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Casa
Canada is not involved in the purchase or sale
of stocks, bonds, or other securities in any
way, however it is the advice of Casa Canada
Group that investors be extremely diligent
should they wish to invest in Costa Rica. The
legal system is dysfunctional, a civil case can
take up to ten years to resolve, the financial
regulatory authorities do not protect investors
and are ruthless in shutting down banks or other
financial institutions that seem not to meet
their guidelines, trapping investor or depositor
funds in interminable legalities.
Real estate
investments must be closely watched - frauds are not
uncommon where mortgages or other liens suddenly
appear against the title of a property, put in place
by crooked lawyers and swindlers. The legal system
does little to prosecute the perpetrators - Casa
Canada has a case where we went to sell a property
only to find a $150,000 mortgage on it. A swindler
registered a forged mortgage document against it.
The investigation by the prosecutor’s office began
almost three years ago, but the lien is still
against the property, the person defrauded has
received nothing and charges still have not been
laid even though Casa Canada provided the prosecutor
with the names of those involved and the bank
account into which the funds were deposited.. In
this way, the Costa Rican legal system helps thieves
and swindlers avoid justice.
After this
incident, Casa Canada Group began checking the title
of all properties it owns, manages or has mortgaged
every week. This service is available to others at
a cost of $2.00 per week.
Costa Rica
has little in the way of stock offerings. The stock
market trades mostly in debt such as bonds, and the
majority of that is from the government.
Stockbrokers, stock markets and anything to do with
stocks and bonds are supervised by SUGEVAL, who
along with SUGEF, the supervisors of banks and
financial entities, control the financial sector of
Costa Rica under CONASSIF - the Consejo Nacional de
Supervisión de Sistema Financiero, an agency of the
Central Bank of Costa Rica. These organizations are
noted for arrogant, heavy-handed behaviour, and for
the heartless way they deal with investors and
depositors. Should anyone believe that the
financial supervisory agencies in Costa Rica are
there to protect investors, as they are in many
countries, it is necessary to think again. It would
be closer to the truth if we were to say these
agencies protect investors from their money!
Here are
examples of these entities in action, where Casa
Canada was involved and has first hand experience.
SUGEF - Superintendencia General de Entidades
Financieras
(Supervises banks and financial institutions)
In early
2004 Banco ELCA, with whom we dealt, was
investigated by SUGEF. Following the investigation
it was alleged that Carlos Alvarado, the President
and owner of the bank was engaged in illegal
activities. On Tuesday, June 29, 2004 Banco ELCA
was intervened and closed down by SUGEF, in spite of
the fact that it had more than enough assets to
cover all deposits and investment certificates.
Depositors, investors in certificates of deposit and
small businessmen had no access to their funds.
Carlos Alvarado was arrested and held in what is
called “preventive detention”. This is where the
government of Costa Rica can hold someone suspected
of a crime in prison for an indefinite period
without charges being laid.
The
intervention caused chaos among depositors. Small
businessmen could not meet their payroll; pay their
bills, rents or other obligations as their funds
were beyond reach in the bank. Many personal
depositors could not pay their rent, mortgages or
other month end payments. This type of grief does
not concern the financial supervisors - no doubt
these ruthless individuals selected the date of the
intervention to be when deposits would be highest as
clients prepared to write month end cheques.
Branches were
closed, employees fired and the finances of the bank
investigated in detail. The interventors spent
enormous amounts of money during this period. While
you may guess that the government paid this, you
would be wrong - this money came from deposits in
the bank. Eventually personal deposits up to
$10,000 were paid from cash on hand, but nothing was
paid to the small businesspeople who had a
corporation - they had to struggled along without
access to their bank accounts where deposits covered
their month end bills.
On April 21,
2005 there was a meeting held to elect a
representative of the depositors on the liquidation
committee for the bankruptcy of Banco ELCA. This
committee was comprised of a representative of the
owner, an appointee of SUGEF and a representative of
the depositors. Once this committee took over and
SUGEF could be outvoted the massive losses stopped,
gradually turning into a profit as the bank’s assets
were better managed. Subsequently the majority of
deposit money was distributed to depositors. At the
date of writing some 20% remains to be distributed,
and the liquidators feel that most money will
eventually be returned, but not before incredible
hardship had been caused to depositors and employees
by this unnecessary intervention.
