Pyramid scandal shakes Ecuador

Jose Cabrera's sudden death sparked panic among thousands of people who gave him a minimum of $10,000 each over two decades in exchange for up to 10 per cent monthly interest.

The Toronto Star
December 28, 2005

Pyramid scandal shakes Ecuador
Thousands stung in scheme that topped $800M . 71-year-old notary behind scam took in judges, military.
Jeanneth Valdivieso

A 71-year-old provincial notary who died in a luxury hotel room in October left behind a teenage girlfriend - who said he'd been on cocaine and Viagra - and a crumbling $800 million (U.S.) pyramid scheme that has blossomed into a nationwide scandal.

Jose Cabrera's sudden death sparked panic among thousands of people who gave him a minimum of $10,000 each over two decades in exchange for up to 10 per cent monthly interest.

Most were rank-and-file police and military personnel - more than 6,500 of them - and residents of Machala, the port city where Cabrera was based. But the scandal has spread to high-ranking current and former military officials, judges, politicians and their families.

The head judge of the Machala Superior Court resigned after acknowledging that he had invested $15,000.

Ecuador's former commander of the Joint Chiefs of Staff put in $45,000 and the wife of a former defence minister contributed $125,000, local media have reported.

Interior Minister Alfredo Castillo said last week that the scheme was probably linked to money laundering for the drug trade, illegal arms dealing or counterfeiting.

Cabrera died of an apparent heart attack on Oct. 26. His 18-year- old girlfriend of two years told police he had been smoking cocaine- laced cigarettes, drinking whiskey and popping Viagra.

Cabrera's son and daughter denied that their father, a former president of the national association of notaries public, was involved in any shady dealings.

The family promised publicly to sort out the financial mess, before they disappeared last month as arrest warrants were issued.

Authorities believe they are in the United States, and are preparing extradition requests.

Hundreds of investors laid siege to Cabrera's notary office over three days in mid-November. They were joined by several police and soldiers assigned to guard the building.

Local television broadcast images of police and soldiers leaving the scene with cash stuffed in their pockets, shoes and protective vests.

Criminal charges were lodged against 17 members of the armed forces who allegedly used two air force planes to fly from Quito to Machala to search for their money. Another 28 military personnel have been relieved of duty.

In addition, eight police officers face graft charges for their alleged involvement in the scheme.

President Alfredo Palacio replaced his three top military commanders earlier this month. His administration has refused to explain the shake-up.

Machala residents who invested with Cabrera dug up his grave on Nov. 14 to make sure he was truly dead and had not faked his demise to get away with their life savings.

Cabrera, who as a notary was prohibited from handling investment funds, "managed around $800 million," said Congressman Carlos Gonzalez, who is leading a legislative investigation of the case.

That represented more than the $700 million total deposits of the Bank of Guayaquil, Ecuador's second-largest bank, Gonzalez recently told reporters.

Ecuador is no stranger to financial scandals.

Its corruption-riddled banking system collapsed in 1999 after years of financial mismanagement, prompting a switch to the American dollar as the official currency to stem the country's worst recession in several decades.

Credit: Associated Press


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