Mexican investors are estimated to have held approximately US$1.4 billion of certificates of deposit and other supposed investments in the alleged US$8 billion fraud at Stanford Financial Group Co., according to David Cibrian, a partner at Strasburger & Price, LLP who is representing numerous Mexican investors in their claims against Stanford Financial Group and its affiliates, including Antigua-based Stanford International Bank.

On February 17, 2009, the U.S. Securities and Exchange Commission filed a lawsuit against Stanford in the U.S. District Court for the Northern District of Texas accusing Stanford of running a multibillion-dollar fraud.  The Dallas Court has frozen Stanford’s worldwide assets and appointed Ralph Janvey as a receiver to act on behalf of investors in recovering assets from Stanford.  Certain Stanford investors filed separate lawsuits against Stanford in the U.S. District Court for the Southern District of Texas.

On March 16, 2009, Janvey and the SEC filed a motion with the Dallas Court opposing the requests of investors to join the SEC’s action against Stanford in the Dallas Court.  They also asked the Dallas Court to reject the request of Stanford investors for appointment of an examiner to oversee Janvey’s work and to bar Stanford creditors from filing liens against its assets until Janvey had filed a plan to accomodate all claims against Stanford’s estate.  The Dallas Court has not yet ruled on the motion.

Cibrian said that Strasburger would work to support the efforts of Janvey as he pursues claims against Stanford in the Dallas Court, which the judge has ordered be the exclusive forum for claims against Stanford.  He said that investors who filed lawsuits against Stanford in the Houston Court or other courts will probably need to transfer or remove them to the Dallas Court before they can proceed, although Janvey is now trying to prohibit interventions in the SEC action due to the enormous distraction it would create.

Cibrian, who was one of the lead attorneys among those who pursued claims of Mexican and other investors in a similar investment fraud action by the SEC against InverWorld, Inc. and its affiliates said that “although the investment amounts inthe Stanford case are larger than in Inverworld, the legal concepts will be equally complex.  The Stanford matter will take a long time to resolve and the receiver needs to be aided, not distracted, by law firms advising their clients.”

Bloomberg has reported that Janvey has obtained approval from the Dallas Court to release US$4.6 billion from about 28,000 frozen brokerage accounts to Stanford customers and that about 62 percent of Stanford brokerage customers seeking to join the SEC’s case had been given access to their money.  The report also said that Janvey was working on a plan that would allow Stanford customers whose accounts are frozen to submit online applications to request their money.  However, if a customer’s account contained fraudulent proceeds, the account would not be unfrozen and the customers would have the option of participating in non-binding mediation or appealing their claims directly to the judge.

Disclosure: I regularly work with David Cibrian on cross-border and other transactional legal matters.

Mexico has imposed trade sanctions in the form of tariffs ranging from 10-20% on approximately 90 categories of agricultural and industrial products that are shipped from the U.S. to Mexico (whether or not the products are of U.S. origin) in retaliation for suspension by the U.S. of the U.S. Department of Transportation’s ”demonstration project“, which allowed Mexican trucks to make deliveries in the U.S. as required by the North American Free Trade Agreement (NAFTA).  The sanctions, which were authorized by a NAFTA panel ruling several years ago, are are expected to affect approximately $2.4 billion in U.S.-Mexico trade. 

The affected products include certain Christmas trees, onions, cabbage lettuce, almonds, dates, grapes, pears, apricots, cherries, strawberries, nut mixes, uncooked pasta, peanuts, fruit juices, vegetable juices, soy sauce, soups and broths, mineral water, wines and other fermented beverages, dog and cat food, oilcake and other solid residues, paints, manicure and pedicure products, make-up and beauty products, oral or dental hygiene products, shaving products, tableware and kitchenware, toilet paper, statuettes and other ornaments, notebooks and diaries, printed books and brochures, tarn, carpets, glassware, jewelry and precious metals, furniture mountings, refrigerators and freezers, coffee and espresso makers, laundry machines and other electrothermic devices, telephones, batteries, sunglasses, metal furniture, arcade games, pens, pencils, and certain other goods. 

The complete list of affected products and the tariff rates imposed was published in Mexico’s Official Daily (Diario Oficial) on March 18, 2009.

U.S. exporters to Mexico who believe their products may be subject to the tariffs should contact their international trade attorneys and/or customs brokers.

The demonstration project was terminated under a rider to the Omnibus Appropriations Act that President Obama signed on March 11, 2009 (Public Law 1118, division I, title I, 123 Stat. 524).  The Federal Motor Carrier Safety Administration issued a notice of termination effective March 11, 2009.

