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DFC - from grace to grass! #213388
08/17/06 08:15 PM
08/17/06 08:15 PM
Joined: Oct 1999
Posts: 83,488
oregon, spr
Marty Offline OP

Marty  Offline OP
Testimonies: DFC - from grace to grass!
by Adele Ramos-Daly

BELIZE CITY, Thu, Aug. 10, 2006

The Development Finance Corporation (DFC) continued to be under the probing lens of the three-member Commission of Inquiry today, when three more witnesses testified, revealing that severe pressures placed on DFC staff during the securitization program, a lack of staff training to handle the unfamiliar program, too much board interference, the bypassing of technical staff for multi-million-dollar transactions, and a serious lack of due diligence contributed significantly to the demise of the organization.

Mahogany Heights mess
Amid it all, the DFC got stuck with the Mahogany Heights housing project that has been tied up in a land dispute, because Government purchased a property that was not legally available for sale. On that land, Government began the La Democracia Housing project for the New Satellite City (later to be known as Mahogany Heights), and then passed the project on to the DFC to administer.

However, the DFC later learned that Government, itself, had not done its due diligence. The property was not clear of encumbrances, because it had been mortgaged to a third party.

At the hearing today, it was revealed that homeowners have still not been able to get their land titles, and there is no indication that the rivaling ownership claims have been disentangled.

Government, apparently, did not do a routine General Registry check before it purchased the land from Abdul Hamze of Ladyville. DFC’s chief appraiser, Emerson Burke, who testified Tuesday, was called back to complete his testimony today. During his testimony, Burke said that it was while he was checking the coordinates of the property in late 2002 to early 2003 that he found out that the property was 6,000 acres, and not 7,689 acres as the document had claimed. Beyond that, he found out that a mortgage deed had been lodged right at the Registry, indicating that the property was not free to be transferred to those who were purchasing properties under the Mahogany Heights project.

Burke indicated that Hamze had mortgaged the Mahogany Heights property to Chun Hung Kuo, aka Johnny Kuo. The mortgage was executed on August 25, 1993 between Hamze and Parrot Hill Corporation, and the mortgage documents had been lodged at the General Registry on March 16, 1994, long before the Government purchased the property.

Appraisals bypassed the Chief
Burke was also questioned about procedures for appraisals and loan disbursements, and three major projects were highlighted while he was before the Commission: The Toledo Free Zone (for Luke Espat), the Government Printing Corporation (succeeded by Print Belize Limited for Lawrence Nicholas), and the Belize Resort Development Limited (for Arnaldo “Pappy” Peña).
On the matter of appraisals, Burke said that while he did the appraisal for the Voice of America (VOA) compound that was later to become the Toledo Free Zone (TFZ), he knew nothing about any appraisal done for the Printery—a transaction he said he only learned about through the media.

On December 19, 2002, Burke valued the VOA land and buildings at $2.734 million, but he said that he could not place a value on the equipment, and so he recommended to his superiors to have the equipment valued by the respective Government ministry.

He does not know if this was ever done, but according to Commission chairman, David Price, the board of directors’ minutes of July 30, 2003, indicated that management had advised the board that Government had transferred the VOA property to the DFC for $3 million. The additional $300,000, Burke assumes, must have been the value of the equipment on the VOA site.

How the VOA property later came to be in the hands of the TFZ and for what value were not explained today. Burke told the Commission that he does not know how the value of the equipment was derived.

The Commission revealed that there was a marked contrast in format between the valuation done by Burke for the VOA property and that done for the Printery. Burke stated that he has no knowledge of the valuation that was done for the Government Printery, even though he was the DFC’s chief appraiser at the time. He does not know of any request to perform a valuation, and further claimed that such a valuation was not discussed at any meeting in his department.

Burke’s VOA valuation was 19 pages long, and included diagrams and photos; the Printery valuation by Calvin Neal, a senior certified appraiser of Belmopan, was a mere 2 pages and contained no such visual attachments.

Burke asserted that he has no say in the outsourcing of valuations, and further mentioned that there were valuations, including those done by his own colleagues, that never crossed his desk as chief appraiser.

Neal assigned a $3.8 million value to the Printery, but Commissioner Price pointed to board minutes of July 30, 2003, in which management had advised the board that the land, buildings and equipment had been transferred to the DFC for an aggregate value of $2.37 million. Burke said that he could not account for the disparity in the values.

Another botched valuation was that done for Belize Resort Development Limited. This was cited as an example of gross under-valuation of properties held as collateral. Specifically, the collateral held was swampland off the Western Highway, valued first at $7,500 per acre, but later tagged at $500 per acre. In an internal DFC report, Burke had described the former valuation as “ridiculous.”

