A Summary of a Massive Financial Fraud Campaign Against the Venezuelan State and People

As a political actor against the Venezuelan government mainly via its editorials Veneconomy has just published a shameful piece trying to justify the actions of stockbrokers who did irreparable damage to the Venezuelan economy since exchange controls were imposed on January 17th 2003.

Axis of Logic Editor’s Note: The start of the trial of 10 stockbrokers in Caracas as reported by Veneconomy sparked Arturo Rosales to remind us all about what was behind the 2010 stockbroker scandal in Venezuela and to debunk the flagrant mendacity of Veneconomy. Compare this with the treatment received by stockbrokers, bank presidents, CEOs of multinational corporations and all the white collar criminals on Wall Street by the Obama regime in Washington.

– Les Blough in Venezuela

The Venezuelan government shut down 67 stockbrokerage firms in May, 2010 and arrested 10 of their directors.

Veneconomy forgets the facts

As a political actor against the Venezuelan government mainly via its editorials Veneconomy has just published a shameful piece trying to justify the actions of stockbrokers who did irreparable damage to the Venezuelan economy since exchange controls were imposed on January 17th 2003. In April and May 2010 most of the Venezuelan stockbrokers were intervened and audited by the National Securities Commission for illegal speculation in the parallel exchange market, or “permuta”, and forcing down the value of the local currency in terms of the US dollar thus triggering inflation.

The accused are:

VenevaloresMarco Siervo and Eduardo Sacco, president and director

EconoinvestMiguel Osío, Ernesto Rangel, Hernán Sifontes and Juan Carlos Carvallo, director, subdirector, administrator and sales director

MultinvestWilton Castellanos and José Oropeza

BanvalorJosé Ignacio Rivero Pedrajas, managing director

Marcos Siervo, President of Venevalores taken into custody

All were charged under the Control of Illicit Currency Trading Law and the Law against organized crime.

By buying local government debt in bolivares it was possible to sell these securities abroad in US dollars and in this way get around the exchange control mechanism and obtain US dollars in an account outside Venezuela. This continued for several years unhindered but then the stockbrokers bent the rules and started committing fraudulent transactions so as to be able to buy more dollars at the exchange rate they actually set.

The cat out of the bag

Suspicions were raised when several members of the public were discovered to have made multimillion bolivar transactions in the foreign exchange or swap market buying Venezuelan government debt when they did not know anything about such transactions. In fact, they did not even know what the swap market was.

The stockbrokers had obtained copies of their ID cards and used them to justify transaction which in effect led to the illegal purchase of US dollars at more than double the official exchange rate. Some of the victims of this fraud were discovered living in shanty towns along the start of the Panamerican highway which leads out of Caracas into the surrounding mountains.
In effect many of these dollars came from the Venezuelan state as the ultimate holder of government bonds is the Venezuelan Central Bank which has to pay out US dollars from the international currency reserves that belong to the Venezuelan population as a whole in order to cover the value of the bonds.

Stoking inflation

US dollars for imports could be obtained legally via the Currency Exchange Commission, CADIVI, at the official rate of 4.3 and used to import essential items for the Venezuelan population. However, with so much speculation and fraudulent purchases of dollars being machinated by the stockbrokers who pushed the parallel rate out to more than 8 to the US dollar, this impacted negatively on inflation.

Many importers would buy dollars at 4.3 and then price the goods they had purchased abroad at the parallel rate. Thus, an importer buys a widget at US$0.30 and wants to see it at US$0.60 for a 100% profit – not unusual in Venezuela. He would multiply the cost to him in bolivares (US$0.30 x 4.3 = Bs. 1.29 x 100% = Bs. 2.58) to arrive at the – real selling price of Bs.2.58. This is all well and good BUT, the importer would typically multiply his selling price of 100% profit in dollars (in this case US$0.60) by the parallel exchange rate of say 8 giving a selling price of Bs. 4.8 per widget which is 86.04% above what would be regarded as a normal profit in Venezuela.

It does not take a rocket scientist to work out the damage done to the economy by stoking inflation and the damage done to people’s standard of living as prices rose overall by 25% – 30% per year as the local currency devalued. In effect, the parallel rate or permuta was set by the stockbrokers committing massive fraud against the nation to line their own and their clients’ pockets.

A small percentage of the population destroying the economy

Veneconomy claims that there were 3.5 million investors in the Venezuelan capital markets. This is pure fantasy and effectively blatant lies to support their complaint of the National Securities Commission taking action against the stockbrokers.

The largest stockbroker was Econoinvest located near Centro Plaza mall on the Avenida Francisco de Miranda in Latin America’s richest municipality, Chacao. Econoinvest claimed to have 50,000+ investors on their books. When this company was intervened and audited the authorities found around 4,000 clients. Security cameras showed Econoinvest staff dismantling the offices in the night, taking out computers and works of art in a bid to escape justice as the dragnet of the Securities Commission closed in.

