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Venezuela investment in Smartmatic was no routine loan

By Richard Brand

03.05.06 | In his letter to the editor of The Miami Herald of April 29, Jack Blaine, the president of Smartmatic international and Sequoia Voting Systems, asserts that the Venezuelan government held a "28-percent nonpermanent, minority equity position in Bizta [Corporation] via a routine loan" at the time Bizta and Smartmatic were hired to provide electronic voting services for a recall referendum on President Hugo Chavez. To describe the transaction as a "loan" where Venezuela merely held Bizta stock as collateral turns basic principles of corporate finance on their head.

Lenders don't hold equity positions in debtor companies as collateral to secure their loans, because should the debtor be unable to pay back the loan, then the stock held as collateral is necessarily worthless. Debt gets paid before equity. The only rational reason for the Venezuelan government to hold an equity position in Bizta is to influence Bizta's management decisions. This is underscored by the fact that Venezuela chose Omar Montilla, an electronic voting machine expert who worked for Chavez's 1997 presidential campaign, as its representative on Bizta's board of directors. Additionally, Bizta's official Venezuelan corporate registry documents describe the transaction as an equity sale, and not as a loan.

Bizta's founders Antonio Mugica and Alfredo Anzola have turned their attention to their other companies, Smartmatic International and its new subsidiary Sequoia Voting Systems. Millions of Americans who use Sequoia voting machines should be deeply concerned about this.

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