Securitization placed severe pressures on staff
Natalie Ewing Goff, who was terminated forthwith from the DFC in November 2000 after 12 years of service, indicated that just after the new administration took office in August 1998, DFC became engaged in a new program—securitization.

That program could have benefited Belize greatly, she said, but the flaw was that the monies earned from selling mortgage pools were put back into housing projects and not into the productive sector to drive growth.

Goff served as DFC’s financial comptroller at the point where the inquiry begins in 1999, and then as the assistant general manager before her termination in 2000. She said that while securitization was not new to the international financial markets, it was new for us here in Belize. DFC was assigned to carry out the program without the staff being adequately trained to effectively execute it, she opined.

A consultant’s report had warned that DFC was not equipped with the kind of organizational structure and human resources necessary to handle such a program, Goff said. She also indicated that there was too much haste in dealing with large loans, and she felt that the DFC had a duty to ensure due prudence. She also stated that lower-level staff had limited input because a lot of things were being done at the board level.

The main purpose of the securitization program was to get cash for the organization, but that cash came free of stringent Caribbean Development Bank (CDB) guidelines, which had forced the DFC, in previous years, to keep a tight rein on its finances.

Goff said that she was there for three tranches of securitization with the Royal Merchant Bank (RMB) of Trinidad and Tobago. She informed the Commission that she had done an analysis that showed the DFC could have lost $20 million over the life of the program - $12 million from the first tranch, $2.3 million from the second tranch, and $6 million from the third tranch. Nonetheless, using that money to invest in productive projects would have led to an overall gain, she indicated.

Before there could be a tranch 4, Goff (along with two other managers) was given her walking papers in what she described as a humiliating experience—she was given a day to pack up and leave.

Commissioner Merlene Bailey-Martinez pointed out that Goff had gotten an excellent performance appraisal in late 1999. She and Commissioner Price asked what could have been the catalyst for her termination.

Goff suggested that there was a fallout with management, and that fallout, she said, may have resulted from her asking too many questions.

She had met personally with Mr. Guiseppe of RMB to ask questions about the securitization program. She did not care to attend board meetings and she felt that the board of directors was too involved in the day-to-day operations of the DFC.

She did not elaborate on the nature of the board’s interference, and the Commissioners did not probe further.

Taxpayers kept DFC afloat
A basic, yet important, principle was highlighted in today’s hearing. DFC is a Government-owned bank, and even when its own cash flow was strained, the Government kept it afloat with public funds.

This was highlighted when Herman Morris, DFC’s accountant, read from audits for 2002/2003 and 2003/2004, conducted by Deloitte and Touche, that revealed that DFC had been experiencing financial hardships for years following the securitization program. Were it not for Government support, it would have been broke.

It was not firmly established, however, that the woes were directly due to the securitization program, though there was some indication that the strain of the program and its inefficient execution contributed to the problem.

Peculiar transactions
Finally, a series of peculiar transactions were identified today:

(1) There was a “one shot” disbursement for the $30 million Novelo loan, which later fell into default. Morris confirmed that two cheques for $15 million each were cut the same day, one of them in the name of David Novelo. While he claimed that he could not remember to whom the second cheque was paid, he presumes it must have been for Zabaneh, for the purchase of assets formerly belonging to his bus company.

(2) $3.4 million for Luke Espat’s Toledo Free Zone was recorded on a borrower’s ledger, but the entry was later reversed, which Morris said could mean that the loan was paid off or transferred to another account. The notation says “GOB settlement.” Morris told the Commission that it is very likely that Government paid it off.

(3) The audited financials for 2002-2004 indicate that the DFC assets listed for resale were grossly overvalued by over $100 million.

(4) An example was given of a transaction where the disbursement date was changed from April 17, 2001, to August 20, 2002—more than a year later. This would mean that the interest that should have been paid for that period was erased from the books. Morris said that such an alteration of the books would be “illegal.”

Last week, during the first series of hearings, it was revealed that a mounting volume of loans, substantially made up of what were described as “politically sensitive” loans, became non-performing. It was also demonstrated that in some peculiar instances, DFC gave loans to borrowers to pay off other loans that were already in default. The Commission indicated that this appeared to be the case with Arnaldo Pena and his company, the Belize Resort Development Limited. In some cases, multi-million-dollar transactions were approved by the board of directors through a process called “circulation”—which means that the approvals were done via telephone and later ratified by the board when they met in person.

On Tuesday, head of the DFC’s legal division, Ann Wiltshire, indicated that the legal documents for the $30 million Novelo loan were prepared by the law firm of Glenn D. Godfrey, and not by her division.

