Gold Reserve cases vs Venezuela tick on

Get all the background from Reuters’ story today.

For some reason they didn’t include the current legal situation. Court had declared that Venezuela lost the case on default a few weeks ago, on the basis that Gold Reserve said service of process was successful in January and Venezuela never responded. This led to all sorts of gnashing of teeth, especially by a Twitterer named Federico Alves, who has 50,000 followers who like to retweet him. He was going on and on about how this was the worst thing that had ever happened to his country. I told him to chill, that this isn’t a debt default and the case would go on. I am no expert in these things, but the experts I talk to say it will be a while yet before any assets get attached, at least from the US case.

Yesterday, the court agreed with me:

 

So now you know, watch that court in early June. Anyone want to make odds on how long the case drags on? I am starting to think Luxembourg and France are going to go faster.

The most remarkable thing about this whole arbitration situation in Venezuela is that there are now more than $3 billion in well adjudicated claims against Venezuela (Gold Reserve’s $750-odd million, Owens Illinois at around $450 million, ExxonMobil at about $2 billion, plus a bunch of smaller ones), all of them already smaller than the original claims, and it is taking a long time to seize assets. For all the worries by people like me about the possible problems of an international system in which companies can sue countries, it looks like states still have the upper hand. (As Noel Maurer likes to point out.)

Bolichico biographic info (partially) unsealed

For those coming late to the party: Washington insider/anti-Communist crusader Otto Reich has been pursuing a lawsuit against a group of young men from Venezuela who are associated (exactly how associated is a matter of debate) with Derwick Associates. Derwick is a middleman company that got some sweetheart deals in the Venezuelan electricity industry around 2010 (just how sweet is a matter of debate). Reich claims that these guys messed with his reputation and income, and he sued them not just for defamation but also for racketeering, fraud, foreign corrupt practices and conspiracy. The court tossed the racketeering and conspiracy charges, while the rest of the case has moved ahead.

The issue currently at hand is whether the court has “personal jurisdiction” over two of the defendants, Leopoldo Alejandro Betancourt Lopez andPedro Jose Trebbau Lopez. Both sides are presenting heaps of evidence to show that these guys were or weren’t connected in legally binding ways to New York. The defendants are trying to show that they have so little connection to New York that a New York court has no right to judge them. The other side, meanwhile, has to share all sorts of facts about these guys in order to show that indeed they are connected to New York. As a result, the court gets to see what the Derwick guys do in New York.

For the past four-plus months, most of the substantive filings were under seal. This was annoying. It was annoying enough that when Reich moved to unseal some documents, I wrote a letter to support that measure. It went into the record March 24. It was probably just a coincidence, but less than three hours later, the judge ordered the sides to convene March 26 to talk about unsealing the docket, and on that date the judge ordered the parties to prepare redacted versions of their filings so that they could appear in the public record rather than being kept under seal.

The redacted documents were released Friday. They lack much of the financial info that some people would like to see. Instead, most of what’s in there is a pretty detailed level of stuff that only a real geek would care about, like:

In which I ask US courts to unseal some documents

I wrote to US District Court to encourage the court to unseal some documents in the case of Otto Reich against the Derwick Associates guys. It’s a bit amusing to see my name on the docket, as I didn’t realize my letter would end up part of the official record, available on PACER and such. But of course turnaround is fair play — my whole point is that open court should be open, and other than some personal data, the public has a right to know what the court is hearing. So, no problem at all.

Here’s what I wrote:

Judge Oetken,

I am a reporter who has been following the proceedings in Reich, et al. v. Betancourt Lopez et al., 13 Civ. 5307. I am writing to support the plaintiff’s motion to unseal documents. The public has an interest in transparency of as much information as possible from this case. I have no financial, political or other interest in the case and my only relationship with the parties is one of journalist-subject.

