(CN) — Venezuela is again using its state-owned entities to transfer assets out of the reach of creditors in the United States, a Canadian mining company claims in federal court.
Toronto-based Crystallex International Corp. says in a lawsuit filed Friday in Delaware federal court that PDV Holding Inc. is pledging over half of its shares in Citgo Holding to secure a bond swap for Petroleos de Venezuela S.A., the state-owned Venezuelan oil giant commonly known as PDVSA.
PDV Holding — a Delaware subsidiary of PDVSA — has agreed to give creditors of PDVSA a lien on 50.1 percent of its CITGO shares, which will "secure approximately $3.36 billion of new debt of defendant's parent, PDVSA," the federal complaint states.
"By giving away a lien on a substantial portion of its assets for no consideration while a defendant in a lawsuit that seeks approximately $1.4 billion in damages, defendant has acted with intent to hinder and delay its creditors," Crystallex's complaint states.
Crystallex was awarded a $1.4 billion judgment against Venezuela by a World Bank tribunal after it found that the South American nation expropriated the company's mining operations in Las Cristinas, Venezuela, containing one of the largest undeveloped gold deposits in the world.
Following the confiscation and nationalization of Crystallex's mining interests by the late Hugo Chavez in 2011, PDVSA sold off 40 percent of the Las Cristinas asset to the Venezuelan Central bank for $9.5 billion, while Crystallex was forced into insolvency.
Last year, Crystallex brought a similar fraudulent transfer complaint against PDVSA, PDV Holding and Citgo Holding, claiming Venezuela used its state-owned companies to siphon $2.8 billion out of the United States to avoid paying billions of dollars in arbitration awards and judgments against it.
In that lawsuit, Crystallex alleges that PDV Holding and PDVSA "orchestrated a scheme to monetize its American assets and pull the proceeds out of the United States, in order to evade potential arbitration creditors."
The net result, according to the 2015 complaint, was that "Venezuela (through PdVSA and its subsidiaries) repatriated $2.8 billion in proceeds, while leaving its U.S.-based subsidiary, Citgo Holding, insolvent on an accounting basis, all while Venezuela was facing dozens of arbitrations and litigation seeking billions of dollars in recoveries."
A Delaware judge recently denied PDVSA's motion to dismiss the 2015 Crystallex complaint.
Crystallex says that ruling prompted PDV Holding to engage in the second fraudulent transfer, "this time encumbering slightly more than half of its primary asset in an effort to dodge Crystallex and other creditors."
Initially, according to the new lawsuit, PDVSA proposed a bond swap to investors that "would exchange more than $7 billion of outstanding PDVSA bonds for 'new notes,' maturing in 2020," utilizing PDV Holding's Citgo shares as collateral.
When that offering failed to garner sufficient interest by the deadline of Sept. 29, 2016, PDVSA had to sweeten the offer, according to Crystallex's complaint.
"Ultimately, creditors representing $2.8 billion worth of bonds maturing in 2017 tendered their notes for approximately $3.367 billion in new bonds maturing in 2020," the complaint states.
Crystallex also says in its Oct. 28 lawsuit that PDV Holding gets nothing "in exchange for its extraordinary pledge of 50.1 percent of Citgo Holding."
The mining company says the offering circular for the bond swap includes a warning for investors: "PDVSA cannot guarantee that a creditor of the Bolivarian Republic of Venezuela will not be able to interfere with the exchange offers, the collateral or payments made under the new notes, through an attachment of assets, injunction, temporary restraining order or otherwise."
Crystallex says the warning is significant because, "if the lien on defendant's shares of Citgo Holding is ever called, it will destroy the value of defendant's largest asset."
Crystallex seeks relief under Delaware's Uniform Fraudulent Transfer Act and an injunction barring additional transfers from PDV Holding. It is represented by Jeffrey Moyer of Richards Layton in Wilmington, Del., and by Robert L. Weigel of Gibson Dunn in New York City.
Venezuela is under fire by U.S. companies in connection to nationalizing oil production in 2010 as well. Last year, the U.S. Supreme Court refused to let Venezuela block allegations that such seizures violated international law.
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