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  • 3% per Month? More on "The Brothers"

    And More in the Insider!!

    New!! BROTHERS UPDATE- (from the LA Times Picayune) With brand-name products commanding prices twice as high as back home and rents topping those in many U.S. cities, pensionarios, as the retirees are called, have had to scramble to make ends meet.And for untold hundreds, perhaps thousands, that scramble has propelled them into the arms of a couple of local businessmen named Villalobos: aka The Brothers. The Brothers, as arriving American expatriates quickly learn from compatriots, pay in the neighborhood of 3 percent a month, cash, on dollars invested with them. And if 40 percent compounded payouts seem simply impossible in an era when the U.S. prime rate hovers below 5 percent, the remarkable fact is that The Brothers have been making good on their promises for 20 years, investors insist. Returns like that can prove pretty addictive. "I can't afford to leave Costa Rica," exclaims a Vietnam-era U.S. veteran who retired to the outskirts of San Jose, the capital, three years ago on a pension he thought would go further than back home. His calculations have proved wrong, his lack of Spanish makes mundane tasks miserable, and his wife, fed up with the isolation, packed up and left in May. But he can't tear himself away from the 3.5 percent monthly interest he locked in two years ago. "No one in the world is paying me what I'm getting for my money here," he said.

    Mysterious operation

    The veteran's request for anonymity is but a piece of the mystery that surrounds the investment strategies and balance sheets of The Brothers and also a newer, rival operation known among expatriates as The Cubans, in deference to their ethnic heritage. With either outfit, the minimum investment -- or loan, in local parlance -- is generally $10,000, and applicants must have a letter of introduction from someone already involved. In place of a stock certificate or bond, the investor is given a check in an amount equal to the investment. Theoretically, the investor can cash out at any time, provided notice is given five business days to one month in advance, depending on the size of the investment. "They never miss a payment," said an Argentine money manager in San José who has his own money and some of his clients' money with both groups. "This kind of investment is a different animal. These guys are financial experts. I'll never understand the American investment psyche that says, ‘If it looks too good to be true, it probably is,' when the attitude should be, ‘If it looks so good, I'm in.' "

    Drug investigation

    Recently, though, a spot of tarnish appeared on The Brothers' gleaming escutcheon. On July 4, local authorities working with the Canadian Mounted Police raided their two San José offices. At the same time, police searched the home of Osvaldo Villalobos, though not the home of his brother, Luis Enrique Villalobos. During the raids, police claimed to have seized boxes of documents related to accounts maintained by the Villaloboses, computer archives, $300,000 in greenbacks and about $22,000 in colones, the Costa Rican currency. Investors' fears were heightened by the news authorities had frozen several of the Villalobos' bank accounts, raising concerns -- unwarranted, as it turned out -- that The Brothers would be unable to meet demands for return of principal. The Mounties said the raids were part of a three-year drug investigation, launched in Bogota, that produced evidence that a Canadian drug dealer, since deceased, laundered about $300,000 in profits through Casa de Cambio Ofinter S.A., as one part of The Brothers' operation is registered officially. So far, the investigation has led to eight arrests in Canada and the seizure of nearly 1,300 pounds of cocaine. The quantities of money and drugs seem puny by U.S. standards, but the bust was a whopper in Canada, equal to almost half of the more than 2,600 pounds of cocaine that authorities there seized in all of 2001. As Mike Waugh, a Mountie spokesman, told Costa Rican reporters, "It was very big news in eastern Canada." Not to mention among American investors in Central America.

    Loyal customers

    Word of the raids moved along the grapevine, and knots of nervous expatriates flocked to The Brothers' closed offices. There, low-level employees calmed the crowds and passed out fliers assuring them all would be back to normal the following week. The Villaloboses proved as good as their word and no run on the loans seems to have occurred. The doors opened again July 8, interest payments have reportedly continued, and not one investor has publicly denounced The Brothers or claimed to have lost his money. Such loyalty is typical. The Tico Times, an English-language weekly widely circulated within Costa Rica's expatriate community, said it has received only two complaints about The Brothers, one of which was simply an initial phone call never followed up upon. Even those who have been involved in a rare public spat with The Brothers acknowledge their remarkable track record. Gail Nystrom, a New Jersey native who, in her 25 years in Costa Rica, has become one of the best-known members of the expatriate community, battled with them last year on behalf of a friend she said was unable to withdraw $200,000 plus interest he placed with the Villaloboses in 1996. That case is now in the courts. "People base their opinion on The Brothers by their experience with them," she said. "But as far as I can tell, they have never missed an interest payment for 23 years." The Villaloboses, who were not detained during the raids and who have not been labeled as targets of the investigation by any agency, strongly proclaim their innocence. An executive at the number used by investors to reach Luis Enrique Villalobos said the firm, traditionally taciturn even during quiet times, would have no comment. But in the days following the raids, The Brothers fought back with newspaper advertisements. "We clearly state that Casa de Cambio Ofinter S.A. is not a part of any drug-smuggling or money-laundering criminal network," the ad read. "We utterly reject those unjust insinuations and statements of people who prematurely ventured to link us with (drug smuggling and money laundering), since we would never be participating consciously in those criminal activities, activities that we have always repudiated." Indeed, if the Villaloboses have a reputation for a connection to any network here, it is a religious one. The men reportedly are devout Baptists and have financed the construction of several churches.

