WILMINGTON, Del. (CN) - After nationalizing one of the world's largest untapped gold reserves, Venezuela forced Citgo into insolvency to avoid multibillion-dollar liability, a Canadian mining company claims in court.
Located in the southeast Venezuela, near a town appropriately christened El Dorado, Las Cristinas is Venezuela's largest unmined gold reserve.
In a federal complaint filed Monday, Toronto-based Crystallex International says "extensive on-site studies have concluded that Las Cristinas contains proven and probable reserves of almost 17 million ounces of unmined gold, with indications of at least another 9 million available ounces."
Crystallex says it spent more than $640 million on infrastructure in the area after contracting 13 years ago with the state-run Corporacion Venezolana de Guayana, but that the actual mining never got off the ground.
When harvest time was supposed to come for Crystallex, however, the late Venezuelan President Hugo Chavez cut off its efforts at the knees by nationalizing gold production within its borders.
PDVSA, short for the wholly government owned and controlled Petroleos de Venezuela SA, paid no consideration for the Crystallex assets it received, but it made $9.5 billion by selling 40 percent of those rights, along with the rights to certain smaller gold reserves, according to Crystallex's complaint.
Crystallex says it is one of many foreign companies left insolvent by Chavez's nationalization efforts now seeking billions in restitution through arbitration proceedings.
Once the dust settles, businesses like Crystallex would look to Venezuela's largest U.S.-based asset, Citgo, to collect.
Crystallex says Venezuela predicted this liability so it has been trying to transfer Citgo's assets.
"At first, Venezuela tried to sell Citgo - which it owned through PDVSA, PDVH and Citgo Holding - so that it could transfer the value of that asset out of the United States before it could be executed upon," the complaint states.
Both Citgo and PDVH, short for PDV Holding, are Delaware-based subsidiaries of PDVSA.
When Venezuela could not sell Citgo, it had PDVSA begin extracting "as much value as possible from CITGO," according to the complaint.
Crytallex says "PDVSA did so by orchestrating a series of debt offerings and asset transfers among PDVSA and its subsidiaries PDVH and Citgo Holding that converted Citgo's value to cash, then removing those funds from the United States and transferring them into PDVSA's coffers in Venezuela."
After issuing nearly $2.8 billion in debt, Citgo transferred those proceeds to PDVH as shareholder dividend, according to the complaint.
Crystallex says the maneuver left Citgo "insolvent on an accounting basis."
The Canadian company says it expects the arbitration proceedings against Venezuela in connection to the nationalization of its mining assets to conclude with a $3.1 billion judgment later this year.
Citing the Delaware Uniform Fraudulent Transfer Act, Crystallex seeks return of the $2.8 billion that PDVSA and its subsidiaries transferred from the United States.
Alternately, Crystallex seeks a $2.8 billion money judgment.
Venezuela is under fire by U.S. companies in connection to nationalizing oil production in 2010 as well. Earlier this year, the U.S. Supreme Court refused to let Venezuela block allegations that such seizures violated international law.
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