I’m telling you all this only to emphasize the very powerful figure cut by our bureaucratic goddess Coatlicue, so that you can imagine how shocked I was to find her yesterday absolutely motionless, wracked with sobs, the tears soaking the tissue under her forlorn face.
“Doña Penélope, what’s the matter?”
She couldn’t stop crying. She raised her fist, which was clutching some papers, and only after a moment or two was she able to say, “Totally worthless, Mr. Valdivia, like the Argentinian patacón, toilet paper, that’s what those shares are worth — nothing at all! Less than a pack of Kleenex!”
She passed me the handful of papers. They were shares of Mexicana de Energía, the utility company that declared bankruptcy yesterday and put thousands of small-time shareholders in the poorhouse — all the humble shareholders who put their faith in the privatization of the national energy company during the presidency of César León, who followed the example of Fidel Castro when he allowed foreign companies to invest in energy, a smoke screen that effectively shushed the noisy Mexican nationalists.
As it happens, MEXEN declared bankruptcy yesterday, putting shareholders like Penélope out on the street. MEXEN’s investors, of course, had already earned themselves millions by keeping their mouths shut about the imminent bankruptcy and selling their own shares when they were still worth something.
I’m telling you things you already know, my dear lady, so that I can get to the part you don’t know.
Let me take it step by step.
When MEXEN was structured as a private company during the days of César León, the directors put a number of shares up for sale— in the usual fashion, the kind of shares Penélope bought. But at the same time, in order to lure some very robust companies (insurers, banks, industry) to invest in MEXEN, the board gave these companies the assurance of confidential information that would allow them — at the very least — to double their initial investment in a matter of months. To this end, MEXEN was created as a double company. One was the public company open to small-time shareholders. The other was the secret company reserved for the investors with the deepest pockets.
Small shareholders like Penélope did not have access to the more privileged company. In fact, they didn’t even know it existed.
How did I learn all this? Through our archivist don Cástulo Magón.
Borne by the sea of Penélope’s tears, I said to Cástulo, “Get me the MEXEN file.”
The old man replied, “Which one?”
I was taken aback by his response.
“How many are there?” I asked.
“Well, there are three. There are the official files, the confidential files, and the ‘shredded wheat.’ ”
“The ‘shredded wheat’?”
“Yes. The files they told me to destroy. Shredded, you know.”
“And why didn’t you do it?”
“Oh, sir, I respect these documents.”
Impassive, I let him go on.
“Did you know that don Benito Juárez, fleeing the French occupation forces, went from the capital to the northern border with three stagecoaches packed solid with the official papers of the republic?”
“Yes, Cástulo, I did know that. But what does that have to do with anything?”
The old man was flushed with pride.
“A paper that finds its way to my hands is a paper that never disappears, sir.” And puffing out his chest, he added, “In my hands, a document is sacred. It will never be lost, I assure you.”
“Do the people upstairs know about this loyalty of yours?”
“It isn’t loyalty to anyone, don Nicolás. It is my duty to the nation and to history.”
And how were the famous documents classified? Well, those that were available for consultation were filed under “Mexicana de Energía (MEXEN).” The secret documents, under “Privatization Models.” And the ones don Cástulo had hung on to had no title at all, except for the aforementioned breakfast cereal, “shredded wheat.”
I’ve had a feverish night, María del Rosario, reconstructing the shady deals of the MEXEN board. I summarize them herewith. The executives reserve their confidential information for the big investors, keeping the small-time shareholders in the dark. For example: The big investors were once informed that the company owned about a hundred companies that were not going to go public so that they could keep the dividends under wraps, and thereby avoid distributing the profits. MEXEN is a cover, a smoke screen for interconnected investments yielding exponential earnings.
These operations don’t appear on the company’s quarterly balance sheets. MEXEN discloses its profits to its small, highly privileged group of investors, not to the masses of poorly informed shareholders. In short, the company’s main profits favor one group over the other.
The name of the game is confidentiality. But the managers are playing a triple game, because they’re cheating both shareholders and investors for their own personal gain. A matter of hiding certain conflicts of interest. If you invest legitimately in MEXEN, your money may go to a company that doesn’t allow public investment, or one that is the government’s exclusive domain. Neither the small shareholders nor the big investors know this. The former are kept happy with minor earnings and the latter with major earnings. Nobody asks any questions. But the MEXEN managers can be company employees and principal partners at the same time. They distribute 10 percent of the earnings for their shareholders, and keep 90 percent for themselves.
How? By multiplying dual companies. For example, MEXEN Subsidiary A is really a part of Subsidiary B but the directors tell everyone that they’re two different companies. When Subsidiary A takes a dip in profits, alleging failed agreements with Subsidiary B (which is nevertheless a simple mask for Company A), the directors of A keep the real profits and make the shareholders absorb B’s imaginary losses as if they were A’s losses. Meaning: A is not the partner that has been hurt by B. It is exactly the same as B, but makes B take the hit for its losses. The directors and big investors keep the profits. And the losses are passed on to shareholders like Penélope.
But these con men have gone even further, María del Rosario. They created a Company C in order to attract investment and make loans to Company A. Company A promises to issue more shares in the event that C’s investments fall, to keep C solvent. Company B invests millions in Company C, and Company C in turn invests in Company A.
But this is where the mistakes and the catastrophes start piling up. Company A forces Company B to buy stocks at fixed prices in six months to protect itself from an eventual drop in the market. B gets ahead and buys when the price is low, earning millions. Company A protects itself by selling shares to C. But when the value of the shares in fact drops, Company A gives shares to C in order to keep the entire operation solvent. And then Company A begins to issue more and more shares, devaluing those held by people like Penélope.
At this point the big guys have already made their killing, having taken in millions at the shareholders’ expense. This means they’re now free to declare bankruptcy because they’ve already made their astronomical profits. And anyway, at that point, the best thing for everyone is to wrap up the little game and start a new one before they fall into one of their own traps.
It’s like the story of the fox that knows all the traps the hunters have laid out for him, but doesn’t know that the trap he himself laid down to trick the hunters will be precisely the thing that nails him in the end.