PDVSA Pension Ponzi: Looks like Oswaldo Cisneros had $117.5 million with Illarramendi

Oswaldo Cisneros, one of Venezuela’s richest humans, has long been rumored to be one of the people with big bucks invested with disgraced financier Francisco Illarramendi. His name hasn’t yet appeared in the US court records in the case. But a filing yesterday appears to show that Cisneros had $117.5 million invested with Illarramendi, giving him at least a passing connection to what I call the PDVSA Pension Ponzi.

The filing shows some mysterious investor trying to get back the money that was invested with Illarramendi’s Highview Point hedge fund. The SEC is telling them to go stand in line with the rest of Illarramendi’s investors. The SEC, in its complaint, accused HIghview of being “both victims and beneficiaries” of Illarramendi’s games.

So what is the evidence that this is Cisneros money?

We know that Illarramendi ran or managed several hedge funds. He has pleaded guilty to turning at least one of them into a Ponzi scheme, apparently in order to hide investment losses that happened about five years ago. Some of the funds offered high returns, while others were more modest. The biggest loser so far in this thing, and the reason this case persists on this energy-oriented website, was the pension fund of Venezuela’s state oil company, PDVSA. But all investors and customers who were involved with Illarramendi are now suffering, even those who thought they were doing perfectly normal, legal transactions. A few prior Illarramendi posts are here, here, here, here and here.

According to a court filing placed in the record yesterday (yes, Sunday), Brentwood Services Inc. bought $35 million worth of securities called “Highview Point Offshore LTD Class A1 Series 1” in May, 2005. Brentwood, along with Balanchine Corp. and Edenwood Holdings SA, continued to buy and sell Highview Point securities until this year, when Illarramendi was busted. The companies invested $117.5 million.

The filing was written by Luis Berhart, treasurer of Intercontinental Property Investment Inc. He writes that his company was “under common control” with Balanchine, Brentwood and Edenwood. Up to there, we have no way to really know who is behind all this. Brentwood has the same name as an insurance company in Tennessee, so it’s hard to find documents on it without sorting through all sorts of unrelated stuff. Edenwood has no on-line trail. Balanchine, a Turks & Caicos company, also has very little information in the public domain. But that one tidbit does have a useful paragraph. Here’s a bit of one SEC filing from 17 years ago that describes Balanchine:

Balanchine is an entity formed by Coutts & Co. (“Coutts”), a Bahamian bank (formerly NatWest International Trust Corporation). Coutts indirectly holds approximately 99% of the capital stock of Balanchine pursuant to a nominee arrangement with Mr. [Osvaldo] Cisneros. Pursuant to such arrangement, Mr. Cisneros has the right to provide instructions to Coutts as to matters relating to voting, disposition and receipt of dividends with respect to these Shares. Accordingly, by reason of the provisions of Rule 13d-3, Mr. Cisneros may be deemed to be the beneficial owner of the Shares owned by Balanchine.

Throughout the document, Osvaldo is spelled with a V, and this was from 1994, so I just let this thing sit there for a while. But with the submission yesterday of this document from Intercontinental Property Investment, it looks more like this really is the famous Oswaldo. IPI is in Florida, so we can see its company registration filings on the web. (We like Florida.) Here’s an annual report. Note the name of registered agent and director: Mireya Blavia. Open a new window, go to Google.com and enter that name, and it automatically changes to “Mireya Blavia de Cisneros.” Because she is Oswaldo’s wife. (Auto-complete as investigative tool, who would have thought?)

When I called IPI, I introduced myself to the person who answered the phone and asked to talk to someone about the case. Without identifying herself, she just said, “I’m sorry” and hung up. I also left a message for Berhart and gave him a few hours to reply before posting this. I will, as always, add a new post giving his side of the story if I hear back. I couldn’t find a number for Cisneros.

The only sort-of-kind-of explanation of Cisneros’ possible lack of judgment was from a person familiar with the case, who said that Highview Point was SEC-registered and had “clean books.” So the investment was not the kind of wacky stuff that the PDVSA pension fund got itself into.

So what does this mean? Well, it certainly doesn’t mean that Cisneros knew what Illarramendi was up to and was making money off it. If anything, quite the contrary. It looks like he got pretty unremarkable returns from his mammoth investment.

The filing gives a partial 5.5-year record of the unit values of the funds. The one with the most complete record, “Series 1,” got an average annual return of 11% from 2005 into 2011. That’s fine, but nothing huge. The best period was in the second half of 2010, when one fund got an annualized 22% return. That was the only period that even approached the S&P’s 29% full-year gain in 2009.

Now, the SEC is looking to freeze all the Highview funds. And Cisneros’s people are trying to stop that. They just want their money back. They may have a case, I don’t know. If you really care and can’t afford to download the filings from Pacer (or if you have a Venezuelan credit card and can’t get Cadivi money for overseas purchases), write me. I’ll send you the filings.

It all looks like an epic due diligence fail. Which if two-year-old news reports are to be believed, is nothing new for Cisneros. The prior one was when he was going to sell his mobile phone company, Digitel, for upwards of $800 million to Ricardo Fernandez Barrueco. Before the deal was finished, Fernandez got thrown in jail for allegedly buying and hollowing out four banks in Venezuela. Unfortunately, most of the reporting on that Digitel deal was very crappily sourced, so it’s hard to separate fact from fiction.

Regardless, this story carries a lot of lessons. You don’t know whom you can trust. Easy come easy go. Money, like a corpse, attracts flies. Don’t put 117,500,000 eggs in one basket. It’s all stuff that you should teach your billionaire children at an early age.

2 thoughts on “PDVSA Pension Ponzi: Looks like Oswaldo Cisneros had $117.5 million with Illarramendi

  1. Lou

    did some work for Gustavo A. Cisneros in 2004 from Coral Gables HQ. It was “secret work” and they paid me with checks from a company called “Brentwood” in the islands…Cayman I believe but not sure. The reason was to hide my employment with Cisneros Group. They are strange folks and the corporate culture is AFU. Money, power and greed are the bottom line for them.

  2. Lou

    PS I was terminated soon after Mr Cisneros met with Mr Carter and Mr Chavez. That infamous meeting is on the Web.

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