Venezuela takes control of 31 brokerages in currency probe

Venezuelan regulators have taken over management at 31 brokerage companies while investigating what they say may be illegal currency-trading practices, as well as money-laundering and management problems, the head of the securities commission said.

Authorities have intervened in 31 of the country's 107 brokerage firms, Tomas Sanchez, president of National Securities Commission, said in remarks published Wednesday by the Venezuelan newspaper El Universal.

He said officials believe there was a significant amount of money laundering, as well as "speculative operations" through bond trading.

Aides to Sanchez confirmed that he made the statements.

Authorities temporarily halted trading of government bonds Tuesday and said they would seek to control currency exchange rates by setting a range of permitted prices in the bond market.

President Hugo Chávez is seeking to crack down on currency trading that he blames for soaring inflation and the decline of Venezuela's currency, the bolivar, on the previously unregulated bond market.

Venezuela maintains strict currency controls and sets official exchange rates, but another route for trading currency has been the so-called parallel bond market, where the bolivar has recently fetched about half the official rate of 4.30 to the dollar for non-essential goods.

In the last two weeks, authorities have intervened in and raided 13 other brokerage firms on suspicion of irregularities involving currency trading.

Officials of the affected companies have not responded publicly to the measures.

Analysts expect the government's decision to bar brokerage firms from the formerly lucrative bond market will dramatically cut back their business and could lead many firms to go out of business.

Central Bank President Nelson Merentes announced a plan Tuesday to establish a band with maximum and minimum prices in bond trading, which until last week had been an important outlet for Venezuelans to obtain United States dollars.

The embattled bolivar reached 8.30 to the dollar on the so-called parallel market on Tuesday - almost twice the official exchange rate of 4.30 applied to non-essential goods.

The government is worried because the rising price of dollars on the parallel market increases the cost of consumer goods in Venezuela, which imports more than half the products it consumes despite Chávez's efforts to boost domestic production.

Roughly 30 per cent of imports and 70 per cent of capital repatriation traditionally occurs through the government bond market, according to the Caracas-based Ecoanalitica think tank.

Consumer prices jumped 5.2 per cent in April alone, driving the annual inflation rate to 30.4 per cent - the highest in Latin America - according to the Central Bank and National Statistics Institute.

Planning Minister Jorge Giordani accused brokerge firms and Venezuela's media of trying to drive up the cost of the bolivar on the parallel market, and he warned they could face criminal charges "if they continue this perverse game of creating expectations" within the market.

"The Attorney General's Office will have to take action," Giordani said.

Police and prosecutors on Tuesday raided the offices of four Caracas-based brokerage firms - Ban Valor Casa de Bolsa, Italbursatil Casa de Bolsa, Positiva Sociedad de Corretaje and Premier Valores Sociedad de Corretaje - as part of investigations into speculation-related accusations, the Attorney General's Office announced in a statement.

It remains unclear how local brokerages will continue turning a profit.

Maria Fernandez, a local banking analyst, predicted the new regulations would lead some brokerage firms to bankruptcy.

Many brokerages will be forced to impose "a significant reduction of employees" in order to survive, but others probably will close because the business "is no longer viable" for them, Fernandez said in a telephone interview.

- AP