The authorities found hundreds of checks made out to individuals which had never been cashed and were all part of an elaborate fraud to fleece the nation’s international reserves – that is the oil revenues which build up these reserves. People who had trusted many of the brokers to invest their savings were cleaned out as the fraud was uncovered. When clients who were owed money by Econoinvest were offered payment by the authorities many did not turn up to claim their funds. Did these clients know that the transactions they had authorized to be carried out in their names were illegal?

A bit of history and the consequences

The crimes of the 67 stockbrokers closed down by the authorities were all prejudicing the nation with their actions and were not investing but using the exchange rate mechanism via government bonds to clean out the international reserves. In the author’s view this was a rolling economic coup d’état to weaken the economy and hence the government by creating huge inflationary pressures. The same tactic was tried during the oil industry sabotage in 2002 – 2003 when the Venezuelan opposition tried to buy up the international reserves in the Central Bank, bankrupt the Venezuelan state and cause the downfall of the government.

As we can see these kind of actions are very sensitive in Venezuela since this is what happened on Black Friday 1983 when the then government had hardly any reserves left and was forced to close the banks and devalue the currency at that time causing the historic structural inflation which has still not yet been controlled for more than 28 years.

The 1994 banking crisis was another nail in the coffin of the Venezuelan economy when inflation was over 100% with wages frozen in the 1990’s. On that occasion the bankers stole customers’ deposits and left the country. It cost the government of Rafael Caldera some US$18 billion to save the financial system and only one banker was ever brought to justice – a Cuban called Orlando Castro who was captured in Miami by the FBI!

Venecomomy’s fatuous arguments are just political propaganda

Veneconomy tries to blame Jorge Giordani, the Planning Minister, for wanting to close down the capital markets since he is a “communist”. This is far from the truth. The capital markets had to be closed down to stop the economy from being destroyed and to bring the main culprits of crimes against the economy and state to justice.

The accusation by Veneconomy that these stockbrokers are “political prisoners” is simply laughable. Just read Venecomomy’s article and look at the number of omissions and twisted facts it contains. In the private corporate media any opposition figure who commits a crime, no matter what, is always called a “political prisoner of the Chavez regime”. For me and millions of other Venezuelans hit by inflation, these are crimes against the nation, if not against the state, and require exemplary sentences as a deterrent to others plotting to overthrow the democratically elected government by using whatever form of “economic warfare”.

Thus, when the monthly inflation figures were published the cohorts of these perpetrators of economic warfare in the private corporate media placed the blame at the door of the government’s economic policies maintaining that they had failed. The truth is that there was and still is a massive conspiracy amongst the moneyed classes to oust President Chavez by making economic conditions unbearable for the mass of the voters. The government may control the prices of some 17 basic foodstuffs but this is not enough to put the brakes on inflation when the business class is consciously working against the government and its fellow Venezuelans.

In addition, Veneconomy mentions the “implicit” exchange rate for selling Venezuelan debt abroad which would be the parallel rate. Make no mistake there was no free market exchange rate. This rate was set on a devalued basis almost every week by the brokers active in this market who are the same people currently facing trial in Caracas.

It was these companies and their rich clients who wanted to buy dollars by whatever means necessary and at any price. They were the active participants in the debt and dollar markets setting the exchange rate – so there was not really any free market mechanism to allow a free rate to settle due to market forces but a rate fixed in line with the desire of these companies and their directors to destroy the economy and overthrow the Chavez government.

After cleaning out the system

Since that time in the last 18 months, with no permuta exchange rate being run by professional fraudsters, the parallel exchange rate has hardly changed bringing about some stability instead of a constant devaluation. The local Caracas stock exchange has surpassed its historical highs reaching 100,000 when the previous high was around 61,500 in 2006. Thus, funds are not going to buy dollars but being invested in the publicly traded companies quoted on the Caracas Stock Exchange.

The capital markets still function in Venezuela but for real investors and not for a gang of crooks operating to line their own pockets, weaken the government and the Venezuelan state by destroying the economic fabric of the nation.


This whole strategy to buy dollars was tantamount to a plot, probably blessed by the US State Department, to overthrow Chavez by attrition. It has not worked and will not work in the future.

Let us hope that the stockbrokers on trial are given long prison sentences for their crimes against the nation. Perhaps Venezuelan judges should look at the sentence handed out to US Ponzi fraudster Bernie Madoff of 150 years behind bars. Here in Venezuela the maximum sentence is 30 years and if you are still in jail when you turn 70 years old, you are automatically sent home to serve out your time.

Don’t hold your breath though. Venezuelan justice suffers from the vicissitudes of how much money you have in the bank so we Venezuelans must wait and see if any of these white collar criminals get their just desserts or whether there is a sellout of justice to benefit the rich……yet again.