Thanks to my colleagues Mark Andrews and Ken Siegel of Strasburger & Price, LLP and to Doug Jacobson of tradelawnews.com for providing certain background information for this post; Mexicolawblog.com remains solely responsible for its content.

As the U.S. Congress begins its review of the U.S.-Mexico border trucking demonstration program and the global financial crisis continues to ripple through Mexico, U.S. and Canadian cargo transportation companies and other investors may wish to consider distressed asset investment opportunities in Mexico’s cargo transportation industry.

The following is a rough outline of the laws and rules governing foreign investment in Mexico’s cargo transportation industry, all of which (along with other laws) should be carefully considered in consultation with a licensed Mexican attorney (which I am not) before making any investment:

International Cargo Transportation Services

Mexico’s Foreign Investment Law (Ley de Inversion Extranjera) allows foreign companies to own 100% of the equity of a Mexican company that performs international cargo transportation services in Mexico, where “international cargo transportation services” generally means services involving the transport of cargo between points in Mexico and the United States or Canada but excluding services involving the transport of cargo between points within Mexico.

However, a permit from the Ministry of Communication and Transportation (Secretaria de Comunicacion y Transportes- SCT) is required to perform such international cargo transportation services and the SCT is not currently granting such permits. Indeed, the SCT has rejected all recent requests by Mexican companies with U.S. and other foreign shareholders seeking to engage in the international cargo transportation business. Several of the rejections are being contested in litigation in Mexico.

Although the requesting companies are expected to prevail in the litigation because the SCT’s rejection of their permits appears to be contrary to applicable Mexican law, the litigation could continue well into 2009 or 2010.

Domestic Cargo Transportations Services

Under the Foreign Investment law, a foreign company is not permitted to own any interest in a Mexican company that performs domestic cargo transportation services, where “domestic cargo transportation services” generally means services involving the transport of cargo between two points within Mexico.

The exception to that rule is that a foreign company may make an investment in a Mexican company that performs domestic cargo transportations services (and/or international cargo transportation services) in Mexico, provided that the investment is neutral and the Ministry of the Economy (Secretaria de la Economia) approves of the neutrality of the investment in advance. “Neutral” in this case usually means that the foreign company may own only preferred stock in the Mexican company with voting rights limited to material matters such as a change in corporate purpose, merger, acquisition, sale of assets, spin-off, etc.

The Ministry of the Economy has recently approved such neutral investments by U.S. investors in Mexican transportation companies. The Ministry almost invariably rejects the first application and requests additional information from the applicant regarding the proposed investment. The second submission of the application is often accepted. The Ministry of the Economy has 30 days to respond to each application for approval of neutral investment but generally responds within 15 days.

Demonstration Program

A third option for U.S. and Canadian cargo transportation companies that wish to do business with Mexico but not to make a direct investment in a Mexican company is to make application to the SCT for enrollment in the Mexican equivalent of the U.S.-Mexico border trucking demonstration program (programa demostrativo), which allows a U.S. or Canadian transportation company to enter Mexico with its own trucks, drivers, and trailers to perform international cargo transportation services. (The U.S. demonstration program, as promulgated by the U.S. Congress and the Department of Transportation, has allowed Mexican carriers to make deliveries into the interior of the U.S. since 2007.)

Two key requirements of the Demonstration Program are that the truck drivers of the foreign applicant be bilingual and the foreign company be a registered transportation company with the U.S. Department of Transportation or its Canadian counterpart. The applicant must provide a substantial amount of supplementary information with the application. Applications are typically adjudicated within 3-4 months after submission.

As Mexican billionaire Carlos Slim Helu continues his buying spree of large stakes in distressed U.S. companies, commentators have started to question the possible impact of his expanded influence on U.S. business and politics. 

In the last year, Slim, through his family members and affiliated companies Banco Inbursa and Inmobiliaria Carso, has acquired:

- $250 million of six-year notes of The New York Times (NYSE: NYT) bearing interest at 14% per annum coupled with warrants convertible into common shares (this is in addition to the $128 million of NYT common stock Slim bought in September 2008 and representing 6.4% of NYT common stock; after the exercise of the warrants Slim’s NYT stake would rise to 17%);

- A 18% stake in luxury goods retailer Saks, Inc. (NYSE: SKS), which prompted the company’s board of directors to enact anti-takeover measures (rumors have suggested Slim is interested in the Saks’ real estate holdings); and

- A $150 million stake in Citigroup common stock (NYSE: C), which aroused speculation that Slim would seek to take over Citigroup’s Mexican subsidiary Banamex; Slim promptly denied interest in Banamex.

