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Third Circuit Shields Venezuela’s Shady Asset Transfers

The Third Circuit dealt a blow Wednesday to collection efforts by a Canadian gold miner awarded $1.4 billion against Venezuela.

PHILADELPHIA (CN) – The Third Circuit dealt a blow Wednesday to collection efforts by a Canadian gold miner awarded $1.4 billion against Venezuela.

As the longtime and exclusive developer of the Venezuelan gold mine Las Cristinas, Toronto-based Crystallex International Corp. belongs to a group of global developers that saw their interest in resource-rich Venezuela vanish in 2011 when Venezuelan President Hugo Chavez abruptly confiscated and nationalized their assets.

While the move made Crystallex insolvent, Venezuela’s state-owned oil company, Petroleos de Venezuela S.A., sold off 40 percent of Las Cristinas to the Venezuelan Central bank for $9.5 billion.

A federal judge has since confirmed a $1.4 billion arbitration award against Venezuela, but Crystallex returned to court in 2016 after PDV Holding Inc., the Delaware subsidiary of Petroleos, pledged over half of its shares in Citgo Holding to secure a bond swap for Petroleos de Venezuela S.A. The latter company’s name is abbreviated in the court record as PDVSA.

Crystallex paints the move as a fraudulent asset transfer, but PDVSA highlighted in a motion to dismiss that Crystallex won its judgment against Venezuela, meaning that the oil company cannot be considered the debtor.

Though a federal judge shot down this argument, the Third Circuit reversed 2-1 Wednesday.

“While we do not condone the debtor’s and the transferor’s actions, we must conclude that Crystallex has failed to state a claim under DUFTA,” U.S. Circuit Judge Midge Rendell wrote for a majority of the Philadelphia-based court, abbreviating the Delaware Uniform Fraudulent Transfer Act.

U.S. Circuit Judge Julio Fuentes dissented.

“Even though PDV Holding was not a debtor to Crystallex, it clearly facilitated the fraudulent transfer and is therefore a proper defendant in this case,” Fuentes wrote.

The Philadelphia-based appeal’s court ruling leaving Crystallex without a remedy, even while it tacitly acknowledges that the company was defrauded by PDV’s conduct.

“Today the majority signals that a party, such as PDV Holding, may knowingly participate in a fraudulent transfer so long as it is not a debtor,” Fuentes said.

Two months ago, Venezuela agreed to pay $1.2 billion to settle the dispute over the nationalization of Crystallex’s mining interest. The settlement was approved by a Canadian judge in Toronto.

Categories / Appeals, Business, Environment, Government, International

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