“The Brothers” complaint dismissed by international panel

June 11, 2010

 

A six-year-old arbitration case in an international tribunal has ended with a ruling in favor of the Costa Rican government.
 
The tribunal tossed out a lawsuit filed by a group of investors who lost millions of dollars when an unregulated financial operation widely known as “The Brothers” collapsed in 2002.  
 
The investors accused the Costa Rican government of ignoring the operation – run by Costa Rican brothers Luis Enrique and Osvaldo Villalobos – for more than a decade while government officials and even family members of an ex-president were collecting interest on investments in the scheme.
 
The government then closed the businesses in an illegal raid three years ago, the plaintiffs said. After the raid, Luis Enrique Villalobos fled the country with approximately $800 million and remains at large (TT, Feb. 1, 2003). His brother was sentenced to an 18-year prison term in 2007 (TT, May 18, 2007).
 
The complaint was presented to the World Bank’s International Centre for Settlement of Investment Disputes in May 2004. The Costa Rican Foreign Trade Ministry (COMEX) announced Wednesday that the case had been dismissed on May 19, 2010.
 
The suit was rejected on all counts by the tribunal, which stated that the plaintiffs did not exercise the due diligence a reasonable investor would have used to ensure compliance of their investment with the law, according to a COMEX press release. 
 
An estimated 6,300 investors lost money in the scheme, many of whom went bankrupt when the operation folded.
 
For approximately 20 years, The Brothers paid monthly interest payments of 2.8 to 3 percent on investments, which in later years were accepted only in sums of $10,000 or more.
 
Investors included Costa Ricans and U.S. and Canadian citizens. A large number of foreigners residing in Costa Rica returned home after being bankrupted by the scheme.
 
The accounts were frozen after police raids on the Villalobos’ San José offices and private residences that were prompted by a Royal Canadian Mounted Police investigation into $350,000 allegedly deposited with the Villalobos group by six Canadians suspected of running a drug-smuggling operation in Canada (TT, July 12, 2002).
 
The Brothers continued to operate for several months after the raid, and accepted more deposits until October 2002, when Luis Enrique Villalobos vanished, along with millions of dollars in investors’ money (TT, Sept. 24, 2004).
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