Andres Martinez, a Mexican native and journalist, suggested that Slim’s investment could pose serious conflict of interest problems for the NYT that could threaten its journalistic integrity. 

At this juncture, Mr. Martinez’s view seems to be a stretch.  Even after Slim exercises his warrants to acquire 17% of NYT common stock, Slim will have no representation on the NYT board, and no special voting rights.  The Ochs-Sulzberger family owns 19% of the company, which it controls through a special class of supervoting shares. 

The view of Armand Peschard-Sverdrup, a senior associate of the Center for Strategic and International Studies, is more on point: ”by having a stake in the New York Times, [Slim is] basically projecting himself as a powerbroker in this country, regardless of how his investment does.”  His investment in NYT, which yields a 14% annual return, appears that it will do very well.

The Mexico Institute and the Woodrow Wilson International Center for Scholars at Princeton have launched a new website/blog called The Mexico Portal, which according to the site, “provides the most comprehensive and timely news, analysis and studies on Mexico.  It covers a wide range of critical issues, including migration, security, the economy, development, energy, and elections.”

“We hope that The Mexico Portal helps the U.S. public follow events that occur in Mexico and in the Mexican community in the United States, as well as permit access to new studies, articles and reports that explore the significance of those issues,” said Andrew Selee, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars, in a press release cited in a Sentido Comun report.

The Mexico Portal is a welcome addition to the growing number of Mexican-related news and information sites.

U.S. journalist resident in Mexico Jeremy Schwartz provides a refreshingly clear and insightful view of the reality of traveling in Mexico in a recent post on his Uncovering Mexico Blog. 

He writes: “While there are certainly some failed cities – I would never tell loved ones to go anywhere near Ciudad Juarez or Tijuana or Culiacan – most of the country is still stable and peaceful.  As violent as the drug war has become, its victims are still overwhelmingly connected to the cartels.  Few innocents are caught in the cross-fire.  I wouldn’t necessarily recommend a sightseeing trip to certain border towns or through the remote mountains of the Sierra Madre, but tourists should feel comfortable booking a trip to places like Puerto Vallarta or Oaxaca or Veracruz.

…

Viewing Mexico as an ungovernable chaos is to make a caricature of this vast, complex country.  As I told my friends and family, it can prevent you from enjoying the magic that still courses through Mexico’s veins.”

Amen.

I recently assisted my colleagues John Rogers and Mary Rose Brusewitz in the preparation of a paper entitled “The Financial Crisis and Implications for U.S.-Mexico Bankruptcies and Restructurings“, which was published in Latin American Law & Business Report. 

On January 15, 2009, John and Mary Rose will join a panel discussion at the U.S.-Mexico Chamber of Commerce in New York, in which they will discuss aspects of the paper and cross-border restructurings amid the current financial crisis.  The panel discussion is part of an event hosted by the U.S.-Mexico Chamber called Corporate Restructuring and Distressed Markets in Mexico.

Kansas City Southern (NYSE: KSU) will continue to invest in Mexico through its Mexican subsidiary, Kansas City Southern de Mexico, S.A. de C.V. (KCSM), despite the global economic recession, according to a report at mexicobiznews.com. 

KCSM, which expects to be moderately affected by the financial crisis, anticpates that the new railway facilities at the Lazaro Cardenas Terminal, a deepwater port located in the State of Michoacan, will increase rail cargo volumes, the report said. 

In June 2006, KCS announced that it would provide daily service from Larazo Cardenas, San Luis Potosi, and Monterrey, Mexico to the southeastern U.S. markets via Jackson, Miss., with connecting service to Atlanta, Ga.  KCS acquired a controlling stake in Transportacion Ferroviaria Mexicana (TFM) in April 2005, enabling it, TFM, and The Texas Mexican Railway Company to create a single 1,300 mile rail system under common ownership connecting the midwestern United States, central Mexico, and Mexico’s Pacific seaports, according to the Freightdawg.com blog.

The Lazaro Cardenas Terminal is managed by Hutchison Port Holdings.

On January 15, 2009, the U.S.-Mexico Chamber of Commerce in New York will host an event entitled Corporate Restructuring and Distressed Markets in Mexico.

The event includes a keynote speech by Luis Manuel Mejan, Director General of the Mexican Federal Institute of Commercial Insolvency Specialists (IFECOM), and a panel discussion led by my Strasburger & Price colleagues John Rogers and Mary Rose Brusewitz, and Steven Kargman, President of Kargman Associates, a restructuring advisory firm.

More information is available here.

Mexico’s senate approved a bill giving a government regulator authority to order pension funds to modify investment portfolios if they are judged to be too risky, according to a Bloomberg report.  The bill now goes to the lower house of Congress.