Behind the scenes of Financial Pacific
Thursday, December 27 2012 @ 12:18 PM EST
Contributed by: Don Winner
With only five months in office, the signal was given to Petaquilla Gold to market their products.
The decision was made after having negotiated "better benefits" for the Panamanian government, said Roberto Henriquez, who at that time was the Minister of Trade and Industry, and who today is the Minister of the Presidency.
Two years later, amid a major financial scandal in the Financial Pacific brokerage house, stories come to light related to the mining business and executive power.
Mayte Pellegrini is the prime suspect in an illegal transfer of money on a complaint lodged by the directors of Financial Pacific. She revealed to the prosecutor alleged links between high ranking government officials, the investments of the brokerage firm, and the shares of Petaquilla Minerals (Petaquilla Gold Holding).
Pellegrini remains in custody by order of the Thirteenth Circuit Prosecutor.
In a sworn affidavit given on 22 November 2012, Pellegrini said the Directors of Financial Pacific Iván Clare and West Valdés had said publicly a secret account called "High Spirit" was opened to "manipulate the stock market with shares of Petaquilla." And it belonged to the president, Ricardo Martinelli.
Such an accusation put tension into the Stock Market once again.
Industry executives, who are faithful believers in remaining anonymous in order to give confidence to their customers, are shy and fearful of the consequences of the Financial Pacific case.
They warn that what began as an isolated fraud could pose an imminent threat to market stability because of the alleged facts that are coming to light with each passing day.
The performance of the shares of Petaquilla Minerals is tied to the supply and demand for the company's products, the investment policies in the countries where it operates, to its administrative and economic and political environment, as it is with any other company, and market conditions.
If someone has privileged information and uses it to favor their investments, they would be able to expect with much confidence their money would multiply faster than those who are making their moves blindfolded.
And when there are imminent risks that would cause the price of these shares to drop, then they would be able to liquidate these instruments and emerge unscathed, while the other investors would lose their money.
In the hypothetical case that some official (of the Panamanian government) had negotiated shares of Petaquilla knowing that the decisions made by the State would impact the stock price, they could have taken much advantage. Let's see why.
Just before Petaquilla started taking gold from their mine in 2010, at almost the same time, the purchase and sale of shares of Petaquilla Minerals increased.
This unusual movement is observed from 26 October 2009.
On this date shares in Petaquilla Minerals achieved a total traded volume of 2,805,000 shares and was quoted at 22 cents per share.
On 13 November 2009 there was another great move in these shares. Reflected in the Toronto Stock Exchange, Canada was a total volume of 5,723,000 shares of Petaquilla Minerals, at 25 cents per share.
By the end of December 2009 the share price had risen to 80 cents per share, when the government had already negotiated a new relationship with Petaquilla Gold, to authorize the marketing of their products.
On 4 January 2010 the price rose to 88 cents per share, exactly in the same month that Petaquilla Gold had acquired the backing from the state to start exporting gold.
If a person has acquired using insider information a package of 100,000 shares in the end of October 2009 at 22 cents per share, by early 2010 their investment would have tripled.
When the Martinelli administration sanctioned the new mining law (which was later eventually withdrawn) on 11 February 2011 the stock was trading at $1.14 (or 1.22 Canadian). Anyone who invested in late 2009 kept winning.
At that time the protests by environmentalists, trade unionists, and opposition politicians, and especially the indigenous Ngäbe Bugle, in whose territories there are major deposits of copper and gold, intensified.
Despite the clashes, which ended with street closings, people injured and arrested, the Government maintained its position to implement the newly adopted mining code.
With this scenario in favor of mining, on 15 February 2011, and just five days after the new mining law was enacted, the share price climbed to $1.20 (or 1.27 Canadian), its highest ever.
Anyone who purchased the stock at 22 cents per share had succeeded in upgrading their investments by nearly 600%.
The President held his position of not rolling back his decision on mining, despite the strong criticism and pressures inside the country.
In parallel, the share price of Petaquilla Minerals remained above $1 per share.
An interesting fact is that on 23 February 2011, when the mining reforms were still standing, there was a sale of 2,216,000 shares at the rate of $1.13 each.
On 3 March 2011 President Martinelli pledged to repeal the law that reformed the mining code. And then on 7 March 2011 the share that had reached a price of $1.20 collapsed to 95 cents per share.
