Reich vs the Derwick guys: A huge wait-and-see

Three alleged leaders of Derwick Associates, a company that won several procurement and construction contracts from Venezuela’s state oil company in 2009-2010 are being sued in US district court in New York by former ambassador Otto Reich. Reich alleges that the Derwick paid kickbacks to powerful Venezuelans including Oil Ministers Rafael Ramírez, and also spread lies to interfere with Reich’s business. The lawsuit names Leopoldo Alejandro Betancourt Lopez, Pedro Jose Trebbau Lopez, and Francisco D’Agostino Casado† as defendants. The first two have long been associated with Derwick in news articles. D’Agostino is better known to the society pages; he is a finance guy with an office in Panama. I had no idea he was linked to Derwick, and the complaint doesn’t provide proof. (Alek Boyd has a bit more on him here.)

Reich was a US diplomat to Latin America during the Reagan-Bush years, including a stint as ambassador to Venezuela, and was the Assistant Secretary of State for Western Hemisphere Affairs under George W Bush.

Derwick Associates is a small company that gets electricity industry construction contracts in Venezuela and then outsources the work, largely to ProEnergy Services of Sedalia, Missouri. It also works with General Electric and Pratt & Whitney, according to the complaint. I’ve written herehere and here about Derwick. The company has been the subject of investigative reports by César Batiz in Venezuela, alleging overcharging and possibly  and the company’s ham-handed reputation management got the attention of blogger Alek Boyd. I also wrote about the company when its lawyers sent me a note demanding I take down a blog post. I didn’t remove it and I never heard back from them.

The lawsuit starts with its biggest claim: that Derwick paid bribes, via intermediaries to Venezuelan Oil Minister Rafael Ramírez, former Basic Industries Minister Rodolfo Sanz, and a relative of an executive at state electricity company Corpoelec. One of the intermediaries was allegedly Nervis Villalobos, who previously appeared in Batiz’s article about Derwick’s planes, as having possibly traveled alone on a plane owned by Derwick.

Quoting from the suit itself:

Defendants would later brag to their friends and acquaintances in the United States that Derwick Associates secured these contracts by giving kickbacks to the right people. For instance, in November, 2012, while in the United States, D’Agostino told a friend that “of course” Derwick Associates paid kickbacks to secure its energy contracts; he noted that in Venezuela, “you always have to pay” what D’Agostino called “consulting fees” in order to secure the contracts…

Although the exact details of the PDVSA kickback scheme (including the amount of the kickback and the dates it was offered and paid) remain shrouded in secrecy given its illegality, it is believed that through an individual named Francisco Convit-Guruceaga (“Convit Guruceaga”) (who is Defendant Betancourt’s first cousin, and is also a part-owner  of Derwick Associates), Defendants Betancourt, Trebbau, and D’Agostino contacted Nervis Villalobos (“Villalobos”), a former Vice Minister of Energy, about obtaining the contracts to build the plants…

Upon information and belief, Convit-Guruceaga, pursuant to Defendants’ instructions, told Villalobos to extend an offer of a substantial payment on their behalf to Rafael Ramirez (“Ramirez”), President of PDVSA, in order to award the construction contracts to Derwick Associates. Upon information and belief, Villalobos did so, and Ramirez accepted the offer.

Although the exact details of the [CORPOELEC] kickback scheme (including the amount of the kickback and the dates it was offered and paid) remain necessarily shrouded in secrecy given its illegality, it is believed that Defendant Trebbau approached Javier Andres Alvarado Pardi (“Pardi”) (son of Javier Alvarado Ochoa, former Venezuelan Minister of Electrical Development, and a childhood friend of the Defendants), about awarding the contracts to Derwick Associates. Trebbau offered Pardi a substantial kickback in exchange for his assistance in securing the contracts for Derwick Associates…

Although the exact details of the [CVG] kickback scheme (including the amount of the kickback and the dates it was offered and paid) remain necessarily shrouded in secrecy given its illegality, it is believed that through the above-mentioned intermediary Convit-Guruceaga Defendants Betancourt, Trebbau, and D’Agostino contacted Rodolfo Sanz (“Sanz”), the Venezuelan Minister of Basic Industries and Mining…

Almost as an afterthought, the case also accuses a former JP Morgan banker of having been Derwick’s private banker and having helped the executives pay bribes.

Another chunk of the case relates to Reich’s consultancy, ORA. He says he was working for former Venezuelan banker* Eligio Cedeño and was going to work for Banco Venezolano de Crédito in its defense against a Derwick lawsuit, until a smear campaign orchestrated by Derwick caused those clients to abandon their $20,000 a month engagements with ORA. 

The lawsuit accuses Derwick and, separately, a grouping of four Derwick insiders, of having violated the US’s  Racketeer-Influenced and Corrupt Organizations Act (RICO). To break that law, a group of people has to break other laws. The laws Reich mentions are the Travel Act, which forbids crossing state lines to break a law; the Foreign Corrupt Practices Act (FCPA) which bans overseas bribery; and wire fraud, by lying to Reich’s clients to cause them to abandon his consultancy.

Reich is demanding at least $2 million for the RICO violation plus treble damages, attorney’s fees and costs, with backup claims for $1 million in damages for the damaged relationship with Cedeño, another $1 million for the lost work with Banco Venezolano de Crédito, $2 million for trade libel and interference with business, unspecified damages for defamation, and/or $2 million for civil conspiracy.

Reich and Villalobos didn’t respond to phone calls and e-mails to their offices. No one answered at D’Agostino’s office in Panama and I was unable to find his contact information in New York. Derwick didn’t immediately respond to a message sent through the company’s web-based form; the company web site doesn’t list a phone number. ProEnergy Services didn’t immediately respond to an e-mail to the company president. Pratt & Whitney didn’t immediately return a call. (Update August 2: “We are declining comment because this lawsuit does not involve Pratt & Whitney. As a matter of company policy, we do not comment on any pending litigation (involving us or other companies),” Pratt & Whitney said in an e-mailed statement.) If you have any comment on this case, please contact me; I’ll update this post as needed.

Update 4:44 pm: “General Electric is not a party to this lawsuit and has not reviewed the complaint yet,” General Electric spokesman Sebastien Duchamp said in an e-mailed response to a request for comment. “We have no comment on whatever allegations it may contain.”

Analysis

There are a lot of unsupported assertions in this lawsuit, and a lot of political grandstanding. If Reich finds evidence to support the assertions, any one of them could be very revealing. But so far, not much there.

The big claim — of racketeering — is going to be hard to prove. I’m not a lawyer, but here’s what I understand about racketeering law. RICO requires that someone run an interstate crime ring. Derwick is clearly interstate, and who knows, maybe it is a crime ring. But evidence is tough. The big crime is supposed to be bribery in Venezuela, which would violate the US’s Foreign Corrupt Practices Act. But how will Reich get evidence of that? This is the “big wait and see” I mention in the headline. If he can find evidence — or, perhaps, if he already has it — that’s going to be fascinating. And if not? It could backfire on Reich, but I’m not sure about that. He’s as well connected in Washington as his adversaries are in Caracas. There’s no such thing as bad publicity. The other crimes that Reich mentioned are hard to see as racketeering. One is the Travel Act, which like RICO just forbids crossing state lines to commit a crime. Another is “wire fraud” for supposedly damaging Reich’s reputation through phone calls. If spreading nasty rumors qualifies as racketeering, I don’t think many Washington insiders will be safe for long.

Just on a cursory reading and googling, I can see the case includes factually inaccurate assertions. Nothing huge, but it looks like sloppy work. For example, he quotes Batiz, Boyd and yours truly in his lawsuit. He calls me “Steve” and says I am a Bloomberg correspondent. I may have to start calling him “Ott.” To clear up any doubts, I haven’t worked for Bloomberg for three years. Another example: he says that D’Agostino owns 10 East 75th Street in New York. That’s possible, but hard to square with this and this. Minor stuff, but Reich spends a lot of time in this lawsuit establishing his own credibility and trying to show the other side’s lack thereof. If credibility is an issue, it would be worth the time to conduct basic fact-checks. 

This case reminds me of my time volunteering for the ACLU in White Plains, New York, back when Ott was busy running interference for violent anti-Communists in Central America. Mine was a tough gig, because every phone call brought a heart-wrenching complaint, but the ACLU was interested only in perfect cases. We needed people who had not only been done wrong, but whose own actions were unimpeachable. A crackhead with assault convictions had every right to complain of police brutality and we’d give him tips on how to complain. But we knew that we were unlikely to get a precedent-setting case out of such a plaintiff. We did what we could to help, but we didn’t put the ACLU’s name on his lawsuit. This is a long way of pointing out that Otto Reich is not a perfect plaintiff. He has baggage. Regardless of the merits of this case, people are going to have a hard time giving it credibility. But he’s the one who filed this case, so he’s the one I’m writing about.

That’s plenty of criticism of Reich and his work. But if he has the goods, and is going to present them at trial, this will be a very interesting case.

Wait & see.

† He’s been in court before, as a plaintiff. But more seriously, he is also an alternate board member of Venezuela’s Banco Occidental de Descuento (B.O.D.) and has appeared on the society pages for years.

* Yes, that Eligio Cedeño. Google him if you need more info. Another whole story there.

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15 thoughts on “Reich vs the Derwick guys: A huge wait-and-see

    1. Alejandro Leiro

      From reading his suit they interfered with his business. And if you interfere with someone’s business while committing a crime that is actionable.

  1. sapitosetty Post author

    Sorry, I thought that was clear — they allegedly drove away his clients, Eligio Cedeño and Banco Venezolano de Crédito. At $20,000 a month each, that’s damage.

    But I agree, it’s odd that he is the person claiming to have been harmed by this alleged racketeering. If the accusations are true, a lot of people were harmed. But they don’t have the bucks to sue in US court.

  2. Carol Watkins

    Really interesting like a real life mystery case. Reads well and obviously you do fact check!!

  3. O.W.

    So Reich is upset that someone else’s bribes interfered with his bribes?

    Wouldn’t it be interesting if this somehow forces Reich to have to do a full financial disclosure so we could see how much money Reich parlayed his taxpayer financed gigs into.

  4. Gustavo Coronel

    Beyond the legal merits of the action, I am no lawyer, the interesting aspect for Venezuelans is the glimpse we get into the huge dimensions of corruption in today’s Venezuelan society. Political ideology be damned, the top priority of government officers and much of the well-to-do is to make money at the expense of the nation. This confabulation of the illiterate and high society is pretty revolting and explains the moral bankruptcy of the country. The legal action includes enough information on this strange marriage of the “socialist” and the “jet set”, and confirms much of what Cesar Batiz and Alek Boyd had already revealed. In fact, by association, this case throws murk to notorious bankers and, even, royal families ( Not that the royal family mentioned lacks black sheep).
    Venezuela is a cesspool. See also: http://dolartoday.com/las-fortunas-mas-grandes-del-chavismo/

    1. sapitosetty Post author

      Gustavo, I only wish what you say were true. There has been great reporting on Derwick by those you cite, plus a lot of less supported but interesting accusations at the dearly departed Wikianticorrupción (a site possibly taken down by Derwick or its allies). This lawsuit repeats a small number of the claims previously made. What’s new here? D’Agostino’s name hadn’t come up before. The supposed statement by an unspecified Derwick insider that they had paid people off, that’s new, if it can be confirmed. The open accusation of Nervis Villalobos as middleman to Rafael Ramírez — that’s new, but again, tough to prove. In short, all that’s new here is being presented as unsupported assertion. As a reporter, I couldn’t make such unsupported assertions without being accused of defamation. It’s allowed in a lawsuit, but I’m not sure that makes it right. I think you know that I hate what corruption is doing to Venezuela, and that’s why I hope that Reich has, or can get, proof to back these claims. If he doesn’t, this could be a setback, rather than an advance, for those of us who dislike corruption.

  5. Gustavo Coronel

    I see your point. But I believe the revelations made in the suit are substantive enough to help opening the can of worms. In a suit there has to be disclosure. We already saw that Derwick preferred to settle with the Bank to risking the details of their behavior been brought to light in a trial.
    Fighting corruption takes grit and is a risky business. Everyone has a different motivation for doing so. In my case I have been looking at corruption in government for so long that I welcome every little piece of the puzzle that I can use to put the whole thing together.
    But I agree with you, it’s no picnic.

  6. Alejandro Leiro

    I just went to “infodio” the new Alex Boyd site. It is down. Then I tried Otto Reich’s site “America’s Forum”. It is also down. Then I tried Reich’s coauthor Ezequiel Vasquez. His site also down. I guess the ChavezKids are busy engaging in cyber warfare.

  7. Kepler

    Thanks, Setty, for this comprehensive post.
    And Cedeño is considered as a kosher person to be included in this whole story…a respectable client?
    It’s like complaining because some mafioso took away Al Capone from the list of my clients.
    I suppose if filthy Chavismo goes away, Cedeño will become a respectable member of the banking sector in Venezuela once again…War of Crooks.

  8. Omar

    …is this Francisco D´Agostino the brother of Diana D´Agostino the -frontrunner- mayorial candidate for the El Hatillo Municipality in Caracas -and wife of HRA of AD?

  9. sapitosetty Post author

    Private to a new correspondent: I am interested in hearing from you and am happy to use whatever privacy-enhancing techniques you please. If you want to use PGP, which is very easy nowadays with GPG Mail, you can get my public key here. If you prefer to talk by phone or some other method, just let me know. I’m looking forward to it.

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