The decision to close and liquidate Coopera, the Cuenca savings and loan cooperative, was the result of two factors, federal and provincial authorities say.
First, there was Monday’s and Tuesday’s “run on the bank” following the arrests of coop financial officers, when depositors withdrew more than $2 million from Coopera’s 12 banking offices. Then, there was a "first glance" audit by federal auditors that showed that the organization’s financial loses had been concealed and that the health of coop was in jeapardy.
“The situation was simply unsustainable,” said Cristian Cruz technical director for Economía Popular y Solidaria (SEPS), the federal office responsible for monitoring Ecuador’s financial cooperatives. “When we reviewed the records, we found that Coopera had been suffering loses and the situation appeared to be deteriorating rapidly. We were afraid it could fail within days.”
Cruz also said the investigation indicated that there was internal dissention within management, and that a number of managers had left the organization within the last year.
Cruz and others also questioned Coopera’s wide-ranging businesses, which include organic food markets, hotels and restaurants. “One of the reasons for the financial loses may have been the fact that they were operating businesses outside of the normal scope of a cooperative,” Cruz said. “The focus should have been on managing member accounts and loaning money to qualified borrowers. They were trying to do too many things.”
Coopera, founded in 2003, began to unravel over the weekend when its chief financial officer and auditor were arrested on charges of laudering $31 million, mostly through 16 coop accounts. Then, on Tuesday, Coopera’s general manager was arrested when he arrived in Quito from a trip to the Dominican Republic.
On Monday, SEPS maintained that Coopera's financial operations were healthy and would continue operating normally. Coop members were assured that their money was safe. By Tuesday afternoon, following the audit of financial records, the story changed and the decision was made to close and liquidate the coop.
As of Wdnesday morning, SEPS ordered all of Coopera’s operations closed, the financial offices permanently and other operations, including 11 organic markets, until Monday.
Although Cruz said that he believed depositors would get their money back, he also said that his office will not know the full financial health of Coopera until a thorough audit is complete. He said that small account holders would be paid first, beginning July 1, with holders of larger accounts to be paid later, although SEPS did not provide dollar amounts for what they considered small and large accounts.
SEPS said it would provide more information about account pay-backs in the media and on its website, and said that other area cooperatives would distribute the funds.
Although most Cuenca expats who have accounts with Coopera –as many as 200, by some estimates– expressed anger at management, some blamed themselves for making bad investments.
“I was caught at the intersection of greed and ignorance,” said John Curtis, who said he decided to take out a certifícate of desposit with Coopera after hearing a presentation at a local chamber of commerce meeting. “I’m embarrased that I took bad advice but I really have no one to blame but myself.”
Curtis said the offer of high interest rates, as much as 5% above than those paid by local banks, seemed like a good deal. “I ignored the old axiom that if it sounds too good to be true it probably is.”
Joan Rogers, who moved to Cuenca in November from California, said she does blame those who promoted Coopera. “Yes, I bear some responsibility but so do the folks who provide advice to expats. I expect the chamber of commerce to know what’s going on in the business community and they didn’t. No one explained that money at Coopera was not insured and, in fact, I was told that it was.”
Another expat, Ashley Reed, says that expats have learned a good lesson. “I hope it’s not an expensive one but sometimes those are the ones you remember.”
Photo caption: Organic produce at one of Coopera's Cuenca markets. The food markets will reopen Monday and SEPS authorities hope buyers will come forward to continue operations long-term.