would not be surprised if this is true. This is comparable to the size of the assets of two Florida based banks which are owned by Venezuelan financial institutions, which were not as aggressive in gathering assets or in paying high interest rates as SIB was.

And this is the tragic part. This money does not belong to very wealthy Venezuelans. Stanford targeted the middle class, the professional, those that despite the crisis have managed to save some money in hard currency in the last few years. These deposits were looked for aggressively and without registering with local authorities. The sale of such products is simply illegal in Venezuela, but it was carried out openly and visibly. It is hard to believe the authorities did not know about it. (Were they clients?)

Tomorrow, we will begin hearing tragic personal tales of wiped out savings and suffering. Hopefully investors will be able to recover something, but I am not optimistic. The only good news is that the amount held at SIB by my fellow countrymen, or anyone for that matter, will no longer grow at the 20% clip per year that it had been growing, catching even more people.

The duck did indeed implode (or explode?) very fast, I had been expecting it for a long time, but when I first wrote about it a week ago, I cold not imagine the speed at which everything would develop.

Hats off to Alex Dalmady, whose blog is now back live!!!


SEC accuses Stanford of “massive, ongoing fraud”

February 17, 2009

Bloomberg reports that the SEC is raiding the Houston offices of Stanford and has formally accused two principals of the firm.  Sad, very sad, this could have been avoided

Feb. 17 (Bloomberg) — U.S. regulators accused R. Allen Stanford of running a “massive, ongoing fraud” while selling about $8 billion in certificates of deposit through investment firm Stanford International Bank Ltd. The Securities and Exchange Commission filed legal papers against him and two other people at Dallas federal court today seeking a temporary restraining order, court records show.


A glimpse into our future?: Bachelet’s Visit to Cuba by Yoani Sanchez

February 17, 2009

If you are coming to the Devil for therapy or catharsis, that is not what you are going to get today. I bring you exactly the opposite, an article by Cuban blogger Yoani Sanchez of Generacion Y. She is quite eloquent in this letter to Chilean President Bachelet. She talks about the real truth and the official one that one that has been sold to the world now for fifty years. She also talks about the fact that Cuba is a prison, you still need a permit to leave the island and Raul Castro seems in no hurry to change it. And then she  asks about civil rights in Cuba, wondering how the Chilean President, herself a victim of Pinochet, will ask about political prisoners in Cuba.

And that is the puzzle and tragedy of modern Latin American Presidents. From Lula to Bachelet, there seems to be a conspiracy of silence. They seemed to have bought the story that the people’s welfare has priority over their rights. That is not what democracy is about.

And I print this article so you can reflect and ask the crude reality: is this what you want your grandchildren to write? Clearly when a Bachelet goes to Cuba and takes her picture with Castro and not with Yoani, for example, she is sending the message that she will ignore the reality of the Cuban people, the same way the reality of Venezuela’s militaristic populism and demagoguery is being ignored by those same leaders. Call it diplomacy, realpolitik or what you want.

In some sense, I think in the end Yoani may be luckier than we are: We may be facing 50 years of Chavez and his autocracy, while Cuba may be coming out of it. What is clear is that nobody is going to come and save Venezuela, the same way that nobody is going to save Cuba from the outside. Only Cubans and Venezuelans can solve their problem. And we have to start today by organizing and working everyday to get rid of this Government. While our opposition politicians went on Christmas vacation, Chavez and his cronies spent those days plotting how to get those voters back and came up with a perverse and one sided campaign. But they won. Let this be their last victory.

Otherwise, it is my feeling that maybe a freer Cuba may become one day an alternative for emigrating for Venezuelans.

I thought of writing extracts of this article, but it has no waste, I wish I could write like her and I hope she does not mind me reprinting it in full:

Bachelet’s visit to Cuba by Yoani Sanchez of Generacion Y

Another passenger and the same island

The majority of Cubans believe that something’s going on up there, after several Latin American presidents have chosen to visit us in such a short space of time.  However, the complications of daily life don’t permit us to be attentive to what happens in the corridors of the chancelleries or at the state dinners.  Our eyes and ears are focused on several problems, like the high cost of living, the schizophrenic dual monetary system, and the obsession with emigration that consumes so many young people.

To draw conclusions about the sudden interest in these leaders to travel to Cuba is an exercise that would steal too much time, without putting anything on our plates or in our pockets.

The Chilean dignitary, who arrives in a few days, will find a scene divided between the official truth and the reality in our streets.  A nation that has stopped looking out the window for the possible transformations and no longer conjugates the dynamic verb “to change.”