It was also revealed by debt management clerk, Orlando Magaña, that the DFC had continued to pay all debtors except the Social Security Board. It defaulted on its loan in 2003, he said.

Re: DFC - from grace to grass! #213389
08/25/06 03:22 PM
08/25/06 03:22 PM
Joined: Oct 1999
Posts: 83,488
oregon, spr
Marty Offline OP

Marty  Offline OP
DFC Finance Manager Spills Beans on Secret $50 million Loan

Perhaps the most telling thing so far about the DFC Commission of Inquiry hearings is the fact that so many competent professionals just stood by and said nothing as DFC was systematically stripped of its internal controls and best practices. Well today, one senior manager came forward to say that she did say "no" when her CEO tried to run a red with a bogus loan. Finance and Internal Services Manager Jane Longsworth today explained why she had to say no to a shaky $50 million loan.

Jane Longsworth, Finance/Internal Services Manager
“I have been in a position where I’ve refused to book a transaction I was not satisfied that the transaction was legitimate and there was documentation to support it.”

Merlene Bailey-Martinez, Commissioner
“You have been in that position?”

Jane Longsworth,

Merlene Bailey-Martinez,
“Would you like to comment on the specifics of..”

Jane Longsworth,

Merlene Bailey-Martinez,
“Do you want her to comment on the specifics?”

David Price, Chairman
“Is it within our time frame?”

Jane Longsworth,
“I would really rather not.”

Merlene Bailey-Martinez,
“Who are the parties involved?”

Jane Longsworth,
“I would really rather not respond to that right now.”

Merlene Bailey-Martinez,
“Miss Longsworth does it incriminate you?”

Jane Longsworth,

Merlene Bailey-Martinez,
“Because you need to know that that is the only basis on which you can refuse to answer that question.”

Jane Longsworth,
“This is tough.”

Merlene Bailey-Martinez,
“We need to establish the wrongdoing that occurred and those responsible. That is a part of the legal requirement of this Commission.”

Jane Longsworth,
[Hesitating] “Creole say fish get ketch by their mouth. Can I check this first before I spill it?”

And after a lunch break she checked the dates to make sure it happened between 1999 and 2004 and “spilt it.”

Jane Longsworth,
“It pertains to a $50 million loan that DFC was supposed to have secured from the Belize Bank and I was given instructions to book it and given some documentation on which to base the transaction but the documentation was not sufficient and so I refused to book it and I did not authorize that it be booked either. They were entering into an agreement to borrow $50 million from Belize Bank who had agreed that they would lend provided certain conditions were met and that was the nature of that document. It’s listing the type of conditions that it was an agreement that we would do this if these conditions are met and that is the document I was given and said to process and I did not.”

Merlene Bailey-Martinez,
“And the basis of your objections to that were that…”

Jane Longsworth,
“That if it were a legitimate transaction, I would have an agreement, a loan agreement, that says DFCnow has secured a loan with the bank and I would have some evidence that DFC received a disbursement or has a term deposit in its name and I did not find that so I did not proceed.”

Merlene Bailey-Martinez,
“We won’t speculate as to why but was that transaction eventually booked or passed through the accounting system of DFC?”

Jane Longsworth,
“Yes it was.”

Merlene Bailey-Martinez,
“By who?”

Jane Longsworth,
“I don’t know who processed it but maybe later on in 2004, maybe in 2005, I noted that interest had been paid on the facility.”

Merlene Bailey-Martinez,
“Interest had been paid to Belize Bank?”

Jane Longsworth,

Merlene Bailey-Martinez,
“But you did not see where the funds had come into the DFC in any form at all.”

So what was really behind the $50 million transaction?

Jane Longsworth,
“DFC was borrowing $50 million to pay back government of Belize $50 million it had borrowed and that the nature of the transaction would have been such that the DFC would procure a loan and pay to the government of Belize who would then use the $50 million to have a term deposit in the Belize Bank. So we’re not moving money, we’re moving just paper and that the DFC would be responsible for the difference between the interest on the loan and the interest earned on the term deposit and I think the difference was 1.5%. So that 1.5% interest was paid for the period of time that this loan supposedly existed.”

Merlene Bailey-Martinez,
“But the loan never existed?”

Jane Longsworth,
“Not as far as I know. I never saw evidence of it.”

Merlene Bailey-Martinez,
“We’re talking about $50 million that was passed through the DFC that did not have a basis for doing so. It was not a legitimate transaction, which means that it passed through DFC’s books without an agreement actually going through.”

