The retired Venezuelan teacher says he was so desperate for dollars that he wired his life savings to a front company posing as a Margarita Island inn. Almost four months later, all he has to show for it is a menacing e-mail.
The faceless operators of the website that the math teacher, who requested anonymity, and thousands of others relied on to buy dollars in the country’s increasingly perilous black market are nowhere to be found.
“This isn’t a game, and both you and us can be seriously harmed,” read the message he received, a final plea for silence from Lechuga Verde, or Green Lettuce, before its website, Twitter and Facebook pages vanished overnight on March 8.
After a decade of currency controls, normally law-abiding Venezuelans and businesses are taking unconventional steps to find the greenbacks needed to protect against growing instability following Hugo Chavez’s death from cancer last month. That’s allowed fraud to proliferate, piling more risk into an illegal market for hard currency that’s being driven further underground as authorities hoard scarce dollars.
None of four Lechuga Verde clients interviewed by phone by Bloomberg said they know who was behind Venezuela’s main price reference for dollar-changing and why it disappeared without a trace.
Each provided copies of e-mails and deposit slips that depict a similar pattern. Like the Caracas math teacher, they spoke on condition of anonymity because they say they fear for their safety and face up to seven years in jail under laws that prohibit even mentioning the black market rate. Dozens more tales have been posted on websites to denounce Lechuga Verde.
Acting President Nicolas Maduro unveiled an auction system last month to rein in “parasitic bourgeois” speculators he blames for worsening inflation running at 23 percent and pushing down the value of the nation’s currency to more than 20 bolivars per dollar in the black market. Known as Sicad, the auction mechanism seeks to boost the supply of dollars after February’s 32 percent devaluation to 6.3 bolivars per dollar.
Like previous attempts to allocate dollars in South America’s largest oil producer, the system is unlikely to stamp out fraud as traders seek to arbitrage the differences among multiple exchange rates, said Asdrubal Oliveros, director of research group Ecoanalitica.
“As long as currency restrictions remain in place, the parallel market, in all of its opacity, will continue to be an escape valve,” said Oliveros in a phone interview from Caracas. The U.S. Treasury said in an e-mail that it remains concerned about the potential for considerable abuse and corruption in Venezuela’s black market and is monitoring the issue closely.
Venezuela’s financial system froze up in May 2010 after Chavez jailed several traders, shuttered more than 50 investment houses and closed a loophole allowing individuals and foreign companies to buy dollars at unofficial rates. The socialist leader blamed brokers who swapped bolivar-denominated bonds for liquid dollar debt abroad for a record 5.2 percent price jump the month before.
The swap market, which moved $100 million a day at its peak in 2009, was replaced by a state-run system that exacerbated a drought of dollars and was dismantled in February when the government devalued for the fifth time in nine years. Daily dollar sales that averaged $175 million in 2012 plunged to $121 million in the first two months of this year as the government seeks to narrow a deficit that tripled last year amid Chavez’s pre-election spending spree.
As demand for dollars migrated to the black market, sites going by names like Fresh Avocado or Your Benjamin -- a reference to Benjamin Franklin, who appears on the $100 bill -- cropped up on the Internet to circumvent a gag on local media reporting the parallel rate.
The most popular was Lechuga Verde, which amassed more than 100,000 followers on Twitter and 26,000 fans on Facebook. Like other sites, it quoted the bolivar’s underground value using prices obtained from exchange houses in the Colombian border town of Cucuta, whose economy thrives on demand from Venezuelan shoppers.
“Everybody used them,” said Russell Dallen, a Miami-based bond trader at Caracas Capital Markets. “In the Wild West that is Venezuela’s currency market, they were a trusted voice.”
Eventually Lechuga Verde’s owners got in on the action themselves, listing on their website an e-mail address, , where users could inquire about buying dollars.
Those who wrote were sent an almost identical pitch, according to the e-mails reviewed by Bloomberg. In exchange for bolivars deposited in Venezuelan accounts, a scanned copy of their passports and personal information like a telephone number and address, they could have any amount from a minimum $10,000 wired to any bank account in the world within three weeks.
The quoted price for buying dollars was always around 40 percent fewer bolivars than the reference rate on the website, the e-mails show, an attempt to ease jitters about handing over large amounts of cash to a firm with no listed address or phone number. Lechuga Verde said it was able to offer the attractive rate because it obtained dollars from companies with access to the government’s exchange window.
The math teacher on Dec. 6 made two transfers of 120,300 bolivars each into a checking account at Banesco Banco Universal CA, Venezuela’s No. 2 lender, belonging to Posada Casas de Guarame, receipts of the transfers show. He said he was told he would receive $10,000 for each deposit, to be wired to accounts in the U.S. and Costa Rica.