As the writer of the blog Setty’s Notebook (https://settysoutham.wordpress.com) and occasional contributor to Venezuelan news outlets, Vice magazine, Mother Jones and the Texas Observer, I have been one of the few journalists to keep track of the long international saga of alleged corruption in the contracting for Venezuelan electricity plants since 2012. Readers of many news outlets are interested in learning more about Derwick Associates and its principals, as I can see in the visitor logs to my blog. Aside from the general public, there are also state authorities that rely on the press to help them discover and understand the complexities of Venezuelan business. Access logs show the FBI, US Senate, SEC and US District Court have all visited my blog seeking information about Venezuela in recent months.

Information from the sealed files could help, for example, to accurately report on Banca Privada d’Andorra (BPA), an Andorran bank that the US accused last week of being involved in money laundering. Two people whose names appear in the Reich case, Nervis Villalobos and Javier Alvarado, may have laundered money through BPA, according to Spanish newspaper El Mundo.

It is a challenge for reporters and the public that so much of the world’s business happens in places like Venezuela, Spain, and Caribbean island nations, with their opaque court proceedings and corporate registers. The US’s relative transparency helps people everywhere. When people decide to do business in the USA, they get the benefit of a stable, trusted economic and political system. One of the few “risks” they take is that in case of a dispute, they may have to tell the truth in public court.

Opacity leaves the field open for lies. In Venezuela, where I used to work as a Bloomberg correspondent, some local press responded to the dismissal of part of this case by reporting that Derwick and its principals had won outright. One headline focused on you: “New York judge ratified the honesty of the bolichicos of Derwick Associates.” (See http://www.primicias24.com/nacionales/justicia-norteamericana-ractifica-honestidad-de-los-bolichicos-de-la-empresa-derwick-associates/)

Obviously, there is personal information that should be kept out of public view. I just find it frustrating that so much material is currently being submitted under seal. I was driven to write by an article by the Reporters’ Committee for Freedom of the Press, which said that reporters could sometimes get documents unsealed in the public interest (http://www.rcfp.org/browse-media-law-resources/news-media-law/news-media-and-law-fall-2014/first-step-unsealing-court-re). I hope that you will do so in this case.

Thank you for your time,

Steven Bodzin

Unlike some things I’ve written, I’d say that’s a fine first entry into the records of US court.

Meanwhile, in New York…

Remember how Otto Reich sued the kids behind Derwick Associates for a bunch of stuff including racketeering? And then how the kids, popularly known as the Bolichicos, said hey, the court doesn’t have jurisdiction, and I’ll prove it by showing my personal data, but I want all that to be confidential? No? Well, anyway, that’s one of the main things that has happened so far in that case.

Well Otto Reich (no longer confused with Otto Rock) has now gone back and requested that the court make all the confidential Derwick details public. In the public interest, and because the Bolichicos supposedly never properly pleaded their case.

There is a very strong presumption in the Second Circuit – based on the First Amendment – that judicial documents (including submissions in connection with dispositive motions) must be available to the public and may not be sealed absent compelling circumstances. The Second Circuit has ruled repeatedly that a paiiy seeking a sealing order must meet an extremely high burden to justify its request, and that the Court may not grant such a request, or order documents to be filed under seal, without making specific findings on the record overcoming that Constitutionally-based presumption. None of the factors or procedures necessary to permit the sealing of documents relating to the Motions has been satisfied here. Accordingly, the Court’s Interim Sealing Order requiring the filing of documents under seal should be vacated, and the parties’ submissions in connection with the Motions, including the parties’ discovery letters, should be unsealed and made available to the public like in every other case in the Southern District of New York…

There is no reason – much less a compelling one – that could justify the Court’s sealing of the parties’ submissions relating to Defendants’ Motions. There are no “higher values” that could conceivably justify preventing public access to this information.

I’m running low on popcorn.

One of these things is more than $6 billion worth of not like the other

As of December 31, 2013, PDVSA, Venezuela’s state oil company, faced $2.12 billion in “other legal claims” in addition to the previously completed arbitration cases brought by Gulmar/Kaplan, ConocoPhillips Petrozuata, and Mobil Cerro Negro.  That according to the company’s audited financial statements published in June. (Click for original)

As of December 31, 2013, PDVSA, Venezuela’s state oil company, faced $8.47 billion in “claims and legal actions” in addition to the arbitration cases brought by nationalized Lake Maracaibo service companies, Tidewater Inc., Simco Consortium, Exterran Holdings, Helmerich & Payne, and the aforementioned Gulmar/Kaplan. That is according to the Bolivarian Republic’s audited financial statements published in June. (Click for original)

But hey, what’s well over $6 billion in potential claims?

