PDVSA Pension Ponzi: Who, me? Responsible for the money of others?

Devil’s Excrement has a take-down of Eudomario Carruyo, the CFO of Venezuelan state oil company PDVSA. He is looking slimier and slimier, and is epically refusing to take responsibility.

To refresh, the SEC is suing a Connecticut hedge-fund manager, Francisco Illarramendi, and various funds, for having run a Ponzi scheme, largely using PDVSA pension money. Illarramendi and two accomplices have already pleaded guilty to criminal charges in relation to the case. The SEC’s current complaint, filed last week, includes this tidbit that jumped out at me for being especially bizarre.

If you’re not a bond geek, you may find the following a bit opaque, and feel free to skip to the end. If you are a bond geek, well, enjoy.

42. Though an extremely complex series of transactions, apparently designed to hide
the true nature of the scheme, Illarramendi and MK Capital Management used at least $57
million from the Short Term Liquidity Fund to partially fund the redemption of the MK.
Venezuela Fund investors.

43. Illarramendi initiated the transaction by offering the Pension Fund the opportunity to engage in an even exchange of certain bonds maturing in 2027 and 2037 for bonds maturing in 2014. The Pension Fund then transferred the 2027 and 2037 bonds to one of the Highview Funds, without receiving the 2014 bonds in exchange. On July 1,2010, Illarramendi and Highview Point Partners caused the bonds to be transferred to the MK Venezuela Fund. In early July 2010, the MK Venezuela Fund sold the 2027 and 2037 bonds to a third party for approximately $149 million. Ofthat $149 million, Illarramendi used $89 million to redeem MK Venezuela Fund investors, and caused approximately $52 million to be transferred to the Short Term Liquidity Fund between July 7 and July 14,2010.

44. The Short Term Liquidity Fund then used $109 million of its own investor funds to purchase the bonds with a maturity date of 2014. In August 2010, Illarramendi caused the Short Term Liquidity Fund to transfer those bonds, without payment being made in exchange, to the Pension Fund, to complete the even exchange of the 2027/2037 bonds for the 2014 bonds. The result was the Short Term Liquidity Fund paid out $57 million more than it received from the MK. Venezuela Fund. Illarramendi and MK Capital Management used that money to redeem the investors in the MK Venezuela Fund, in a classic Ponzi payment which used one set of investors’ money to payoff another set of investors.

Long story short, aside from whatever wrongdoing Illarramendi may have participated in, you can see here that the PDVSA pension fund let its fund manager take at least $109 million worth of bonds, sell them for $149 million, do some other shenanigans, and finally get bonds back in the account more than 30 days later. During that period, PDVSA’s pension fund was apparently just trusting that nothing would go wrong. Not exactly being careful with pensioners’ money.

It’s the kind of little detail that makes you wonder — who the hell is the ultimate beneficiary of all of this? And who was in charge? Hopefully one day we’ll find out.

One thought on “PDVSA Pension Ponzi: Who, me? Responsible for the money of others?

  1. moctavio

    I think you should make it very clear that in the middle MK made US$ 40 million, if that is not fishy what is!

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