Roberto Brenes, the Manager of the Panama Stock Exchange, believes that with Pellegrini's claims the market regulators in Canada should start an investigation, where shares of Petaquilla Minerals are traded.
From Ontario it can be determined whether the movements in the purchase and sale of the shares took place from Panama, and who ultimately own the accounts that are generally moved on behalf of third parties.
"It's very ugly what they are saying might be happening," said Brenes.
Ivan Clare, the Vice President of Financial Pacific, denies Pelligrini's indictments.
On Monday, 17 December 2012 at 11:30 am, Clare went to the offices of the La Prensa newspaper to give his version of the fraud in the brokerage house.
During the meeting he was asked questions about what Pellegrini revealed during the investigative process in her statements, the document to which this newspaper (La Prensa) had access.
Visibly affected by the concerns, Clare said he would answer the questions via email.
- According to the affidavit rendered by Mayte Pellegrini, in the Financial Pacific brokerage house you had senior government officials as clients. Is this true? Is President Ricardo Martinelli one of those clients?
- How and since when did the President of the Republic become your customer?
- Does the brokerage firm make sales and purchases of Petaquilla stock?
- Are the investments of these officials, including the President, also included the sale of shares of Petaquilla?
- Of whom, and for what is the account called "High Spirit" used?
Clare was sparse. He replied that "Article 65 (of stock confidentiality) of Law 67 of 2011 of securities, expressly prohibits him from answering the questions or revealing the names of customers, without an express order of a court or regulatory authority, so these questions must be submitted to the regulator."
"In any case, we can say expressly and unequivocally that the account referred to is not that of Mr. Ricardo Martinelli Berrocal or any of his relatives."
Ricardo Martinelli and Mining in Panama -
During the presidential campaign, Ricardo Martinelli said on 11 February 2009 how his administration would act on environmental issues if he won the election.
On page 32 of his government plan he said that among the main causes of deforestation was open pit metal mining.
In his regular media appearances, Martinelli also promised an audit of of the concessions that had been granted, including Petaquilla Gold.
To reporters of this newspaper (La Prensa), when he was still a candidate, Martinelli spoke against the environmental practices of Petaquilla.
He even said he would seek sanctions against the company owners.
However, as noted by the environmentalist Alida Spadafora, these measures had not been implemented as of 11 December 2009.
By March 2010 the President stated he was willing to amend the Code of Mineral Resources to facilitate foreign investment. He said the country could not miss a great opportunity, and was being left behind in mining due to lack of legislation.
During an official visit to Peru on August 27, 2010, the President said the environmental lobby in the world ignores the benefits of responsible mining in the development of a country.
On 4 October 2012 Martinelli announced the creation of a Ministry of Energy and Mines, because of the importance these economic activities will have on the country. In 2015 Panama will be "a mining country," he said.
An International Case - The use of privileged information in the purchase and sale of securities is punished in the country.
The issue is extensively detailed in Article 247 of the Securities Act, passed in 2012, which states that any person who provides information, as well as anyone who uses it, will be jointly and severally liable for the damages suffered by persons who are unfairly affected.
However, the revelations in the Financial Pacific case are complicated from a legal standpoint.
Carlos Barsallo, the former Commissioner of Securities, said Panamanian laws only apply when the misuse of inside information or insider trading in securities has been registered with the Panamanian regulator.
Shares in Petaquilla Minerals are not registered in Panama, which means that administratively, there would be no prohibited activity or event to investigate.
In criminal law, which the Public Ministry is investigating and pursing, the crime of manipulation of information (Art. 251 of the Penal Code) indicates that it is required, as in administrative matters, that the shares of stock be registered in the regulator.
Panamanian criminal law is applicable even if the crimes listed in Article 19 of the Criminal Code are committed outside of the country, which does not include financial crimes such as insider trading which are found in the Title on the order of economic offenses.
The issue, in any case, could be of paramount concern and competence of the administrative and criminal authorities of the markets where the violation occurred, specifically the province of Ontario in Canada. This is where the Toronto Stock Exchange (TSX) functions and where shares of Petaquilla Minerals are traded.
Those authorities should, upon seeing the news in Panama, determine whether or not to start their investigation, and to seek assistance from Panama, said Barsallo.
The assistance must be requested through the executive authorities, who would commission the Public Ministry, which today is under the command of Ana Belfon, the former Executive Secretary of Legal Affairs of the Presidency. (Prensa)