PS: I know, on Twitter I implied that this was a $6 billion fraud. That might be a bit harsh, as I think fraud requires an intent to deceive. It’s also possible that the people doing these numbers just don’t know what they are doing.

Aguirre, the Wrath of Petrobras

You can watch the film or you can read the legal brief, in which a modern-day Aguirre sues the king for sending him down a deathtrap Peruvian river. From US District Court for the Southern District of Texas comes the epic drama, “4:14-cv-02155,” starring one J Wilkerson and Petrobras America.

4.1 In February of 2013, Plaintiff was working as a mechanic at Defendant’s facility in Peru, where helicopters delivered supplies and materials in support of Defendant’s oil and gas exploration activities.

4.2 On or about February 13, 2013, when it came time for his work to end, and for Plaintiff to return to the United States, he was unable to depart via aircraft as planned, due to severe rainstorms. Consequently, Defendant provided a small aluminum boat and pilot to transport Plaintiff. The vessel was navigated through waters where there were visible trees rising out of the water, and presumably tree stumps hidden beneath the water. The vessel violently struck something in the water, which caused the vessel to flip, throwing Plaintiff into the water. Plaintiff lost consciousness, and sustained severe and disabling bodily injuries.

4.3 When he regained consciousness, Plaintiff was trapped in an air pocket under the boat. He swam out through a window, and up to the surface. He then began to float down the river. He spotted a small village and was able to make his way to the bank and up onto land. A small fishing boat, passing by, picked him up and took him to a village where he sat for hours, waiting for Defendant’s rescue boatto arrive. Defendant’s rescue boat transported Plaintiff back to Defendant’s work site from which he had departed in the aluminum boat. He was then transported by helicopter to Defendant’s main gas processing plant. From there, Plaintiff was transported by fixed wing aircraft to Lima, Peru, where he was taken by cab to a hotel. Plaintiff stayed at the hotel for roughly 6 hours, before flying by commercial airline back to the United States.

Petrobras America, the named defendant, simply says it’s never owned or operated anything in Peru, so quit bothering the poor saps. Sorry but this story doesn’t have much in the way of a cathartic conclusion. The case is ongoing in Houston.

Derwick Associates wins a round against Otto Reich

In case you’re a wonk, here is the partial summary judgment decision on the motion to dismiss:

Long story short:

Defendants’ [that is, the Derwick Associates guys] motion to dismiss is GRANTED in part and DENIED in part. Claims I and II (RICO) and VII (civil conspiracy) are dismissed.

Defendant D’Agostino’s motion for leave to file a sur-reply is granted.

And yes, this is the part where I note that my initial reaction to Reich’s case was that it was a bit of a reach. Full of interesting claims, ones that I would really like to see demonstrated in court, but boy. He set himself some high legal hurdles.

Update: One reader mails to say I have it all wrong, that the case is going ahead. That is another way to see things. Take it all how you will.

WSJ says Proenergy, Derwick Associates face corruption investigation

The Wall Street Journal says US authorities are pursuing a preliminary investigation of Derwick Associates and Proenergy Services for possible banking and overseas corruption violations. No charges have been brought and Derwick denies everything.

Derwick is an exceptionally lucky electricity industry middleman in Venezuela and Proenergy Services is the ultimate recipient of its contracts. Derwick has in the past claimed that I am part of a defamation campaign against it. I’m not. The WSJ story starts thus. I am quoting at greater length than usual, sorry:

NEW YORK—Federal and New York City prosecutors have opened preliminary investigations into a Venezuelan company that became one of that country’s leading builders of power plants during the administration of President Hugo Chávez, as well as into a Missouri-based company which played a key role in its success, people familiar with the matter say.

