Venezuela received an enviable honour last month: OPEC said it is sitting on the biggest reserves of crude oil in the world, even more than Saudi Arabia.
But the Venezuelan oil industry is also sitting atop a well of trouble.
The South American nation has struggled to take advantage of its bonanza of expanding reserves. And a scandal over embezzled pension funds at state oil company PDVSA has renewed concerns about corruption and mismanagement.
Retired workers from the oil behemoth have taken to the streets in protest. Their beef: nearly half a billion dollars of pension fund money was lost after it was invested in what turned out to be a Madoff-style Ponzi scheme run by a U.S. financial adviser who was closely linked to President Hugo Chavez's government.
The fraud case centres on Francisco Illarramendi, a Connecticut hedge fund manager with joint U.S.-Venezuelan citizenship who used to work as a U.S.-based adviser to PDVSA and the Finance Ministry.
Several top executives at PDVSA have been axed since the scandal, which one former director of the company said proved Venezuela under Mr. Chavez had become "a moral cesspool."
Pensioners are not the only ones still wondering how such a large chunk of the firm's $2.5-billion pension fund was invested with Mr. Illarramendi in the first place.
The question cuts to the heart of the challenges facing PDVSA, one of Latin America's big three oil companies alongside Pemex of Mexico and Brazil's Petrobras.
The Organization of the Petroleum Exporting Countries issued a report last month showing Venezuela surpassed Saudi Arabia as the largest holder of crude oil reserves in 2010.
PDVSA is ranked by Petroleum Intelligence Weekly as the world's fourth-largest oil company thanks to its reserves, production, refining and sales capacity, and it has been transformed in recent years into the piggy-bank of Mr. Chavez's "21st-Century Socialism."
The timing of the scandal is not good for Mr. Chavez: the charismatic, 57-year-old former coup leader underwent cancer surgery in Cuba in June and is fighting to recover his health to run for re-election next year. He needs every cent possible from PDVSA for the social projects that fuel his popularity.
The company does a lot more than pump Venezuela's vast oil reserves. Tapped constantly to replenish government coffers, PDVSA funds projects ranging from health and education to arts and Formula One motor racing. From painting homes to funding medical clinics staffed by Cuban doctors, the restoration of a Caracas shopping boulevard and even a victorious team at the Rio carnival, there's little that PDVSA doesn't do.
Jeffrey Davidow, a former U.S. ambassador to Venezuela who now heads the Institute of the Americas at the University of California, San Diego, points to the occasion when PDVSA senior executives turned down invitations to a regional energy conference at the last minute back in May, saying they were too busy because of PDVSA's leading role in the government's "Gran Mission Vivienda" project. It aims to build two million homes over the next seven years.
"In poorly managed societies, national oil companies tend to be the most efficient organizations, so the government gives them more work to do, instead of letting them focus on being better oil companies," Mr. Davidow told industry executives in the ballroom at a luxurious La Jolla hotel.
That's the kind of criticism that Mr. Chavez, who has nationalized most of his country's oil sector since he was elected in 1999, says is rooted in a bankrupt "imperial Yankee" mind-set.
He purged perceived opponents from PDVSA's ranks in response to a crippling strike in 2002-2003 that slashed output, firing thousands of staff and replacing them with loyalists. Since then, the company has endured one controversy after another.
There was the "maleta-gate" affair in 2007, so-called after the Spanish word for suitcase, when a Venezuelan-American businessman was stopped at Buenos Aires airport carrying luggage stuffed with $800,000 in cash that U.S. prosecutors said came from PDVSA and was intended for Cristina Fernandez's presidential campaign in Argentina. Both Ms. Fernandez and Mr. Chavez denied the charge.
There have also been persistent allegations by industry experts and international energy organizations that Venezuela inflates its production statistics – which PDVSA denies – and a string of accidents, including the sinking of a gas exploration rig in the Caribbean last year and a huge fire at a giant oil storage terminal on an island not far away.
In a big blow to its domestic popularity, tens of thousands of tonnes of meat and milk bought by PDVSA's importer subsidiary, PDVAL, were left festering in shipping containers at the nation's main port last year, exacerbating shortages of staples on shop shelves. Opposition media quickly nicknamed the subsidiary "pudreval" in a play on the Spanish verb "pudrir," which means "to rot."
In an apparent damage-limitation exercise after the pension scandal, five members of the PDVSA board were relieved of their duties in May, including the official who ran the pension fund. They were replaced by Chavez loyalists including the country's finance minister and foreign minister.
Gustavo Coronel, a former PDVSA director in the 1970s and later Venezuela's representative to anti-graft watchdog Transparency International, said the fraud had been going on right under the noses of the PDVSA board.
"What this scandal shows is that Venezuela has become a moral cesspool, not only restricted to the public sector but to the private sector as well," he wrote on his blog.
"Money is dancing like a devil in Venezuela, without control, without accountability. Those who are well connected with the regime have thrown the moral compass by the side Venezuelan justice will not move a finger. Fortunately, U.S. justice will."
U.S. investigators say Mr. Illarramendi, the majority owner of the Michael Kenwood Group LLC hedge fund, ran the Ponzi scheme from 2006 until February of this year, using deposits from new investors to repay old ones. He pleaded guilty in March to multiple counts of wire fraud, securities and investment adviser fraud, as well as conspiracy to obstruct justice and defraud the U.S. Securities and Exchange Commission. He could face up to 70 years in prison.
By those outside the circles of power in Venezuela, Mr. Illarramendi was seen as one of the "Boli-Bourgeoisie" – someone who was already wealthy but grew much richer thanks to the "Bolivarian Revolution," named by Mr. Chavez after the dashing 19th-century South American independence hero Simon Bolivar. In one widely circulated image, Mr. Illarramendi is seen overweight and balding, wearing a dark blue overcoat and clutching a blue briefcase as he left federal court in Bridgeport, Conn., after pleading guilty.
An ex-Credit Suisse employee and Opus Dei member in his early 40s who lived in the United States for at least the last 10 years but travelled frequently to Venezuela, Mr. Illarramendi is on bail with a bond secured on four U.S. properties he owns.
He was close to PDVSA board members and Ministry of Finance officials, but is not thought to have known Mr. Chavez personally. The son of a minister in a previous Venezuelan government, Mr. Illarramendi did enjoy some perks, including using a terminal at the capital's Maiquetia International Airport normally reserved for the president and his ministers, according to one source close to his business associates.