Last week was a busy one in the case of the PDVSA Pension Ponzi. The SEC just put out a statement summarizing the latest news, so I’ll let them do the talking, then add my own highlights from the filings, below. From the SEC:
On May 10, 2011, the Securities and Exchange Commission charged Highview Point Partners, LLC, a Connecticut-based investment adviser, with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. Highview was added as a defendant … and three hedge funds managed by Highview were named as relief defendants because, according to the SEC’s charges, they are in possession of funds tainted by the Ponzi scheme. …U.S. District Judge … entered a consented-to order on May 13, 2011 temporarily freezing the assets of Highview and the three hedge funds it advises…
…On May 10, 2011, the SEC filed a second amended complaint adding Highview as a defendant, and charging that Illarramendi conducted his alleged fraud while he was a partial owner of Highview, a Commission-registered investment adviser, and that he used the two advisory firms (Highview and MK Capital Management) in tandem to conduct the scheme. In particular, the second amended complaint alleges, among other things, that Highview Point Partners, acting through Illarramendi, misappropriated money from the three hedge funds it advised: Highview Point Master Fund, Ltd., Highview Point Offshore, Ltd., and Highview Point LP. The second amended complaint alleges that Illarramendi hid the misappropriation in the Highview hedge funds by misappropriating money from different hedge funds managed by MK Capital Management. According to the second amended complaint, this acted as a fraud on both sets of clients, in that Illarramendi used money from one set of investors to repay earlier investors.
Confused yet? Long story short: SEC is now going after Highview, and not just Illarramendi. But there are many more little juicy details in the filings. Like this:
In or about May 2011, the Highview Co-Owners were subpoenaed by the Receiver previously appointed by the Court in this action, along with the Compliance Officer for Highview Point Partners. All three individuals asserted the Fifth Amendment in response to all questions asked by the Receiver about the subject matter of this Complaint, including, questions regarding the misuse of investor funds in the Highview Funds.
Explanation for the many non-US readers: the “Fifth Amendment” is the US constitutional section that guarantees accused persons freedom from self-incrimination. That means that when you are being questioned for something — in this case, a civil securities law case — you can’t be compelled to give testimony if you are worried that the testimony may come back later to be used against you in a criminal case. (Lawyers, please correct this description if it’s not quite right.) So these guys are all taking the fifth. That doesn’t mean that they are guilty of any crime. Just that they are concerned they may end up accused.
As a result of the hidden misappropriation and investment losses, the liabilities of the MK Funds (the purported value of investor subscriptions and money owed other creditors) now vastly exceed the actual assets held by the MK Funds. As ofthe date ofthis action, the “gap” between the liabilities ofthe MK Funds and their actual assets is as much as hundreds of millions of dollars.
That’s a lot of money.
One thing that struck me as simply bizarre:
The precise ownership of MK Energy is currently unknown,
I know the US treats corporations as people and all, but this is a Delaware corporation. If the US SEC, after five months of investigation, can’t even determine who the owner of this corporation is, doesn’t that bode a bit ill for the health of the country?
Back at the beginning of all this, I heard a story of how Illarramendi once missed a flight from Caracas to New York, so he just chartered a private jet. With spending habits like that, one could argue that just buying your own plane makes sense. Which he, according to the SEC complaint, did:
Illarramendi misappropriated at least $24 million to pay operating expenses for a private company he controlled and misappropriated an additional $5 million to purchase a private plane.
I’m sure there’s much more in there. Honestly I am not giving this case the attention it deserves, nor is anyone else. The problem is, the juiciest bits are not in Connecticut, but in Venezuela. And if Venezuela keeps ignoring or burying the wrongdoing, it’s hard to figure that the real bad actors will ever be brought to justice. The old questions remain: Who at PDVSA authorized this “investment”? Was there any “commission”? Who were the early investors in Illarramendi’s funds, the ones who got bailed out by PDVSA’s pension? Why haven’t the PDVSA unions hired their own lawyer and intervened in the US case?
Speaking of intervention, just one last tidbit. Here’s a list of the current parties to this case. I can write you a better description for a bit of lettuce.
APJ International Ltd, Added: 02/01/2011 (Interested Party)
Asociacion Civil Administradora De Los Fondos De Pensiones De Los Jubilados De Petroleos De Venezuela, S.A. Y Sus Filiales, Added: 02/01/2011 (Interested Party)
Aspenwood, Added: 02/14/2011, (Interested Party)
BCInet, Inc., Added: 02/18/2011, (Interested Party)
Balanchine Corporation, Added: 05/12/2011, (Movant)
Brentwood Services Inc., Added: 05/12/2011, (Movant)
John J. Carney, Esq., Added: 02/04/2011, (Receiver)
Edenwood, Added: 02/15/2011, (Interested Party)
Edenwood Holding, S.A., Added: 05/12/2011, (Movant)
Fondo De Prevision De Los Trabajadores De Petroleos De Venezuela, S.A. Y Sus Filiales, Added: 02/01/2011, (Interested Party)
Goldenbird Finance, S.A., Added: 02/14/2011, (Interested Party)
Highview Point Advisors, LLC, Added: 04/01/2011, (Interested Party)
Highview Point LP, Added: 04/11/2011, (Defendant), Highview Point Master Fund, LTD., Added: 05/10/2011, (Defendant)
Highview Point Offshore, LTD., Added: 05/10/2011, (Defendant)
Highview Point Partners, LLC, Added: 04/01/2011, (Defendant)
Francisco Illarramendi, Added: 01/14/2011, (Defendant)
LP Aircraft Group, LLC, c/o Highview Point Partners, LLC, 1055 Washington Blvd., Stamford, CT 06901, Added: 03/25/2011, (Interested Party)
MK Energy and Infrastructure, LLC, Added: 01/14/2011, (Defendant)
MKEI Solar, LP, Added: 01/14/2011, (Defendant)
Joseph W. Martini, Added: 05/06/2011, (Movant)
Michael Kenwood Asset Management, LLC, Added: 01/14/2011, (Defendant)
Michael Kenwood Capital Management, LLC, Added: 01/14/2011, (Defendant)
NuScale Power, Inc., Added: 01/31/2011, (Interested Party)
PDV Insurance Company Ltd., Added: 02/01/2011, (Interested Party)
Ponter Investments, Added: 02/15/2011, (Interested Party)
Proterra, Inc., Added: 02/07/2011, (Interested Party)
Securities & Exchange Commission, Added: 01/14/2011, (Plaintiff)
Vetra Energy Group, LLC, Added: 03/22/2011, (Interested Party)
Setty's notebook 