A Connecticut hedge fund adviser carried out a $500 million fraud scheme with help from people in Venezuela, including a manager at the state-owned oil company, according to lawsuits seeking the return of tens of millions of dollars in what they say are bribes and kickbacks.
The payments were uncovered by a receiver's investigation into the dealings of Venezuelan-American financier Francisco Illarramendi, whose biggest investment client was a pension fund for state oil workers in the South American country.
In federal lawsuits filed last week in federal court in Connecticut, receiver John Carney is seeking to recover the payments for fraud victims. Those accused of taking payoffs to help Illarramendi include a former pension fund manager at the oil company, Petroleos de Venezuela SA, or PDVSA, and a businessman described as having extensive connections with government and banking officials in Caracas.
Illarramendi, who ran unregistered hedge funds out of offices in Stamford, Conn., pleaded guilty last March to several counts of fraud and conspiracy to obstruct justice in a scheme to conceal huge losses. He is under house arrest in New Canaan while awaiting sentencing and has declined to comment.
One lawsuit alleges Illarramendi paid $35.7 million in bribes to Juan Montes, who was a senior pension fund investment manager at PDVSA until August 2010. It says the payments cleared the way for Illarramendi to make bond-swap transactions that allowed him to keep up the scheme. A lawyer for Montes, who lives in Florida, declined to comment.
"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," attorneys for Carney say in the lawsuit.
The state oil company hasn't commented on the latest accusations in the lawsuits. Oil Minister Rafael Ramirez didn't mention the matter during an appearance on state television Thursday.
An annual report in December by the organization Transparency International ranked Venezuela among the most corrupt countries in the world _ 172 out of 183 countries and territories rated on perceptions of corruption. Venezuelan authorities have dismissed the ranking, saying it doesn't reflect reality.
Venezuelan President Hugo Chavez has said authorities must be vigilant in what he calls a "battle against corruption" in government programs, such as subsidized state-run markets where he complains some food has been resold at higher prices.
Chavez's critics say that the government hasn't taken actions to curb high-level corruption and that a lack of controls and information about public spending has contributed to the problems.
Illarramendi, 42, worked for the oil company as a consultant in 2004 but, according to the receiver's lawsuit, he was dismissed soon afterward and had a tarnished reputation at PDVSA because of an affiliation with a controversial finance minister, Jose Rojas. Although this made it difficult for Illarramendi to deal directly with PDVSA, he knew the pension fund had hundreds of millions of dollars to invest and used bribes, personal relationships and introductions by middlemen to do business with the company, the lawsuit said.
One defendant, businessman Moris Beracha, is accused of knowingly providing short-term loans for the scheme and in exchange for exorbitant fees, kickbacks and interest rates often exceeding 80 percent. The lawsuit seeks to recapture a total of $170 million in "fraudulent transfers" to Beracha and companies affiliated with him.
Beracha also assisted with the payment of millions of dollars in bribes to a PDVSA official known as "black," a nickname that Montes used in correspondent with Illarramendi, the lawsuit said.
"Illarramendi's business relationship with Beracha coupled with Beracha's access to and connections with Venezuelan government and banking officials was instrumental to Illarramendi's ability to perpetuate the Ponzi scheme," the lawsuit alleges.
Efforts to reach Beracha in Venezuela were unsuccessful.
Associated Press writer Ian James contributed to this report from Caracas, Venezuela.