The anticipated trial of financier Osvaldo Villalobos got under way this week with thousands of affected investors not showing up.
Of an estimated 6,000-plus people, mostly North Americans, Europeans and wealthy Costa Ricans, who say they lost between thousands and millions of dollars in the defunct investment operation known as “The Brothers” – allegedly run by Osvaldo and his fugitive brother Luis Enrique Villalobos – only a few were present at the start of the trial Monday. At least two fell asleep during the dry, initial proceedings.
At its most crowded, a sprinkling of fewer than 20 onlookers peppered the 408-seat, improvised courtroom in the Miguel Blanco Quirós auditorium in the Judicial Investigation Police (OIJ) building in downtown San José. The auditorium was outfitted for the trial in anticipation of a multitude of investors, many of whom had their life savings invested when the Villalobos brothers closed up shop in 2002.
A tired-looking and soft-spoken Osvaldo was present at the trial this week, but will not testify until the end of proceedings, according to his defense team. He declined to talk to The Tico Times.
Observers were nearly outnumbered by the judges and lawyers until the handful of attorneys representing private cases added to the public prosecution’s case (known as querellas) one by one announced they had come to an agreement with the defendant, dropped their charges against Osvaldo and left the building. By the end of the day, government prosecutors Walter Espinoza and Ilem Meléndez were joined only by Ewald Acuña – a well-known lawyer representing hundreds of investors in their claims against the Villalobos brothers.
Whether the lawyers’ clients caved to the months of pressure exerted by Villalobos supporters on those who filed personal fraud claims (TT, Jan. 19) is unknown. But Osvaldo’s defense team announced it would not seek legal fees from anyone who drops their querellas, as is the right under Costa Rican law of any person who has a lawsuit filed against them that is later withdrawn.
The defense also may have told the lawyers what it told The Tico Times this week: once Osvaldo is cleared, everybody will be paid back their original investments.
“For us, the withdrawal of the querellas means that people have realized that there is no crime here, and when this ends, they will get their money back,” said Rodrigo Araya, one of Osvaldo’s attorneys.
How? With what they say is $12 million in bank accounts currently frozen by the government – significantly larger than the figure of $7 million always maintained by Judicial Branch officials – and by going back to the same business as before. According to the defense, the government can only seize the frozen funds if they convict Osvaldo of money laundering.
“When (the money) is unfrozen, these people who have been working legally are going to continue working to continue producing and to pay down to the last penny,” Araya said. He did not explain how Osvaldo would earn enough to pay the astronomically large outstanding debt, only that the Villalobos brothers had “many different businesses.”
It has never been clear what The Brothers did with the money to produce the high returns paid out, and some have said there was no way a legitimate operation – which The Brothers claimed to be – could show such soaring profits.
The Storied History
Osvaldo is facing charges of money laundering, fraud and illegal financial intermediation – for which he could get up to 36 years in prison if convicted on all charges – in connection with The Brothers, which for more than 15 years paid monthly interest payments of 2.8-3% of investments, which in the later years were accepted only in sums of $10,000 or more.
Though it was run out of the same office where Osvaldo operated a money exchange business, Ofinter S.A., Osvaldo’s defense insists their client had nothing to do with the investment service run by Luis Enrique.
“We are going to prove that there is not one criminal act that has been committed by Osvaldo Villalobos. Osvaldo Villalobos’ business was always a legal, decent business, a business that always fulfilled its obligations with its clients. We believe the Prosecutor’s Office is mistaken,” Araya said. “Ofinter never received investor money. Its commercial operations were the purchase and sale of foreign exchange and changing checks.”
The Costa Rican government began investigating The Brothers – which was not regulated by financial authorities – in 2002 and raided their offices in July of that year as part of a joint investigation with the Royal Canadian Mounted Police, who believed a Canadian drug trafficking ring laundered at least $300,000 through the Villalobos operation (TT, July 12, 2002).
The Brothers continued to operate after the raid, and accepted more deposits until October, when Enrique vanished, allegedly with as much as $1 billion of investors’money (TT, Sept. 24, 2004). Osvaldo, who stayed behind, was arrested shortly after and held in prison and house arrest for nearly two years before being released (TT, April 1, 2005).
Court Proceedings
In the spacious auditorium, the trial began Monday morning with prosecutors Espinoza and Meléndez taking turns reading the government’s accusation in its entirety – a monotonous process that involved citing thousands of checks, check numbers, bank account numbers, dates, businesses and shell companies allegedly used by the Villalobos brothers in their financial operation. The reading took the entire first day of proceedings, and continued into the second.
While lead prosecutor Espinoza refused to comment on the case, the government’s accusation called The Brothers “a family business,” and a described a “circular system of receiving and paying” investor funds, similar to a pyramid or Ponzi scheme. The prosecution alleged Osvaldo and Luis Enrique used Ofinter and 22 other corporations allegedly linked to the Villalobos brothers to channel funds through different bank accounts and investments, hide the origin of the money and eventually use the same money to pay investors’ monthly interest.
The Brothers’ investments did not produce nearly enough to account for the operation’s high returns, and investors were given supposed guarantee checks that in reality were linked to a bank account with less than $5,000 and which had been inactive since 1997, the prosecution alleged.
The prosecutors’ accusation was followed by Acuña’s, which wrapped up Tuesday afternoon. José Miguel Villalobos (no relation), a former Justice Minister and attorney hired by the United Concerned Citizens and Residents (UCCR) – an association of Villalobos brothers’ supporters –was intermittently present at the trial, and said he was cooperating with the defense team but would have no part in the trial.
The UCCR attorney was reportedly paid more than $100,000 from funds collected from UCCR members to look out for the group’s interests, according to a former UCCR member, and had initially talked of suing the Costa Rican government (TT, Feb. 7, 2003).
Wednesday morning the defense made their opening statements, asserting Osvaldo’s innocence and insisting he had nothing to do with The Brothers. Defense lawyers also challenged the hundreds of civil suits and querellas filed by investors with Acuña, alleging procedural errors. According to defense lawyer Rodrigo Araya, many of the claimants incorrectly processed their power of attorney, and therefore their suits should be dismissed.Trial proceedings were suspended until today as judges considered the motions.
The trial is presided over by lead judge Isabel Porras, and judges Carlos Pérez and Manuel Rojas, and Jeaneth Villareal serves as a supplementary reserve judge to replace any of the three if needed. The prosecution has called 57 witnesses, while the defense has called 60, and the trial is estimated to last between four and six months.
