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PdV unit set up to retain indemnity from traders

13 Mar 2018 14:36 GMT
PdV unit set up to retain indemnity from traders

Caracas, 13 March (Argus) — Venezuelan state-owned PdV and the oil trading companies it is accusing of systematically defrauding the firm have been conspicuously quiet since a civil lawsuit was unsealed on 9 March by a US federal court.

But legal and financial sector executives close to the case say the plaintiff, named in the federal civil lawsuit as PdV US Litigation Trust, is structured to ensure that Venezuela can protect any compensation it might eventually obtain from its long line of international creditors.

The Venezuelan government and PdV have fallen behind on bond interest payments since fourth quarter 2017, racking up significant arrears on top of arbitration claims and commercial debt.

The lawsuit filed on behalf of PdV US Litigation Trust by New York-based law firm Boies Schiller Flexner accuses Lukoil, Trafigura, Colonial, Glencore, Vitol and other oil trading firms and individuals of paying bribes since 2004 to secure rigged oil sales and procurement contracts.

The lawsuit names almost three dozen companies, banks and individuals as active participants in an ongoing conspiracy to steal confidential PdV information, rig bids, fix prices and suppress competition.

"PdV's crude export tenders were rigged to guarantee the trading firms below-market prices, and PdV's rigged import tenders fixed prices at above-market levels, generating billions of dollars in profits for the schemers and billions in losses for PdV," an executive with direct knowledge of the case told Argus.

The ongoing alleged scheme is believed to have cost PdV over $15bn in losses since 2004, but that figure could prove to be conservative as the plaintiff's attorneys pursue an aggressive document discovery process against all of the named defendants.

PdV US Litigation Trust was constituted on 27 July 2017 "pursuant to the laws of the state of New York…for the specific purpose, among other things, of pursuing recovery for defendants' misconduct," according to the suit filed in Miami.

Officials with three of the trading firms named in the lawsuit told Argus that the companies were unaware of the lawsuit until news reports broke on 9 March. "We absolutely had no idea this was coming," a local trading executive said.

The named defendants are expected to respond within 30 days in filings that will categorically deny all of the accusations and likely seek to have the lawsuit dismissed.

If the presiding federal court rejects dismissal motions, the plaintiff's legal counsel would pursue discovery motions requiring the named defendants to hand over all documentation relating to their business with PdV and other defendants.

The energy ministry and PdV have declined to comment.

The lawsuit's allegations are supported by a huge electronic data trove dating since 2004 that the executives say was provided to PdV's US attorneys by the estranged wife of one of the principal named Venezuelan defendants, former PdV trader Francisco Morillo.

Morillo and another former PdV oil trader, Leonardo Baquero, were detained in Switzerland in recent days on suspicion of corruption and money-laundering, a Swiss diplomat confirmed to Argus. The Geneva public prosecutor's office did not immediately reply to a request for comment.

PdV's US attorneys gained direct access to PdV's servers in Caracas during September and October 2017 to verify and expand the documentation that allegedly supports the conspiracy, fraud and bid rigging allegations lodged against the most important trading firms PdV has dealt with since 2004.

The firing and subsequent arrest of former energy minister Eulogio Del Pino and former PdV chief executive Nelson Martinez in November 2017 does not appear to be related to the internal investigations that led to the lawsuit, a presidential palace official told Argus.

Del Pino, Martinez and three dozen other former senior PdV executives currently jailed on corruption charges were formally indicted last week for participating in corruption schemes centered mainly in the Orinoco oil belt, the acting attorney general's office said.