    IRS involvement

    The Villaloboses' proclamation and their resumption of payments has restored calm to the operation, but it feels brittle. That is because two questions remain unanswered: Is the Internal Revenue Service or any other U.S. agency going to get involved, and how can any business continuously pay 3 percent interest a month or, for those who do not touch their principal, more than 40 percent a year? "When this whole thing broke, we figured the switchboard was going to be flooded, but we have received almost no calls about it," said Marcia Bosshardt, spokeswoman for the U.S. Embassy in San José. "Obviously, we can't say for sure why that is, but we have to figure it's because people have not been reporting these interest payments on their taxes." In the aftermath of the raids, Costa Rican officials said IRS involvement was inevitable. U.S. officials in Costa Rica confirmed that on Thursday the IRS regional headquarters in Mexico City called for information about the case. But as of last week, no IRS officials have come to Costa Rica, and Bosshardt said the embassy has not been notified of any formal investigation by the tax service. Vance Stacy, who heads the Drug Enforcement Administration's station in Costa Rica and has tried to step up its fight against money laundering, declined comment when asked whether they were investigating the Villalobos brothers. He noted, however, that his office is cooperating with the Mounties and would be interested in any information Canadian authorities uncover.

    Astounding interest rates

    Of course, the Villaloboses' improbable rates of return attract the interest of more than just law enforcement types. "Three percent a month!" exclaimed Mike Conwell, a senior vice president at Hibernia National Bank. Conwell, who works extensively in Latin America but is unfamiliar with The Brothers and The Cubans said he could not imagine how rates that high could continue indefinitely. "If we could do that, I'd recommend Hibernia get into that business and out of the lending business entirely," he said. Todd Chapman, economic affairs officer at the U.S. embassy, and other bankers and Wall Street traders also said they had never heard of such consistently stratospheric returns, especially with world equity markets in a swoon. "Every four years or so, you see another investment scheme coming unglued, or another place paying high interest going under for some reason," John Aguilar said. A prominent corporate attorney in San José, Aguilar stressed that he has never dealt with either The Brothers or Savings Unlimited, as The Cubans' operation is known, and thus could not comment specifically on them. "That's a pattern that just repeats and repeats here in Costa Rica."

    Those who researched The Brothers before investing believe the company makes its money in two ways: By taking a small fee for handling massive currency exchanges for businesses, and by offering private, short-term loans at high rates. Chapman said he was skeptical that the first method would keep The Brothers afloat even if they controlled Costa Rica's entire import-export economy. Following the raid, police said they were reviewing the accounts of between 20,000 and 40,000 investors, which, if every investment was the minimum, would mean The Brothers face interest payments of between $600,000 and $1.2 million a month. "The economy just isn't big enough here," Chapman said. "The country had around $6 billion in imports last year, so you wouldn't make enough money to pay 3 percent forever even if you handled every single transaction associated with every import." Short-term loans at extremely high rates of interest are more common in Latin American than in the States. But it's a dicey way to generate a reliable revenue stream, local business leaders said. While the wider world ponders the mysteries of their investment vehicles, The Brothers insist that they will conduct business as usual. Costa Rican officials estimate their investigation will last between six months and a year, a stretch most investors seem willing to ride out. "We all wonder where they make this money, but it's true, it's real," the Vietnam veteran said. "Most of the gringos I know here have money with one or both of these groups, and you'd be a fool to take it out unless you absolutely needed it.

  • #2
    What's the annual inflation rate of their currency, 40% ???? Hmmm.

    What are the conversion fees ( US to local back to US ) ????

    Comment


    • #3
      That's what the article hints at...that they must be playing the currency market. But then the article says that the Costa Rican economy wouldn't be big enough to support the trading. So back to square one.

      Comment


      • #4
        No, I don't believe that the money is converted at all. Many many transactions in Central & S. America are done in dollars. That is hardly a secret.

        Also, I don't understand why anyone would pre-suppose that all the transactions are occurring within Costa Rica, referenced by the commments on the size of the CR economy. I'm also fairly certain that if the comments and testimonials of 20+ yrs in business etc. are even remotely true............that this cannot be a traditional ponzi scheme.

        So, how do they do it. I don't know for sure. But to me, the CENTRAL question is not how they manage to pay 3% a month, but rather why do they pay 3% a month, or simply put from a pure business standpoint.........why do they feel they need to pay 3%. No one pays more than they need to, or feel they need to pay in order to get the deposits in the door. Let's face it, most people would jump at 2% a month right?? So it lends credence to the idea that despite the "letter of recommendation bs", they still need a large infusion of new cash. But why would you need a large infusion of new cash, if you can make more than 3% a month on the existing deposits.

        Here's a scenario. Lets say they make 5% per month and pay out 3% to investors. That means that the remaining 2% that they keep will double every 3 yrs. assuming they reinvest in the operation. At that rate & over the 20+ yrs investors seem to be referring to, the $$ has doubled 7 times...............creating a pool so large that it would make no sense to still need fresh money and be willing to pay 3% monthly to get at it. Right??

        By the way, AMCostarica.com has been giving periodic reports on the ongoing Brothers saga.

        Comment


        • #5
          ChestRockwells,

          You hit the nail on the head. WHY? The article states the economny isn't large enough, but of course such a thing would involve international investment. Where are these guys finding the "investments" lucrative enough to pay such interest and still make money for themselves? Don't forget.....they have kept this get rich quick scheme secret from the rest of the world for 20 years.

          Why, especially now that word is getting out, are people not flocking to their offices to deposit money? Everyone who lost their money with the recent corporate America scandal can just take a trip to Costa Rica, put the remainder of their life's savings with The Brothers and live worry free.

          Something is obviously amiss with this. They are getting funding from a very lucrative investment, or a government, or a shadow government.

          Comment


          • #6
            I checked out AMCostaRica.com for information on this. A lot of stuff on it none really mentioning sports betting. A lot of regular Americans sent letters to be published that can be read here:

            http://www.amcostarica.com/071502.htm

            There hasn't been anything written in a few weeks, so interest must be fading and things returning to normal.

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