The
committee has sued SUGEF for wrongful intervention
and for losses created by that entity while in
control of the bank. The case is still in court.
SUGEVAL - Superintendencia General de Valores
(Supervises stock markets and brokers)
On August 5,
2004 SUGEVAL intervened Financorp, a security
brokerage company with whom we were dealing. We
knew the company was in trouble well before the
intervention due to owners borrowing against client
bonds, and had come to an arrangement with investors
representing the majority of the funds and with the
owners, to place the company into voluntary
receivership, with the just retired president of the
Costa Rica stock exchange in charge. We hired
auditors, to work with the official auditors of
Financorp, to do an audit of the company. Most
information was available in three days. Our
intention was to continue to operate the company and
gradually return investor funds from profits. The
bond market was at a panic selling low, so the
recovery of the market that happened would have
saved everyone’s investment and the employees jobs..
SUGEVAL were
notified of the situation, and of the fact that we
would be operating a receivership. This did not
suit them, so a couple of days later they
intervened, kicked out our auditors and closed the
company. The employees were fired, and bonds given
to those who had loans against them, in spite of
written instructions to SUGEF to not sell Casa
Canada owned bonds. Our assets were dumped into a
common pool with other investors; in spite of the
fact that we had written proof that our bonds
belonged to us from the government registrar. Once
again, the expenses of the intervention including
staff were paid from the investor’s funds.
On December
15, 2004 at an investor’s meeting the interventor in
charge of Financorp offered a deal - if we would get
a quitclaim signed by all investors agreeing not to
take legal action against SUGEVAL, they would pay
the amount of our investment that remained. At this
time the figures indicated that this would be about
45-50% of our investment.
In spite of
the disruption of the Christmas holidays, by January
10, 2005 all investors had signed quitclaims - legal
costs were paid by the investors. On January 17 we
were informed that SUGEVAL had changed its mind -
they wanted to do a formal liquidation through Costa
Rica’s hopeless court system. A meeting of
investors was held, and all signed a request to
CONASSIF to distribute funds as SUGEVAL had
promised, but to no avail. Some investors were
desperate to get some of their money by this point,
so a letter was send to the public defender
requesting help. Proposals were requested from top
lawyers to take criminal action against SUGEVAL, but
as the legal costs were in the $330,000 range it was
beyond the ability of the investors to pay. This
whole fiasco involved only about 20 investors and
the regulators totally disregarded their unanimous
wishes!
In spite of
investors doing everything in their power to prevent
a long, costly liquidation, it went to court. A
letter from the public defender stated that CONISSIF
had made the final decision against distributing
what was left of the funds to the people who owned
them.
As seems
standard procedure, neither the court nor the
appointed liquidator did much of anything. Unlike
banks, only a single court appointed liquidator is
involved for securities dealer bankruptcies. The
judge refused to hear from investors, the liquidator
did not communicate or even bother to pick up
cheques for over $220,000 as part of the Banco ELCA
distribution to Financorp - a letter from Casa
Canada brought that to her attention. In addition
Casa Canada launched various constitutional court
actions to try to get information. Of course,
liquidators and courts received fees and costs from
the remnants of the investor’s funds.
On January
15, 2009 Casa Canada representatives finally met
with the liquidator. She had received a permanent
position on the Election Tribunal and wanted to
terminate her liquidator position as soon as
possible. In February investors received their
first funds, 21% of investment, 4 ½ years after the
totally unnecessary SUGEVAL intervention. A new
liquidator, who wants to bring this to an end and
pay investors, could not get information or the
computer with the data in it for over 3 months - and
the previous liquidator would not return his phone
calls.
We finally
receive another distribution on Feb 11, 2010, but
the court, which as usually will not make a
necessary decision, is preventing him from
disbursing the rest of the funds.
The process
goes on, large amounts of money appear to be missing
from the new balances given and the investors remain
helpless.
Investment in Costa Rica should be approached with
extreme caution - these are only a few examples of
many that we have had the misfortune to experience.
IF YOU PLAN TO INVEST IN COSTA RICA, CONTACT CASA
CANADA. WE OFFER FREE ASSISTANCE AND COUNSELLING TO
TRY TO HELP INVESTORS AVOID THE MANY PITFALLS.
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