After a six-year legal battle, Venezuela strongman Hugo Chavez finally struck out in federal court this week and must honor an $8 billion bond debt his government ran up — or face seizure of his 14,000 nationally owned Citgo gas stations in the US.
The flap began when Chavez was sued in 2005 by a group of Ohio investors who claimed he and his government refused to make payment on quarter-century-old bonds, despite certification and guarantees by Venezuela’s oil-rich Treasury.
The Chavez administration started a dirty-tricks stonewalling campaign to cheat investors, a federal lawsuit charged at the time. After two years of litigation, Federal Judge John Holschuh agreed with the investors and ordered Venezuela to make good on the $6 billion in bonds — plus interest.
Instead of paying, Chavez mounted a counter-attack and, working his way through at least five law firms, spent $40 million and tied up the courts for four more years in a bitter — and ultimately unsuccessful — appeals fight.
That appeals battle ended this week when a decision handed down by the Sixth Circuit Court of Appeals shut the door on Chavez’s appeal. And it was unanimous. All 23 judges in the appeals court gave a thumbs-down to Chavez’s effort to move the case up to the US Supreme Court.
“Mr. Chavez is now over a barrel,” said David Richards, a lawyer and managing director of the Ohio investment group Skye Ventures. “With the entire Sixth Circuit unanimously against further appeals, the US Supreme Court won’t even think of taking on the case,” he said.
A lawyer for Venezuela, James Wright, didn’t reply to requests for comment.
Skye Ventures had done routine due diligence on the securities before buying them and obtained a 54-page report from Venezuela’s then-Attorney General Marisol Plaza that they were guaranteed by her country’s oil-rich Treasury, court papers show.
But when the investors later sought to redeem their bonds, Chavez abruptly fired AG Plaza — a close ally and friend — to discredit her, court papers said.
Chavez replaced her as AG with another friend and ally, Gladys Guttierez, who issued a new three-page report calling the bonds fraudulent and not guaranteed by Venezuela. Based on forensic evidence, the judge tossed her report.
Skye’s 50 investors own about $1 billion of bonds, including interest — nearly 13 percent of the $8 billion now owed on the bonds.
The rest is owned by a Swiss investment group registered in Panama, Venospa LLC, which earlier had joined Skye’s suit but was directed by the judge to file its claims separately.
Richards expects a formal order in the coming weeks to start seizure actions on Venezuela’s assets in the US. They include 14,000 Citgo gas stations, three Gulf Coast refineries and a fleet of oil tankers docked in Houston.
Investors at Venospa LLC likely could seek seizures. Its officers couldn’t be reached for comment.