Rigged oil auctions said to squander years of PDVSA profits
HOUSTON (Bloomberg) -- No country in the Americas is deemed more corrupt than Venezuela. There are so many tales of bribes and influence peddling, it’s hard to keep track.
But now, in a deeply detailed account spelled out in U.S. courts, it is the government itself -- or, to be exact, the trust of the state-controlled oil giant -- that alleges it was the victim of a decade-long bid rigging scheme costing it billions of dollars.
The ploy, allegedly executed by a small and mostly unknown Miami oil trading firm, has all the trappings of a TV detective-thriller: A cloned computer server; a computer geek known as “the nerd;” an estranged wife.
It also features an oil trader with an intriguing pitch: “I can guarantee you are going to win.” The alleged winners included such household names as subsidiaries of Glencore, Trafigura Beheer and Vitol Group, among the more than 40 individuals and firms named as defendants.
To some, the claims, filed by oil giant Petroleos de Venezuela, are a footnote in Venezuela’s current chaos. The U.S. has sanctioned more than a dozen top officials and military leaders in President Nicolas Maduro’s government for human rights abuses. Yet the litigation is being closely watched by oil traders as well as debt investors eager to find ways to get repaid after the company defaulted on many of its bonds in recent months.
“The interest transcends the oil world,” said Russ Dallen, a managing director at Caracas Capital. “Bondholders and creditors are trying to figure out how they can put their hands on the money that PDVSA may receive from the lawsuit.”
Electronic Bidding
At the heart of the alleged scheme were auctions, known in the industry as tenders, held by PDVSA to import or export millions of bbl of oil products. The PDVSA tenders are coveted among traders because of the large volumes of fuels, such as gasoline and naphtha, the company has been buying and selling over the years. Only a handful of market participants are invited to take part in the electronic bidding.
The suit alleges that oil trader Helsinge bribed a former PDVSA tech employee -- “the nerd” -- to hook up its computers to PDVSA’s servers. That gave Helsinge direct access to secret information on oil auctions on a real-time basis. Helsinge then used the information, such as details on competing bids, to win the lucrative auctions, the suit alleges, often by suspiciously small margins.
Hard Drive
Other times, it sold the inside information to rival trading houses to enable them to place winning bids, the suit says. Helsinge’s price wasn’t cheap. One trader told Bloomberg the initial fee was about $200,000 for 500,000 bbl -- around 10 times the going broker commission. Helsinge was formed by two former PDVSA traders, Francisco Morillo and Leonardo Baquero.
Helsinge made its "guaranteed win" pitch repeatedly over the years, according to traders at different companies who were approached and declined to participate.
Helsinge and Morillo declined to comment. Trafigura and Vitol spokeswomen declined to comment, while Glencore didn’t return emails seeking comment. Baquero didn’t respond to inquiries requesting comment. PDVSA didn’t return a call and email seeking comment.
The alleged scheme was broken open, the PDVSA trust says, when it obtained the hard drive from the estranged wife of Morillo. Vanessa Friedman had come into possession of the hard drive after winning a temporary restraining order against her husband in 2010 that prevented him from having access to his computer. Friedman declined to comment.
Bidding Blind
The laptop contained emails and instant messages showing incriminating exchanges between Helsinge and traders, the suit alleges. In an April 2005 email, Morillo provides Paul Rosado, a former trader at Colonial Oil Industries Inc., with competitors’ bids for a series of gasoline, diesel and fuel oil cargoes.
In December that year, according to the suit, Rosado complained in an instant message exchange that he was bidding blind in the midst of a tender. Morillo, who according to investigators used the alias "George White," responded, "yes I know. The machine did not turn on for me."
Later in the exchange, after Rosado writes, "I need to know the level to be able to kill,” Morillo replies with the current bid details.
Colonial and Rosado “vehemently deny the allegations,” said Francis A. Brown, executive vice president of finance for Colonial.
A market participant who asked to remain anonymous said he eventually gave up bidding -- the same companies would win, over and over again.
Helsinge’s success in winning contracts didn’t go unnoticed at PDVSA. Not only was it odd for a tiny company to win, but Helsinge would win tenders by unusually small margins.
Internally, PDVSA traders were told to be aware of Helsinge bids, but action was never taken to shut down the practice, according to one of those traders. Upper management told them, the trader said, that they considered the electronic bidding system to be corruption-proof.