And for a little more on that $50 million loan, 7NEWS first reported on it in July of 2004 when it appeared in the Central Bank aggregates. At the time we noted that it was highly irregular because the Central Bank had recorded on its books $50 million that it had not received. It was later exposed as a less than convincing shell game where government was trying to prop up its accounts for a visiting IMF team. Well, it didn't work, and instead had a contrary effect, when the IMF team saw through the ruse, and encouraged government to reverse the transaction.

Re: DFC - from grace to grass! #213390
08/25/06 03:23 PM
08/25/06 03:23 PM
Joined: Oct 1999
Posts: 83,488
oregon, spr
Marty Offline OP

Marty  Offline OP
Ann Wiltshire Says Glen Godfrey Signed $17.5 Million Letter

At the top of the newscast we told you about the quite remarkable testimony from Finance Manager Jane Longsworth in today's DFC's hearings. Well, slightly less dramatic but equally formidable testimony was given by Ann Wiltshire, legal officer for the DFC. She first appeared two weeks ago, and returned today with one of the most important documents of the securitization era: it is a document in which Glenn Godfrey, as DFC chair, writes that he is relieving Social Security of its guarantee for the securitization of $17.5 million in St. James loans.

That would prove critical because that "discharge of charge", as it is called, was never activated, and Social Security did have to act as guarantor, leading, in July of 2004 to that famous question asked first here on 7NEWS: "Is Social Security using your money to pay Glen Godfrey's bills?" It was, and by the fistful, a revelation which led to the G7 of August and everything thereafter. So it's an important letter but is it real? Godfrey said he can't recall writing it, but today Wiltshire differed, greatly.

Jules Vasquez Reporting,
This is it: the discharge of charge written in 2002 by then DFC Chairman and St. James principal Glen Godfrey to Narda Garcia at the Social Security Board. It promises to release Social Security from being responsible for two St James loans valued at $17 million. Legal officer Ann Wiltshire who received the letter read from it directly.

Ann Wiltshire,
“’The DFC of Belize hereby undertakes to fully release and discharge SSB from all liabilities arising directly or indirectly and including but not limited to payment obligation arising from the purchase of loans by the SSB from St. James National Building Society and in particular the loans in relation to Western Caribbean Properties and International Telecommunications Limited. Yours truly, Development Finance Corporation, Mr. Glen Godfrey, Chairman DFC.’”

Merlene Bailey-Martinez,
“And these are companies that are part of the group owned by Mr. Glenn Godfrey?”

Ann Wiltshire,
“Yes they are.”

Merlene Bailey-Martinez,
“So in effect he was given a DFC or attempting to give a DFC indemnification to BSSB to cover the loans in his company?”

Ann Wiltshire,
“That is exactly what was purported to be done.”

But when he testified before the Senate Special Committee on June 9, 2005, Godfrey said that he had no recollection of the letter.

[June 9th, 2005]
Glenn Godfrey,
“I’ve heard of that letter…this letter has been shown to me. I will be honest with you, I have no recollection of it.”

Senator Godwin Hulse,
“Is it your signature?”

Glenn Godfrey,
“It appears to be my signature but you don’t have an original?…there are many things that can be done to photocopies. I am not charging anybody but I am saying I don’t recall this letter and I’ve asked them to check with the DFC and there is no record of this at DFC. I really can’t recall that letter.”
[End of June 9th, 2005]

Can’t recall? No record of it? Well the legal officer who processed the letter says she does recall it, it was a big deal and she got this one from DFC’s records. In fact, she originally got it from her CEO.

David Price,
“Is that in fact the signature of Mr. Glenn Godfrey?”

Ann Wiltshire,
“Yes sir it is.”

David Price,
“That is the copy of the letter that you received from your CEO?”

Ann Wiltshire,
“Yes sir it is.”

David Price,
“So as far as you are aware, that is a genuine copy of that letter.”

Ann Wiltshire,
“Yes sir.”

And while Wiltshire vouched for the authenticity of the letter, in her legal opinion, though it is genuine, it’s not worth the paper it’s written on because Godfrey’s discharge of charge did not have Board approval.

Herbert Lord, Commissioner
“Although it was signed by the Chairman purporting to act on behalf of the DFC, it, in legal parlance, would not have been properly authenticated so the board would bear no responsibility.”

Ann Wiltshire,
“Yes sir that is right.”

Merlene Bailey-Martinez,
“Mrs. Wiltshire is there anything at all in the DFC Act that gives the Chairman the authority to act in this way, unilaterally?”

Ann Wiltshire,
“No Mrs. Martinez. There is nothing in the Act. The Act provides the manner in which a document which bears the seal of the corporation should be executed.”

Tomorrow we'll have more from the hearings as Jane Longsworth today accused the DFC of knowingly perpetrating securities fraud with those same St. James loans. The hearing continues next week when the commission is expected to call general manager Roberto Bautista.

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