San José, Costa Rica, since 1956

Villalobos Declared Guilty

A crowded courtroom looked on as businessman Osvaldo Villalobos was hauled off in handcuffs Wednesday afternoon after being given an 18-year prison sentence for fraud and illegal financial intermediation.

His fugitive brother, Luis Enrique Villalobos, the alleged kingpin of the siblings’  San José-based investment scheme said to have attracted hundreds of millions of dollars from mostly foreign investors, is still at large.

Over as many as two decades, the unregulated financial operation known as “The Brothers” accepted investments – in chunks of at least $10,000 in later years – from more than 6,300 investors and paid approximately 3% monthly interest on them.

This week’s guilty verdict has wide implications in the five-year-old case. The two brothers ran a legally registered moneyexchange business in Mall San Pedro in east San José next door to an unregistered investment scheme the brothers called a “personal loan” business.

Osvaldo was absolved of money laundering charges in the case, since prosecutors couldn’t prove he knowingly received any drug money, judges said.

The Baptist-raised brothers, who were known for handing out bibles, holding twice-a-day prayers with employees and decorating their offices with Christian paraphernalia, gave investors in their operation undated checks as receipts for invested funds.

Defense lawyers in the case tried to show that the two businesses were separate – that Osvaldo ran the legal money-exchange business Ofinter, S.A., while it was Luis Enrique who ran the unregulated investment business.

But judges said in their ruling Wednesday that the two businesses were clearly tied together.

After reading a lengthy verdict in which Osvaldo Villalobos was also ordered to pay back millions of dollars to investors with civil cases against him, judge Carlos Pérez stood up with a microphone and whiteboard and broke down the court’s decision in an atypical hour-long presentation to a courtroom full of investors, most of them grayhaired foreigners.

The Brothers’ operation was not what it appeared to be, Pérez said.

“Ofinter was a façade,” he proclaimed.

He said that the prosecution proved The Brothers accepted investment deposits from the public and that the unnamed business and Ofinter were not separate organizations but shared communication, management, staff and funds.

Pérez explained to investors at the trial –including many foreigners who struggled to understand the lengthy Spanish-language presentation – how they had been duped.

For instance, Luis Enrique – whose whereabouts remain unknown – told investors that he was the owner of a personal loan company, though no such registered company existed, Pérez said.

The judge referred to a piece of evidence – a business card of Luis Enrique’s assistant David Mathieson that read “Villalobos Brothers Enterprise, a subsidiary of all-powerful God and his children.”

The judges said Osvaldo was clearly involved in the investment business. They read through The Brothers’ “Alternative Emergency System” document discovered during a July 4, 2002, raid on The Brothers’ Mall San Pedro offices. The document laid out how Luis Enrique and Osvaldo were to go into hiding in the case of an “emergency” and that employees were to run their business in their absence while keeping in contact with the siblings.

He referred to the “Villalobos system” as a “circular model” that relied on secrecy and personal references to survive and was only able to pay interest if it found enough new investors each year to do so.

One document, which The Brothers gave to potential investors, said, “If someone comes to ask about you, we don’t know you,” according to Pérez.

Government to Blame?

Judge Manuel Rojas also pointed a finger at the Costa Rican government’s Superintendence of Financial Entities (SUGEF), which in 1999 reviewed Ofinter and found no irregularities, but failed to review the neighboring personal loan business.

“If SUGEF had acted as required maybe this wouldn’t have happened,” he said.

The Tico Times tried to contact SUGEF director Oscar Rodríguez but didn’t receive a response by press time.

In the verdict reading, the three judges defended the Prosecutor’s Office, brushing off the defense’s accusations that the raid of The Brothers’ offices and Osvaldo’s home was illegal.

Rojas’ SUGEF scolding may have given fuel to a group of 137 Canadian Villalobos investors who have filed an international suit against the Costa Rican government for its alleged failure to protect foreign investments under a Bilateral Investment Treaty signed with Canada in 1998 (TT, April 13).

“The Costa Rican government’s involvement and liability isn’t just with SUGEF” investor Jack Caine wrote in a post-verdict email.

Caine, who helped file the pending international suit against the Costa Rican government, said several other public institutions allowed The Brothers to operate and thus violated Costa Rican law.

Wednesday’s verdict awarded damages to more than 100 investors, most of the 178 investors who had civil complaints against Osvaldo Villalobos in the trial. But Judge Jeaneth Villareal said the money – estimated to be as much as $12 million – in accounts that authorities froze in 2002 and which would be used to pay investors with civil claims will remain frozen until all appeals against Villalobos’ sentence are final – which defense attorney Alexander Ruiz says will take at least six months.

Many of the estimated 6,300 investors, some who lost their life savings when The Brothers stopped operating, were left scratching their heads after the verdict.

“Personally, I think I’ll never get money back,” said Keith Finger, 63. The retired Florida optometrist who moved to Costa Rica last year was in the standing-roomonly court in downtown San José with other investors and Villalobos family members Wednesday. Villalobos family members The Tico Times consulted wouldn’t comment on the verdict, and Osvaldo Villalobos couldn’t be reached for comment since bailiffs escorted him out the court’s back door.

The verdict came as a mixed bag to a group of Villalobos supporters called the United Concerned Citizens and Residents (UCCR), who have claimed to be in touch with Luis Enrique and have published letters allegedly written by the fugitive financier telling investors to withdraw their claims against him.

“It is especially critical that the court rule against the money-laundering charge.

If it does, then Enrique could again move funds normally within banking systems.

In that event, it is possible that payments could start even without his presence in Costa Rica,” UCCR president John Manners said in a May 14 letter posted on the UCCR Web site two days before the trial. But Manners wrote Luis Enrique would likely have to wait until after the appeals process before doing so.

Investor Bill Turner was angered by the news that he may not be getting his money back any time soon.

“I think it’s outrageous. There’s no justice in this country,” said Turner, who invested about $100,000 with The Brothers.

“I couldn’t afford it but at least I didn’t commit suicide like some investors did,” he said.

Osvaldo, who has already spent nearly two years in preventive detention and house arrest, was ordered Wednesday to eight months preventive detention while the case proceeds. His sentence will be confirmed at a June 8 hearing, then defense attorneys will have one month to appeal his case.


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