Francisco Illarramendi, who is currently appealing his 13-year sentence for securities fraud related to the pension fund of Venezuelan state oil company Petroleos de Venezuela SA, filed this interesting document into the federal court docket back in January. I missed it, but if you were interested in his case, it’s worth reading. It’s basically his version of events, laid out in very long form. Among other details, he basically claims to have invented Venezuela’s
permuta Bs./$ bond sales system:
Prior to the instant offense, Mr. Illarramendi worked in the securities industry with Credit Suisse from 1994 to 2004, conducting extensive work in Latin American countries, including Venezuela (“BROV”). PSR, at 23. While at Credit Suisse, Mr. Illarramendi was the leader of a team that developed a bolivar to U.S. dollar (“BVD/USD”) arbitrage mechanism that spawned the BROV’s ability to fund itself at significantly discounted interest rates. In 2004, he took a sabbatical from Credit Suisse, and began a special assignment as an advisor to Venezuela’s national oil company “Petroleos de Venezuela, S.A.” (PDVSA). PSR, at 22-23. During this assignment Mr. Illarramendi generated approximately $1.6 billion in savings, when based on his advice, PDVSA was able to repurchase $2.0 billion in outstanding bonds, utilizing Mr. Illarraendi’s arbitrage innovation. Thereafter, the BROV began issuing profitable bonds. PSR, at 22. Specifically, Mr. Illarramendi advised the Venezuelan government to issue bonds denominated in U.S. dollars, which were purchased using bolivars (“BVD”) at the official exchange rate. This allowed the financing of currency exchanges, and lower yields than would otherwise be available in the international markets. PSR, at 5. Ultimately, Mr. Illarramendi’s instruction and advice paid dividends well into the future, to the tune of billions of dollars for the BROV and PDVSA.
He then describes what his fund, Highview Point, did to make money. If you are keen on finance, go read it. He then describes how he ended up stuck in a bad deal: Continue reading
Here is a very good explanation of the current state of play, and the full background, of the Ponzi scheme that got about a half-billion dollars from the Venezuelan state oil company’s pension fund. It starts with a bunch about the recent activity around Moris Beracha’s Movilway company. But the main stuff of interest is lower down:
Illarramendi’s whole Ponzi scheme unravelled in January 2011, when the SEC charged him with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. On March 7, 2011, Illarramendi pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC, for which he is still awaiting sentencing…
I realize these complex financial frauds aren’t for everyone, and this report is pretty technical. But what’s fascinating here is seeing how many people who never come near oil try to stick their fingers in the money stream that normally flows back up an oil pipeline.
Francisco Illarramendi has admitted to taking almost a half-billion dollars from the pension fund of Venezuelan state oil company PDVSA and dumping it into a Ponzi scheme. One might expect the Venezuelan justice system to be interested in the case.
César Batiz writes in El Mundo Economia y Negocios today that this isn’t the case. My translation.
Venezuelan court dismisses case of Francisco Illaramendi
The financier Francisco Illaramendi, whose US trial for a Ponzi scheme fraud is ongoing, hasn’t committed any crime in Venezuela, according to the Venezuelan justice system. Continue reading
PDVSA’s annual financial statements don’t appear to mention the company pension fund’s loss of $480-odd million to a US-based Ponzi scheme. I hope someday that such a loss will be an immaterial issue for my accounts.