November 21, 2017
BUENOS AIRES — They are allies that share some big problems on both the political and economic fronts: Venezuela and Zimbabwe.
In 2008, Venezuela's foreign currency reserves stood at $49 billion. Today the reserves have been depleted to $9.7 billion, and are expected to fall below $2.5 billion next year. In 2012, its exports, mostly energy-related, totaled $98 billion, compared to $30 billion today. Little analysis is needed to attribute these and other negative indicators on sharply falling oil revenues — and conclude that Venezuela is a giant mess of a nation. The chaos, and the socialist regime's apparent confusion, has grown even worse in recent days after the rating agency Standard and Poor's declared Venezuela to be in "selective default" on its debt.
The report rattled markets (perhaps more than it should have) over the possibility of a complex renegotiation of a sovereign debt that may be as high as $120 billion. The Bolivarian regime run by President Nicolás Maduro seems destined to keep spiraling further downward. The country's fate has an impact on the regional economy and geopolitical consequences involving Russia and China that are already taking shape in the backstage of this drama.
Interestingly, this is coinciding with a similar crisis further afield, in Africa. Zimbabwe's embattled dictator Robert Mugabe has characteristics that bear resemblance to his Venezuelan peer. The two countries have had close relations since Hugo Chávez took power in Venezuela in 1999, and have since shared a similar catastrophic economic path.
Mugabe had arrived much earlier, back in the 1980s, riding in to power like Chávez on mass frustration with difficult living conditions and high hopes for the changes he might engineer. He has instead given his country a perennial economic crisis, and five, then 12-digit inflation rates, depending on calculation methods.
The Harare government began issuing banknotes for 100 million local dollars, worth just a few U.S. dollars, until the local currency simply became useless and disappeared. In Venezuela last July, in the last days of a tumultuous month when the government had its fraudulent Constituent Assembly voted in, the U.S. dollar was worth around 5,000 Bolívars (at the free-market rate). Days later it had climbed to 18,000, then within hours to 25,000 Bolívars. As of this writing it was trading for around 73,000 Bolívars.
A revolutionary discourse never as true as was stated.
This year's four-digit hyperinflation rate will double in 2018, bound to dissolve the local currency. Like Venezuela, Zimbabwe devalued its currency and nationalized private firms, clinging to a revolutionary discourse never as true as the words that were used. Mugabe launched a single party and dismissed the need for an opposition, as he settled permanently in his palatial offices, not unlike Venezuela's last two presidents have done since.
When government supporters lost Venezuela's parliamentary elections in December 2015, the regime came up with its own murky alternative to an opposition-controlled parliament: the Constituent Assembly. Today the country is a dictatorship barely covered by a democratic veneer. Mugabe also lost the legislative elections in 2008, but simply ignored them and held new ones.
To consolidate their positions, both regimes have imposed total censorship and recruited militias, made of war veterans in the African state, and off-duty policemen and hoodlums in the South America one.
Today, these similarities have reached their limit. An interesting difference may be discernible and able to explain to some extent why Mugabe may be about to fall, for good, and why Maduro and his clan are surviving. Zimbabwe's wealth is not oil, but diamonds, of which it is the eighth biggest producer in the world. The sanctions the West has imposed to punish the regime for its excesses have pushed it into a fluid alliance with China, which has become a massive investor that also wields political influence.
Last March, apparently under the influence of his wife Grace and her economic and political allies, Mugabe ordered the immediate cessation of contracts involving Chinese companies. He had informed Chinese President Xi Jinping of his intentions shortly before Xi's visit to Harare in December 2015. And now comes the coup, though its authors refuse to call it that.
Venezuela, meanwhile, keeps itself afloat with a renewed, and equitable, alliance with both China and Russia. This is doubly interesting when one observes the extravagant way in which Caracas is demanding a restructuring of its debts. The man tasked with negotiating this is Vice President Tareck El Aissami, whom Washington has alleged is involved in drug trafficking. The U.S. Treasury has also further restricted financial entities from negotiating any more debt with Venezuela, which adds to the impasse.
Both regimes have imposed total censorship and recruited militias.
The ruler can of course simply cancel payments and see what happens, but that would mean that the courts would order seized all of Venezuela's foreign assets — including its ships, 18,000 or so gas stations and two refineries in the United States — in response to claims by bond holders. In such a scenario, the state oil firm PDVSA would collapse, and the rest of the economy with it.
In this perfect-storm scenario, a vulture fund could buy a significant portion of the bonds issued by Venezuela and PDVSA, with an eye on actions already being filed against two entities perceived as one and the same. The fund could then demand immediate payment of debts and force Venezuela into bankruptcy given its inability to pay. An alternative is that, as a party that has traditionally paid its debts, Venezuela is just gambling by letting the price of its bonds fall by turning them into high-risk/high-return options. It may hope that its Russian and Chinese patrons, the two main individual creditors, will take up a purchasing opportunity that is not just economic but includes regional influence. And as The Economist recently noted: at a bargain price.
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It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money but the simplest of errors exposed the scam and limited the damage to investors.
October 27, 2021
PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.
Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.
Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.
Share capital of one billion
The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).
The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.
Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.
While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.
The infamous typo that brought the Air Next scam down
Raising Initial Coin Offering
Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.
For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."
What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".
Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.
Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.
Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.
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