Been working today on another section of my Open Letter to the Greek Supreme Court, this time relating to a vast and complex fraud which may have cost Greeks and Cypriots billions.

Please note, this is a draft based on limited information available in English as I do not speak Greek. It is subject to revision and correction.

The main source is

I think these prosecutors need to pursue these crimes under organized crime as well as financial fraud and market manipulation laws.

A. The credit bubble cycle

Banks are required by financial regulators to hold a certain amount of capital or equity. The capital they hold determines the amount of money that they are allowed to lend.

Marfin and their co conspirators, IRF and Vatopedi, began a fraud to significantly increase Marfin’s capital or equity in order to allow Marfin to lend more money than they would have been allowed to under regulations.

Marfin used the fractional reserve banking system to make book keeping entries to give hundred of million to IRF European Finance Investments (owned by shipowner Angeliki Frangou) and to Vatopedi so that these entities could, in turn, to buy shares in Marfin bank and other MIG companies.

Note, in 2007 and 2008, Vatopedi’s income just from rent and subsidies, according to the records of the Bank of Greece, rose to 16,410,126.04 euros.

In 2007 and 2008, banks also lent the monastery of Vatopedi 360,813,250.88 euros.

Banks belonging the Marfin group lent 157,000,000 euros to Vatopedi through its off shore companies. Vatopedi, in turn, used 115,000,000 Euros of these loans to buy shares in Marfin.

Gotruthforum breaks the purchases down as follows

• 30,200,000 Euros towards the capital increase of MARFIN INVESTMENT GROUP (MIG),

• 6,300,000 Euros to buy shares of the HYGEIA Medical Group again of the MIG,

• 4,790,000 Euros for shares of the MARFIN POPULAR BANK, an important banking arm of MIG,

• 10,400,000 Euros to buy shares of VIVARTIA a company purchased by MIG,

• 4,000,000 Euros for shares of SINGULAR LOGIC, a company of MIG,

• 21,700,000 Euros to pay off a previous loan of the investing bank, related again to MIG,

• 22,700,000 Euros to buy more shares of MIG,

The purchase of shares by Vatopedi and IRF artificially boosted the equity on Marfin’s balance sheet. This boost in equity allowed Marfin to issue yet more loans, appearing as  book keeping entries on the liabilities side of the balance sheet.

The bigger loans, in turn, that Marfin was allowed to issue flowed again to IRF and possibly Vatopedi to buy more shares.

The original 75 million euros lent to IRF turned into 200 million euros through re financing, apparently, the purchasing of more shares through more loans.

These share purches boost the the equity on Marfin’s balance sheet even more, and so allowed the bank to issue even more loans in a upward cycle of fraud. These loans appeared as  book keeping entries on the liabilities side of the balance sheet.
These loans seem to have been for mortgages.

In the case of IRF, at least, these loans were unsecured and never repaid.

It is likely the loans to Vatopedi were also unsecured according to a translation of an  Interview with Dimitiris Tsironis.

“To say that all was legal, that they were covered and there were guarantees and so on, of course this is debatable. Simply stated the Bank and MIG and its companies used the monastery also for its tax exemptions that it enjoys in its stock market transactions, as do the rest of the Mount Athos monasteries.”

One loan given to the monastery was  guaranteed by RASSADEL, an  offshore company of the monastery, which was not a legal entity back then and had a capital of barely 1,000 Cypriot Pounds.

Marfin and Vatopedi exploited the fact that the monastery is tax exempt in stock market transactions.

In parallel, Vatopedi, at least, used two offshore companies to systematically inflate the price of properties in Thessaloniki and other parts of Greece as well as abroad.

At least, two of the monastery’s offshore companies buying properties operated in coordination in such a way as to hugely increase the price of properties often overnight.

“Vatopedi’s off shore company buys in 2007 a property in Belgrade from the company SASA GERUM for 704,500 Euros. A year later it sells the same property to the company DIGITAL PRINTING CENTER for 2,450,000 Euros, 3.5 times higher in price.
The companies of PAPISTAS, partners of the monastery, buy 3 properties that had been sold even the same day for a second time, through Jordan Papaioanou. The PAPISTAS GROUP buys at a price many times higher than Papaioanou did. Furthermore, the money does not go to Papaioanou but to the previous seller. They bought:

• A property in Thessaloniki on Stratigou Sarafi Str. for 6,759,000 Euros. This property had been sold earlier the same day for 3,600,000 Euros.

• A property in the county of Kordelio from Papaioanou for 1,500,000 Euros, which Papaioanou had bought five days earlier for 500,000 Euros.

• A property in Thermi, Thessaloniki for 9,530,000 Euros. This property was sold twice the same day, the first time for 5,000,000 Euros.

Later during his deposition, Papaioanou admitted that he acted as a surrogate in these real estate transactions of the PAPISTAS GROUP.”

These gigantic price overnight price increases would highly likely have artificially inflated the statistical average of property prices sending them soaring upwards, creating the impression of a housing bubble.

As a result, buyers faced having to pay inflated prices for property. That is, to say, they had to take out larger book keeping entry mortgages from banks like Marfin, with higher interest rates, and with a higher risk of eventual default.

Fair value accounting systems allowed Marfin to book higher sums for these properties on the equity side of their balance sheet than other accounting systems. The higher equity on Marfin’s books, in turn, allowed the bank to grant more mortgages at inflated prices.

Through this method, the banks were able to make the most profit from their monopoly on their right to create money out of thin air.

They earned the maximum in interest on inflated mortgages in the credit bubble cycle. This, by giving the largest number of mortgages at the highest possible price.

They also helped ensure the eventual collapse of the economy. Money spent on mortgages can’t be spent on consumer goods and services, eroding jobs.

All these irregular activities must have happened with the collusion of the regulators and National Bank of Greece.

B. The credit crunch cycle

In the credit crunch cycle Marfin and their co conspirators, IRF and Vatopedi, may have started to sell huge amounts of Marfin shares in order significantly decrease Marfin’s equity.


As a result of any sudden and dramatic loss of equity, Marfin  would no longer have held enough capital or equity on its balance sheet in relation to its loans or liabilities.

The sudden apparent under capitalization of Marfin would have been compounded by banks cuttng off the granting more mortgages.

Deprived of easy money, the property market would have dried up and jobs would slow. Property owners would not be able to sell their overvalued homes in the event that they were not able to pay the mortgages any longer because of, for example, a job loss.

Because property owners were unable to sell their homes or pay the interest, Marfin was able to increase artificially the liabilities that it had on its balance sheet.

The skewered ratio between capital and liabilities in the form of huge mortgages with no interest payments (non performing loans) allowed Marfin to declare itself in a financial crisis and demand billions in bailouts setting the scene for the next phase of the credit crunch cycle, which involves shifting the debt burden from persons to the state.


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