After several months of waiting, Raúl Castro has not been able to push through a package of measures for greater openings, for which the vast majority have been waiting.  The July 31st announcement of the illness of the “invincible” Commander-in-Chief, many thought would finally mark the beginning pragmatic brother’s turn, the one who had waited so many years in second place.  His first speeches delivered phrases like “structural changes,” “a glass of milk for everyone,” and even alluded to extending “an olive branch” to the North American government.  Confident in his words, many waited for his assumption of power on February 24, 2008 for him to put his own personal imprint on this country, molded under the willful mandate of Fidel Castro.

But when the hot summer came, even the most optimistic had begun to doubt the supposed openings that the foreign press trumpeted so much.  Of the great popular demands, they’d only managed to meet a few cosmetic desires.  Cubans could, finally, contract for a cell phone in their own name and stay in a hotel.  The anticipated agrarian reform had sunk into a ridiculous usufruct system of land use, which even today is mired in the inefficient State bureaucracy.  A couple of wicked hurricanes helped to highlight the national disaster and turned people’s eyes hopefully to other lands.  The deteriorating housing stock couldn’t stand up under the fierce winds of Ike and Gustav, leaving hundreds of thousands of houses with collapsed roofs or none at all.  The State had to accept foreign food aid to alleviate the food crisis that came over us.

The last illusions were gone by the end of the year, when Parliament met and extended the retirement age by five years and talked of eliminating certain gratuities.  There was no mention of any need to end the absurd migration system that forces Cubans to get a travel authorization to leave the country.  The eradication of this permit has been one of the desires shared most strongly by Cuban families, trapped in the plight of having children who emigrate.  Nor did they tell us, our disciplined parliamentarians, one word about the possibility of opening small and mid-sized private enterprises, which could alleviate the terrible food services and the poor quality of much of the industrial products.  Legalizing the purchase and sale of cars and homes was glaring in it absence in the National Assembly, which seems more concerned about applauding than addressing problems.

The path of civil rights

Caught between two currencies, the citizens of this island have learned that to survive we must do exactly the opposite of what the political hurdles demand.  The national sport seems to be stealing resources from the State, and among the population illegal work is called by the euphemism of doing something “on the left.”  Many of those exiled who were reviled as “worms” are today those who sustain thousands of households across Cuba.  A young songwriter already described it in one of his refrains, “the eggs that we threw at you when you left with the scum, now I would eat them my china, those who passed through water know the glory.”  Even Pepito, the mischievous character of our jokes, has opted for silence faced with so much despair.  People in the street have come to say that the last great joke told by this timeless boy of stories, was to leave on a raft to cross the Straits of Florida.

The road where there has been the least progress seems to be, however, that of the rights of citizens.  The third millennium has found us with the same limitations in association, expressing political ideas and influencing decision making.  The crime of “illicit association” paralyzes those who would like to found a party or an innocent association for the preservation of the environment.  On its part, the legal figure of speech of “enemy propaganda” stigmatizes every form of expression—print, radio or television—attempted contrary to the government.  State control over the media remains intact, even though technological developments have helped people find parallel paths to keep themselves informed.  Illegal satellite dishes, the controlled internet, and books and manuals brought in by tourists, have shaken the government’s monopoly on providing the news.

These are times of worry for the present, and screams of panic for the future, given the low birthrate and the aging population.  The official version is that in Cuba women are better prepared professionally and this has resulted in a drop in births.  However, everyone knows that the lack of housing, the prolonged economic crisis and the desire to emigrate function as more efficient contraceptives than any studies undertaken.  A “country of old people” is predicted by those who note the low number of new babies and the constantly increasing exodus of the young and daring.  A popular sarcastic phrase warns “the last one to turn off El Morro,” a reference to the old lighthouse that illuminates the exit of Havana Bay.  None of this could have been seen or felt by the leaders who have dropped in these last weeks, because for them there are only smiles, the low figures for infant mortality, or the shiny laboratories where they fabricate sophisticated vaccines.

President Bachelet may not sense any change in motion, either, but the hands clinging to the helm are those of a generation that is now passing its seventies.  She will hear the full report of conquests and little or nothing of the dark statistics that place us ahead in Latin America in abortions, suicides and divorces.

If she manages to distinguish any spot in the triumphalist picture they paint only in their own eyes, someone will be in charge of pointing out that it’s the fault of the blockade of the neighbor to the north.  Her heavy official program will be loaded with scientific centers, remodeled hospitals and no lack of little Pioneer groups reciting some poem.  Everything around her will have the objective of showing her the beautiful face of a country that needs a lot of make-up to hide the wrinkles and scars.