The U.S. Department of Justice and the Manhattan District Attorneys’ office are probing Derwick Associates, a Venezuelan company that was awarded hundreds of millions of dollars in contracts in little more than a year to build power plants in Venezuela shortly after the country’s power grid began to sputter in 2009, the people familiar with the matter said.

ProEnergy Services, a Sedalia, Mo.-based engineering, procurement and construction company which sold dozens of turbines to Derwick and helped build the plants, is also under investigation, these people say.

The probes are in their initial phases, these people say, and it is possible that both investigations could be closed without criminal charges being brought.

The mysterious winners of a $644 million arbitration against PDVSA

CORRECTION 21 October 2015:

I have learned that the billion-dollar contract referred to in this report was not just for ship rental. It was also for the provision of ship crews, divers, and geotechnical engineers, and other professionals for the full project of pipeline mapping, repair and replacement.

AND AN UPDATE: Pdvsa said in its 2014 annual report that it paid this award.

========================================

PDVSA, Venezuela’s state oil company, released financial statements last month. One of the more remarkable items in there was a $644 million loss for an arbitration award in a case that I had never heard about before — and no Venezuela expert I’ve talked to had heard about, either. This is all that PDVSA has ever disclosed about the case:

In November 2013, the award related to the arbitration request filed by Gulmar Offshore Middle East LLC and Kaplan Industry Inc. was issued against PDVSA, corresponding to early unilateral termination of contract by PDVSA. The award established a compensation of $644 million.

That is a tremendous amount of money. I wrote last week in REDD Intelligence (subscription needed to read) about what this surprise means for Venezuela’s country risk. Here, I’m going to focus instead on what we know about the companies that won this money.

I had only heard of Gulmar Offshore as one of a long list of companies with assets that Venezuela expropriated back in 2009. I had never heard of Kaplan, as it was misspelled in the initial announcement (good English analysis here) as “Kapplan.”

Gulmar was, and is, a company that leases vessels for undersea projects in the oil industry. It was later purchased by Oaktree Capital Management (more on them later). Back in 2009, I had a hard time reaching them; for this article the one phone number I found didn’t even ring and Oaktree’s lawyer didn’t respond to an e-mailed request for comment.

Kaplan is more difficult to pin down. Bloomberg said that Kaplan was a gas-cylinder manufacturer from New Jersey. Oops! That’s Kaplan Industries.

Kaplan Industry website, unchanged since 2010

No, this was Kaplan Industry. At the top of its web page, it says it’s “An engineering design firm.” Then in the text, it’s “a leading independent international development consultancy.” The confusion may have come about as the website was thrown together, almost entirely plagiarized from other sites. The home page is from Adam Smith International, some of the “About” page is from Secunda Canada, and the line “Having fun inspires creativity, which rouses fresh ideas that we take to our clients” is from Zain Public Relations. Yes, having fun inspires creativity. And nothing demonstrates creativity like “copy-paste.”

No one answered at any of the three phone numbers listed on the website. Company president Vince Hulan didn’t respond to e-mails sent to the address on the website, including one e-mail asking specific questions about the plagiarism and other concerns raised in this article. Four lawyers connected to the company and its principals also failed to return calls and e-mails.

Derwick says Reich’s racketeering case is garbage (UPDATED)

Derwick Associates, which was sued by former ambassador Otto Reich for alleged defamation and racketeering, finally comes to its own defense. As I said at the start, the case doesn’t look like a slam dunk. And Derwick is mounting a vigorous defense. Here’s a letter the Venezuelan electricity contractor’s principals, Pedro Trebbau and Leopoldo Betancourt, filed last week in US court. A few excerpts:

We and Tew Cardenas LLP, on behalf of defendants Leopoldo Alejandro Betancourt Lopez and Pedro Jose Trebbau Lopez (the “Derwick Defendants”), write … to request a pre-motion conference to seek permission to move to dismiss the complaint…

This case is nothing more than an effort by plaintiffs to transform legally insufficient state law tort claims, primarily sounding in defamation, into a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Plaintiffs’ claims fail because: