Ecuadorian businessmen Roberto Isaias and William Isaias

Isaias family history

Emilio Isaias

• 19 year old Lebanese immigrant
• Born name: Mema Abi Hanna
• Roberto and William’s grandfather
• Left Lebanon in 1912
• 3 ½ month voyage from the Lebanese town of Sequiet Eljait
• Escaped persecution of Christians
• Headed toward Ecuador for freedom

First business

• Arrived in Ecuador with equivalent of $1,000 (in today’s dollars)
• Emilio Isaias opened a grocery store in the small village of Catarama, Ecuador in 1915

Settled in Ecuador

• Began his new life in the 1920s
• Held odd jobs in agriculture and in sales

Isaias family business history

Beginning of entrepreneurship

• Began importing textiles
• Created Emilio Isaias, Compañía Anónima (EICA) in the 1940s
• Capitalized on EICA’s success: created Textiles San Vicente in the mid 1950s
• Most important textile factory in Ecuador

Banking

• Once again, capitalized on Textiles San Vicente’s success
• Family bought ownership into Caja de Ahorros La Filantrópica, a small bank in Guayaquil in 1958
• (Was later renamed Filanbanco in 1978)
• Within three decades, Isaias family grew the bank into the largest and most modern bank in Ecuador

Investment diversification

• 1960s - Isaias family invested in real estate in New York and Miami
• 1970s - Isaias family diversified into agribusiness and other industries
  • CASE
  • John Deere
  • Evinrude

The Isaias Group

• Founded in 1930s
• Started investing in U.S. in 1960: real estate, banking, and other business investments
• Owned Filanbanco bank, which in 1985 was 6th largest in Ecuador
• By 1994, Filanbanco was largest in Ecuador
• Roberto Isaias served as executive president and William Isaias served as executive vice president until ownership of the bank was transferred to the Ecuadorian state.

The Isaias Group companies - by 2006, 6 largest were:

• Ecuadorian Television Network (TC Television)
• Industrial and Commercial Society EICA
• Compañía Televisión del Pacífico (Gamavisión)
• Petromanabí
• Producargo Producer of Alcohols
• EICA Emilio Isaias Compañía de Comercio

Republic National Bank

• Was 5th largest bank in Florida
• Founded in 1971 (sold in 1999)
• Mission: Help Latin-American community

Roberto Isaias

Background

• Ecuadorian businessman
• Co-owner of The Isaias Group (other owners are William Isaias and Estefano Isaias)
  • Media
  • Commercial real estate
  • Agriculture
  • Finance
  • Oil

Education

• Left Ecuador at 11 to attend boarding school in New York
• Returned home after school; family operating Compania Anonima de Comercio EICA (textiles business)
• Studied textile management at the Philadelphia College of Textile and Science (now called Thomas Jefferson University)

Career

• Worked at family’s company Compania Anonima de Comercio EICA after graduation
• Expanded the business into agricultural, commercial, industrial and real estate industries
• Additionally, he brought in investments in communications and media companies
• Republic National Bank of Miami
• Filanbanco (in Ecuador)
  • 1985 - became President and CEO

William Isaias

Background

• Ecuadorian businessman
• Co-owner of The Isaias Group
• Grew up in Ecuador
• Spent childhood summers working in Miami

Nahim Isaias Foundation

• Helped to run
• Provides medical, educational and cultural services for disadvantaged people in Ecuador

1998–1999 Ecuador financial crisis

Definition

• Was a period of economic instability in Ecuador for 2 years
• Resulted from a combination of factors
  • Banking crisis
  • Currency crisis
  • Sovereign debt crisis

Pre-crisis

• Capital flight from Ecuador and entire region
• Followed the East Asian crisis and Russian crisis

Political-economic crisis within Ecuador

• Military confrontation with Peru
• Hydroelectricity production plummeting (low water levels)
• El Nino weather pattern - caused problems in agricultural sector

Financial issues affecting Filanbanco

• Agricultural export industry along the coasts of Ecuador
• Filanbanco’s largest principle credit recipients
• Lack of payments from this industry squeezed Filanbanco
• Turned to other Isaias Group companies for cash, as well as liquidity loans from the Ecuador Central Bank

U.S. currency adoption

• January 9, 2000
• President Jamil Mahuad - announced Ecuador would adopt U.S. dollar as national currency

Mahuad resignation

• Forced to resign as a result of public protests
• Replaced by VP Gustavo Noboa

Later blame

• Filanbanco was later blamed as the source of the entire financial crisis

Blame on Filanbanco for the financial crisis

Impact of crisis on banks

• Over 20 banks in Ecuador became insolvent during the economic crisis
• Government focused all blame on Filanbanco, William Isaias, Roberto Isaias, and The Isaias Group

Political backstory

• Isaias family was politically connected to the opposition party

Government takeover of Filanbanco

• Isaias Group had been the owner of Filanbanco
• December 2, 1998 - Ecuadorian government agency, Deposit Guarantee Agency (AGD), took over ownership and management
• Before government took over, Filanbanco had paid all customers

ING Barings report

• May 1999 - ING Barings, investment bank, issued report
• Report said: Filanbanco had generated a hundred million in profit, ready to be privatized again

AGD asset freezing

• March 1999 - 2 months before ING Barings report - AGD froze all of Filanbanco’s assets
• Government decided to turn Filanbanco into a central bank to prop up other failing banks, rather than re-privatize it
• AGD turned bank over to the Ministry of Finance

Ministry of Finance ownership

• Authorized huge loans to other banks
• Let a failing bank, La Previsora Bank, merge with Filanbanco

Closure

• 2001 - government closed down Filanbanco, due to its own mismanagement and mistakes

False “bank embezzlement” charges against the Isaias brothers

While Filanbanco loses money under government control…

• Ecuador’s federal government’s management results in Filanbanco losing 814 million
• Blames William Isaias and Roberto Isaias

Attorney General’s charges

• June 2000 - Falconi Puig, the country’s Attorney General, filed charges against the two brothers at the request of Superintendent of Banks
• Charges: “bank embezzlement”
• Crime didn’t even exist in Ecuador at that time
• Bank embezzlement quietly added to Ecuador’s penal code later -- Law № 99–26 amended the General Law of Institutions in the Financial System; added a third paragraph to Article 257 of the Penal Code, which introduced the new crime of “bank embezzlement.”

Dissenting opinions

• Central Bank’s manager told Attorney General that the brothers did not misuse funds while owning Filanbanco
• Three years after investigation of brothers began - Chief Prosecutor of Ecuador declared: “no bank embezzlement took place”
• Puig went ahead with prosecution anyway

Supreme Court

• 2004 - case reached Ecuador Supreme Court
• Rumors spread that court might dismiss the charges
• President Lucio Gutierrez (who was “politically crippled and on the brink of removal from office”) dismissed all the justices on the court after hearing rumor

Constituent Mandate 13 and the seizure of Isaias Group companies

June 2008 plenary session of the Constituent Assembly

• Legislators amended the country’s constitution, on orders from President Rafael Correa
• Ratified Decision AGD-UIO-2008–12
• This was the supposed legal authority the government used to seize 150 companies owned by the Isaias Group
• Mandate № 13 stated:
  • Decision not subject to constitutional protections
  • Government had authority to seize private companies owned by Isaias family
  • Any judge or magistrate who heard any motions filed by Isaias brothers must dismiss the motions, or be removed from the bench (and subject to criminal prosecution)

Seizure of the companies

• 2008 - over 150 companies owned by Isaias Group seized on orders from President Correa
• Government’s stated purpose: wanted to compensate Filanbanco account holders
• Popular media outlets TC Television, Gamavision, and Cablevision were among the companies seized
• These outlets capture 40 percent of Ecuador’s evening news audience

AGD lawsuit in Florida

Filing

• 2009 - Ecuador's Deposit Guarantee Agency (AGD) sued Roberto Isaias and William Isaias
• Eleventh Judicial Circuit Court of Miami-Dade County, Florida

Enforcement

• AGD was attempting to enforce Ecuador’s Resolution No. AGD-UIO-GG-2008-012

Ecuador’s arguments

• AGD argued - the Resolution was equivalent to a “final judicial ruling”
• The General Manager of the AGD is considered “a judge”

Ruling

• In favor of Isaias brothers
• Handed down by Judge John W. Thornton on May 20, 2013