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.

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