Why Bachelet’s visit

One question on the minds of many citizens is whether the Chilean dignitary has come to the island to give a boost to the government, or because she’s worried about our fate.  The analysts and political scientists have a hard time understanding that in Cuba there are two agendas: that which comes from power and that shown by the people.  If she takes away only the first, we can expect that Ms. Bachelet will issue strong statements calling for the release of the five Cuban spies imprisoned in the U.S. and the extradition of Posada Carriles, accused of blowing up a plane in 1976.  If she follows the official agenda exactly, she will declare that it’s not enough for Mr. Obama to close the prison at the Guantánamo base, but that he must also return the territory to Cuba and, obviously, declare an immediate end of the U.S. blockade.

If we run down the list of the people’s desires, she could be an excellent partner to ask for those “structural reforms” that they’ve been talking about for two years.  It would be a lot to ask her to mention the point about the political prisoners, but coming from her, with her record in the time of Pinochet, it would be a natural.

Let’s suppose she doesn’t come alone and that one of her companions can skip the official protocol and do that which her high position makes difficult.  Something so bold as to meet with people from the opposition and the emerging civil society.  Let’s go further and conjecture that some small portion of the Chilean delegation could talk with the Ladies in White, with independent journalists or with someone who could offer a different version of the State explanations.  They might then feel they have their feet on firm ground and are not in the country of wonders, through which various Alices have made an illusory journey.  To not do it, would make us, the Cubans, feel that she hadn’t come to visit us, but rather a group of septuagenarians who hold the power.

Nevertheless, the brief visit of the Chilean president could not stretch far enough to manage to reconstruct the fragmented mirror that is Cuba today.  She can only look at the golden charm that has been prepared for visitors, while the dark mercury of everyday life will be forbidden.   She will not see us standing in the long lines for bread, waiting for the late bus, or preparing the improvised crafts on which so many launch themselves on the sea.   They will show her none of that, but I have the impression that she will sense it and feel it.  She knows, in advance, that beyond the tinted windows of her car, there is a country with little resemblance to what they will show her.

This article appeared in El Mercurio, on Saturday, February 7, 2009


Under God and Che

February 16, 2009

che

Yesterday I posted a picture of a guy voting under a cross at a local Catholic School. From today’s El Nacional the Chavista version of that, with a guy voting under the image of Che. When a local school has that symbol in a class room, there is a lot for all of us to understand about what is going on here in Venezuela.


Alex Dalmady goes from whistleblower to blogger

February 16, 2009

Guest-ghost blogger Alex Dalmady of Duck Tales fame, has decided to start his own blog. I think it’s great, he can tell us lots of stories in the upcoming days, including his view on the mainstream media approach to avoiding suits and rough edges. The best part is that having his own blog will force him to write often and we will all enjoy it.

I can’t believe it has only been a week since I first posted on his Duck tales article, it seems like eons. I am still amazed that this has made so little noise in Venezuela where so many victims live, only El Nacional had a blurb on it last Saturday.

The topic is not over for me, I will let Alex blog about the overall picture as the duck explodes, but will write about the local effects, which I always believed would lead the way. I never imagined it would begin outside Venezuela. This has been one of my most interesting blogging experiences. I have blogged a lot about things that  people began to learn and understand slowly like corruption in the Chavez Government and arbitraging the official exchange rate, but never about something that moved so fast and reached so far. The blogosphere is indeed an amazing vehicle.

In the meantime, kudos to all the bloggers that participated in this, particularly in the early stages: Gringo in Venezuela, Inca Kola News, Felix Salmon and Venepiramides.  Venepiramides was already onto the story, but being in Spanish gave it a limited reach.

So, referendum over, duck over, what do I blog about now?…I have an idea…


Some final (I hope) thoughts on the results of today’s referendum

February 16, 2009

As expected the amendment proposed by Chavez, which is completely illegal was approved. I was sorry that I was right, but after being sure of a No win for seven out of the eight weeks the proposal was on the table, the numbers became simply uphill in the last seven to ten days. Pollster Datanalisis can claim now to be the only pollster to get it right in the last five elections, Datos, Hinterlaces and Consultores 21 simply blew it. They were all predicting a No victory.

My turning point came about ten days ago when I saw a presentation with a poll saying it was a tie technically between Si and No, but that Chavez with 10% points more in approval rating than he had right before the 2007 referendum.

That, together with the massive abuse of power in overwhelming all media and the people with the SI campaign and knowing that Chavez would scare or drive his supporters to vote told me we were going to lose. The whole thing was manipulated too much. It was not a level playing field.

But as I said, Chavez wasted two precious months, the economy has deteriorated further and I get the feeling that we will see a new Minister of Finance in the next few days, which implies that there will be no proposals for over a month. Because what’s coming requires a team of Major League Economists and Chavez has a bunch of amateurs looking to make a local buck for their pockets. And you can be sure they will screw it up big time. Look for inflation to reach 60% easy in 2009 and GDP to collapse. Not a pretty sight.