The name on the account matches that of a bed-and-breakfast in the hamlet of Guarame on Margarita Island, off the Caribbean coast. Attempts to contact Casas de Guarame were unsuccessful.
The teacher said he needed to shuttle out of the country the proceeds from the sale of an apartment in Caracas so he and his wife could start anew in Costa Rica, where their children had been studying. After the family paid down debt, the money was the only capital they possessed, he said.
While skeptical from the start, he said he took the risk after a friend carried out a successful transaction two months earlier. When the greenbacks failed to arrive, he said he sent a barrage of e-mails seeking to have his bolivars returned, even citing his limited mobility and battle with depression as a result of a stroke to soften up his faceless correspondent.
Another victim, a 23-year-old from Valencia now living in the U.S., said he was drawn to Lechuga Verde after reading a number of favorable customer reviews on social networking sites. In his case, he needed the cash to pay for an MBA at Miami’s Millenia Atlantic University. While Venezuelans can obtain dollars to pay tuition at overseas universities, the government only authorizes purchases for degrees it considers of interest to its 21st century socialist revolution. Finance isn’t one.
He too said he handed over the bulk of his savings, 115,900 bolivars, to an account in the name of Casas de Guarame, this one at state-run Banco del Tesoro CA Banco Universal, e-mails show. As instructed by Lechuga Verde, he described the transaction as a “resort purchase,” the wire transfer shows.
In the final e-mail the MBA student says he received Feb. 3, Lechuga Verde apologized and said it was forced to go silent for several days amid a drought of dollars and after two of its three accounts held abroad at units of Banesco, HSBC Holdings Plc and JPMorgan Chase & Co. were blocked. Still, Lechuga said it was remedying the situation and vowed to resume honoring its commitments by March 1, the e-mail shows.
“We understand that as time passes you lose certain credibility, but nevertheless we beg for one last vote of confidence,” read the e-mail, which was also received in early February by the other customers contacted by Bloomberg.
Banesco didn’t respond to a phone call seeking comment. JPMorgan and HSBC declined to comment.
Lechuga Verde in the same e-mail added that one of its owners and that person’s family members had received extortion threats, directly and over the Internet, from unnamed enemies who might also target its customers.
“Their aim isn’t only to denounce one of us but everyone who has a relationship with this person,” according to the e- mail. “That means you.”
On March 8, when Venezuela returned to work after a week- long period of national mourning for Chavez’s death, Lechuga Verde’s websites went dark. That’s when the victims said they knew they’d been scammed and began airing their stories on the Internet.
Attempts to reach Lechuga Verde were unsuccessful. Several e-mails sent to the address once listed on their website received no reply and repeated calls to Venezuelan cell phones provided by its alleged victims went unanswered.
While none of the victims knew anything about the person who signed e-mails with the initials “LV,” an anonymous person claiming to be Lechuga Verde’s owner provided details about his start in a May 2012 e-mail interview with Bloomberg.
In the exchange, he described himself as a young Caracas lawyer, engineer and computer geek unaffiliated with any investment house. He claims to have sold the idea for a similar site currently operating in Argentina, www.dolarblue.net, to track daily variations in the increasingly utilized black market rate there. The site does not offer currency trading.
The government has taken notice of what some victim websites have taken to calling a Ponzi scheme. Maduro, who is running as Chavez’s heir in an April 14 snap election, said March 25 that authorities are looking into “Lechuga.com” so that those behind acts of “economic sabotage” are jailed. The government on the same day said it is investigating 2,411 companies posing as importers for $8 billion in currency fraud.
The Information Ministry didn’t reply to e-mail and phone calls seeking comment about whether government policies are fueling criminal activity.
Maduro’s electoral opponent Henrique Capriles Radonski said today that corruption within the currency system has cost the country $15 billion. Should he gain power in the election, Capriles said he would “recuperate” the bolivar’s value by attracting foreign investment.
“What happens is they acknowledge this and then do nothing,” Capriles said in a press conference in Caracas. “A change of government would mean a change of climate for investment in the country.”
Until the currency controls are unwound, and the black market dismantled, no amount of government oversight is likely to end the abuse, said Steve Hanke, an economics professor at Johns Hopkins University who has advised countries including Argentina and Bulgaria on setting up currency regimes.
“It goes with the territory that you’re going to attract some thugs,” said Hanke, who tracks the underground bolivar as well as black market rates in Iran, Argentina and Syria to calculate implied inflation in countries that, like Venezuela, face dollar shortages.
For the dozens of swindled victims, there’s little room for recourse since the government considers them criminals in the same category as their alleged defrauders.
“If you’re cheated, there’s no one to protect you,” said Oliveros. “Dark activities like this will continue to take place as long as Venezuela’s disastrous, schizophrenic currency system is in place.”
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