Re: Venezuela/U.S. energy sector scandal involving J.P. Morgan, ProEnergy Services, Derwick Associates
The U.S. Department of the Treasury's FINCEN recently announced that Banco Privada d'Andorra was favored by criminal enterprises from Russia, China, and Venezuela. In the case of Venezuela, government officials reportedly deposited more than $4Bn into personal accounts—most of it siphoned off from PDVSA, the state-owned oil company of Venezuela.
I'm painfully aware of the embezzlement and overbilling involving Venezuela's energy sector given that, until recently, I was employed at Sedalia, Missouri-based ProEnergy Services. ProEnergy was the contractor responsible for the construction of one dozen power plants in deals involving gross overbilling, multiple offshore transactions, and a murky association with Derwick Associates, a Venezuelan start-up with zero experience in power plant construction. I'm making available here more than 10GB of material directly from the company hard drive. The metadata on each document can be traced directly to Pro-Energy's computers. My hope is that "crowdsourcing" the enclosed data will allow interested parties to assist in exposing a multi-billion dollar fraud.
From 2009-2012 ProEnergy billed to the tune of $2Bn almost all of it flowing from a single client: Derwick Associates. Our company sold more than $1Bn in turbines (most of them used or refurbished--but sold as new) to Derwick which then resold them hours later at a significant mark-up to the government of Venezuela through entities such as their electricity ministry, their Guyanese state enterprise CVG, their state-owned oil company PDVSA, and the SIDOR iron-ore producer. In addition to turbine sales to Derwick, ProEnergy built the power plants that Derwick marketed as their own and for which both companies overbilled the Venezuelan government in the hundreds of millions of dollars. According to the Wall Street Journal, Derwick is now under criminal investigation by federal authorities and by local authorities in New York. (This prompted Derwick to immediately hire Adam Kauffmann, former head of the Manhattan DA investigation division. Kauffmann is already representing several Venezuelan government officials who embezzled hundreds of millions).
Working in ProEnergy's sales department, I learned our company had hit paydirt when a group of connected Venezuelans chose to ignore Original Equipment Manufacturers (OEMs) such as Rolls Royce, Pratt & Whitney, and General Electric and instead used ProEnergy as a middleman. In other words, a middleman used a middleman.
Inexplicably, the IT department at ProEnergy had blocked access to internet sites when I googled "Derwick" and "corruption." This stirred my curiosity and so I explored the company's shared computer drive for the term "Derwick." What I found there shocked me: dozens of proposals to Derwick for generators, for power plants, for upgrades to those power plants. It was odd given that ProEnergy has never built a power plant in the United States (ProEnergy fails to meet American standards and so has offices in places like Angola, Argentina, Pakistan, and Venezuela). Shockingly, ProEnergy's proposals reflected a mark-up ranging from 20-74%. In my industry, profit margin usually hovers between 2 and 5%. At these prices someone was being ripped off. ProEnergy was overbilling Derwick.
My sense of disbelief only grew the more I read. I discovered document drafts on Derwick letterhead. ProEnergy was writing the proposals and preparing the invoices that Derwick sent Venezuelan clients for the exact same equipment described in the proposals to Derwick from ProEnergy. This included actual invoices from Derwick to Venezuela's state-owned enterprises like PDVSA. These invoices, the Microsoft Word documents indicated, were created on ProEnergy computers in Sedalia. On some of the Derwick invoices, the bank wiring instructions went to bank accounts belonging to ProEnergy. Some to offshore bank Davos International and others to JP Morgan in New York.... When I learned that the owners of Derwick were barely out of college and friendly with the son of the Electricity Minister of Venezuela I realized why ProEnergy had prepared the Derwick invoices: because our 20-something Venezuelan clients lacked the technical know-how. After all, how does a person draft an invoice for a product with no knowledge about the item in question?
Remarkably, these invoices prepared by ProEnergy and purportedly from Derwick also revealed mammoth markups over and above the prices that ProEnergy charged Derwick. So, an item like a set of three FT8 Swift Pac turbines bought by ProEnergy from Pratt and Whitney for $67.5M were sold one day later for $78M to Derwick who then sold it two days after that to Venezuela for $97.5 million. And so in four days an item with a retail cost of $67.5M had $30M added by ProEnergy and by Derwick Associates. In another instance three Rolls Royce Trent 60 turbines originally sourced for $66M from Rolls Royce were sold to Derwick for $79.3M, which in turn resold them hours later for $97.5M, adding another $31M profit to the bottom line of both Derwick and ProEnergy. Like these transactions there are scores of instances on every item imaginable—from spare parts to construction costs, from turbines to generators, from transformers to transportation costs and employee training. I stopped counting the total on the invoices after two billion dollars.
One colleague told me that the FBI had visited ProEnergy on several occasions. I was tortured, week after week, knowing that ProEnergy was robbing a nation where poverty and crime are rampant. I spent sleepless nights agonizing about what to do. Company-wide layoffs solved my immediate dilemma. The truth is that with no more Venezuelan cash flow, ProEnergy suffered a long-standing cash crunch. So much so that Washington, D.C.'s Acon Investments, made a capital injection into ProEnergy. Acon is run by Obama appointee to Latin America Bernard Aronson.
Months went by and I could not shake the disgust of what transpired. I blew the whistle by sharing the information with celebrated Venezuelan investigative reporter Cesar Batiz who verified the material and allowed a blogger to post some of it on Scribd.
The revelations about money-laundering activities of Venezuelan energy officials at the Andorran bank would explain why Venezuelan state officials agreed to overpay Derwick and ProEnergy. The men addressed in the letters (written by ProEnergy and) and sent by Derwick are accountholders exposed to criminal charges in Spain for amassing illegal fortunes in "consulting fees."... It is disheartening that American energy executives would display such appalling greed and be so quick to partake in the looting of Venezuela.
My hope is that by going public with the 10GB of information more of my former colleagues will come forward and blow the whistle on one of the most troubling international scandals in Venezuelan (and Missouri) history. I've learned that Derwick Associates has persecuted numerous bloggers in Venezuela and abroad as well as mainstream journalists including having stories about their misdeeds "spiked" at the Wall Street Journal, Forbes, the Economist, Huffington Post, and the Miami Herald.
... Your winning sir.