The opposition did not do well. Yes, they had no money versus and adversary full of it, but it seems as if it were not for the energy and organization of the students, we would have done worse. Kudos to the students. It was quite a sight to see them today going door to door with white shirts with a white hand in front and “Mobilization” on their backs, calling on people to go and vote. The opposition parties have never done anything like that.

And this is also the fault of all of those Venezuelans that had the supernatural belief that somehow there would be a miracle. That in some way, God or Allah or a Genie will protect them from Chavez like it did in 2007. Why bother to organize, participate or get involved if the miracle was coming?

So, in the end, maybe the irrelevant result is exactly what the opposition and democratic Venezuelans needed: A wake up call to get involved, work together, get organized and participate or everything will be lost, your hopes, your country and your freedom. Because Chavismo pushed the envelope to incredibly new levels, spending your money, bypassing your laws and liying its way to victory while you stayed home until today. And all with absolutely no scruples.

And even the Parliamentary elections of 2010 seem so far away. because there will be so much pain and suffering before then, that it is even hard to envision what the Venezuelan political landscape may look like by then. We are going to see too much pain and suffering before then and you can be sure many will split from the autocrat. Money will become scarce for everyone.

Chavez should be worried about completing his current term, because if oil price stay near where they are, even achieving that may be quite a feat. You can’t lie about shortages, about recession, about inflation and about incompetence. And least of all, you can’t leverage that into getting reelected after twelve wasteful years in power.


Si wins, Chavez can run again, good luck to him

February 16, 2009

With 94.2%  of the vote counted the Electoral Board announces that the Si vote, in favor of the amendment that allows the indefinite reelection of all elected positions was approved with 54.3% beat the No option with 45.3 %. The opposition gets more than five million votes. Chavez can run again in 2012. Wish him luck given the economy.


Let the rumors begin…

February 15, 2009

8:47 PM Well, the best plans don’t work, my new blog is not working, I can’t access the editor, hope it comes back. In any cae the Government is breaking the law by having Ministers appear on the official TV station saying the SI won. Nobody stops them, we are in a lawless country. My good sources say the NO won by 5%, but don’t believe anything until the CNE announces it.

7:20 Cabinet members appear on TV celebrating the victory, Globovision cuts them off, but Government TV station broadcasts it.

6:00 PM. Rumors have begun and as expected the Si supporters say the Si won by six points and the No by four points. Despite the fact that it is illegal for exit polls or results to be broadcast, Minister of Finance Ali Rodriguez said on TV the trend towards the Si vote was irreversible. Had he been opposition, he would have been jailed by now, but since he is pro-Chavez it is ok for him to say whatever he wants. Reportedly, the student computer center where the students gather the results was raided by the intelligence police.


Some pictures from this morning around Caracas

February 15, 2009

crossuno1

dos1tres1

On the left, I tried to take a picture of this guy voting with the wooden cross behind him, but when I was about to take it the guard said I could not, I did anyway, but the guy had moved. I vote in a Catholic school, thus the cross. You can interpret it either way, the cross will protect the vote or we will be crucified.

The second picture is from a voting center in the highly populated area of Los Dos Caminos, a middle to lower middle class area.

The third picture on is a voting center off the Redoma de Petare in the extreme East of Caracas. In the fourth one, a voting center in Montecristo a lower middle class area. (I clearly have problems arranging the pictures and the text in this new software)

I will report later today as needed, I think it is going to be a long night with polls closing at 6 PM.


Voting proceeding smoothly, abstention seems high

February 15, 2009

I voted this morning without much of a wait, took my mother and waited for her and then voted and took her home.

As I was going in a girl in front of me had a University sweater from Simon Bolivar University, yellow in color, said USB in the back and front and had the slogan of the University. The National Guardsman told her she could not go in wearing it because it was propaganda. She complained that it was only her university’s logo and a higher ranking guardsman came out and told her she had to take it off to go in. She had a t-shirt under it and took it off. What was funny was that by the end of her vote she was carrying around her waist and you could see the logos any way. I guess being a university student has become a no no, you are subversive, opposition, oligarch and enemy of the State.

The second problem I saw firsthand is that the voting machines are not programmed properly. When you press on your choice, a check mark appears. But, for example, my mother kept her finger on her choice (guess?) and the check would appear and disappear. When she first removed her finger, the check was not there and she had to press again. This caused problems and those that pressed “VOTE” without the check present their vote was void and there was no going back. However, major Chavista political figures that had this happened to them, like Tarek William Saab and Aristobulo Isturiz, were allowed to vote twice in another sign of Government advantage.

In my polling table there were 520 voters, of which 182 had voted by noon, which is a sign of high abstention. In that table, 5 people (1%) had already voted void because of this problem and were not allowed to vote twice.

I went around the city and saw no lines anywhere, the procedure is simple, but only in 2007 have there been no lines like this.