US Receiver in Ponzi Scheme Sues Venezuela PDVSA Manager for Return of $36 Million in Bribes

The court-appointed receiver responsible for unwinding the asset management companies at the center of a $500 million ponzi scheme that was responsible for Venezuelan state oil company Petroleos de Venezuela (PDVSA)'s pension funds in the US, has filed suit in US Federal Court in Connecticut against former PDVSA investment manager Juan S. Montes and Movilway, a phone-based banking company, for "the return of bribes totaling $35,744,651."

John J. Carney, the court-appointed receiver responsible for unwinding Francisco Illarramendi's Michael Kenwood and Highview Point -- the asset management companies at the center of a $500 million ponzi scheme that was responsible for Venezuelan state oil company Petroleos de Venezuela (PDVSA)'s pension funds in the US -- has filed suit in US Federal Court in Connecticut against former PDVSA investment manager Juan S. Montes and Movilway, a company that provides prepaid mobile telephone services to an array of countries in Latin and South America, as well as phone-based banking services, founded by Moris Beracha, who is named in the complaint. Carney "seeks the return of bribes and other fraudulent transfers totaling $35,744,651" on behalf of the funds, according to the complaint.

"It was a measure of Illarramendi’s desperation to maintain and conceal his fraud, and his fanciful belief that a financial windfall was right around the corner, that he was willing to pay exorbitant amounts in bribes and kickbacks to ensure that he was able to attract investments from and participate in transactions with PDVSA’s pension funds," Carney alleges in the complaint. "Illarramendi also made the bribe payments in order to hinder, delay or defraud his creditors as the transactions PDVSA participated in helped to keep the Ponzi scheme undetected."

According to the suit, until August 2010, Montes was the corporate manager of finance, investments, and property insurance at PDVSA and its pension funds, as well as a member of PDVSA’s investment committee and was responsible for directing the investments of PDVSA's pension funds.

The suit alleges that Illarramendi bribed Montes to execute PDVSA trades with him, paying him atleast $35,744,651 for the 5 trades analyzed in the lawsuit. Carney is also suing Movilway, alleging that Movilway founder Moris Beracha, who had close ties to former Venezuelan Finance Ministers and PDVSA officials, helped broker the trades and received substantial funds as a result, including handling sending the bribery funds to Montes.

"Beracha had deep connections within the Venezuelan finance community as well to PDVSA officials, including Montes," the suit alleges. "By working with and through Beracha, Illarramendi secured various transactions with the Pension Funds."

The whole scheme unravelled in January 2011, when the SEC charged Illarramendi 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.

“The U.S. Attorney’s Office, FBI and our Connecticut Securities, Commodities and Investor Fraud Task Force are committed to the aggressive investigation and prosecution of individuals who attempt to obstruct the SEC and its critically important mission of protecting investors and the integrity of American capital markets,” said U.S. Attorney Fein, who brought the charges.

According to court documents and statements made in court, Francisco Illarramendi of New Canaan, Connecticut acted as an investment adviser to hedge funds he owned. In approximately 2006, one hedge fund he advised lost millions of dollars of the money he was charged with investing. Rather than disclose to his investors the truth about the losses incurred, Illarramendi intentionally chose to conceal this information by engaging in a long-running scheme to defraud and mislead his investors, creditors and the SEC to prevent the truth about the losses from being discovered. As part of the scheme, Illarramendi and others created fraudulent documents, including a fictitious asset verification letter falsely representing that one of the hedge funds, the Short Term Liquidity Fund (“STLF”), had at least $275 million in credits as a result of outstanding loans, when Illarramendi and others knew it did not have any such credits.

In late 2010, Juan Carlos Guillen Zerpa agreed with Juan Carlos Horna Napolitano to prepare the asset verification letter that would falsely indicate that the STLF had made outstanding loans to Venezuelan companies. Guillen is a resident and citizen of Venezuela who was the managing partner of the Venezuelan accounting firm which was the local affiliate of BDO, the world’s fifth-largest accounting network. Horna Napolitano "and others" then worked to create a fraudulent list of loans and to incorporate this list in the asset verification letter to be signed by Guillen.

In approximately January 2011, Guillen executed the false asset verification letter and sent it by e-mail to Illarramendi. Thereafter, Guillen and Horna learned that the false asset verification letter had been supplied to the U.S. Securities and Exchange Commission (“SEC”), and that the SEC had initiated a civil action against Illarramendi and others (SEC v. Illarramendi, et al., 3:11-CV-00078).

In an effort to deceive and mislead the SEC and to prevent the SEC from learning during the civil action that the asset verification letter was false, Guillen, Illarramendi, Horna and others sought to create fraudulent documentation to falsely support the information contained in the letter. Guillen also participated in a telephone call with representatives of the SEC in January 2011 in which he intentionally misrepresented that the assertions in the asset verification letter about the existence of the hedge funds’ assets were true, when he knew they were false.

Guillen expected to receive approximately $1 million for his willingness to sign the false asset verification letter. Horna maintained control of a Florida bank account in the name of Jeislo Real Estate Investments, LLC. In furtherance of the conspiracy, Illarramendi caused two transfers of funds in the total amount of $1.25 million to be made into this bank account. As partial payment for Guillen’s services in this conspiracy, Horna transferred $250,000 to a third party for the benefit of Guillen.

In a letter to the Court in accountant Guillen's trial, David E. Bergers, Regional Director of the SEC’s Boston Regional Office stated, “...the Defendant’s conduct delayed the Commission staff’s detection of a very serious financial fraud. It also resulted in the Commission staff expending additional government resources to uncover the fraud via other methods. We consider this kind of misconduct, especially by industry professionals such as the Defendant, to be particularly damaging to investors, to our capital markets and to the Commission’s investigative mission.”

Guillen and Horna were arrested by FBI special agents on March 3, 2011, in Florida. On May 4, 2011, Guillen pleaded guilty to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission. Horna pleaded guilty to the same charge on May 19, 2011.

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.

Florida resident Juan Carlos Horna Napolitano was sentenced by United States District Judge Stefan R. Underhill in Bridgeport, Connecticut to 14 months imprisonment, followed by two years supervised release, for his role in conspiring to obstruct a Commission investigation relating to Illarramendi. Horna was also ordered to forfeit $935,000.

Judge Underhill also sentenced Venezuelan accountant Guillen for his role in the conspiracy to obstruct the Commission’s investigation. On December 14, 2011, Guillen Zerpa was sentenced to 14 months imprisonment, followed by two years supervised release and ordered to pay a $10,000 fine and to forfeit $315,000.

Illarramendi -- who could face 70 years -- awaits sentencing.