A CITGO gas station is seen in Houston, Tex., in December. The Houston-based oil refiner is owned by Venezuela’s state oil company, but is pending purchase by Amber Energy.RONALDO SCHEMIDT/AFP/Getty Images
Two Canadian mining companies have spent 15 years seeking billions of dollars in reparations from Venezuela for the gold deposits that its former president, Hugo Chávez, seized from them after nationalizing the industry.
They are now on the cusp of victory after a lengthy legal conflict that has also drawn in global players, including an American energy giant, a New York hedge fund, international bondholders, deposed Venezuelan President Nicolás Maduro and U.S. President Donald Trump.
But if the Canadian companies, Crystallex International Corp. and Rusoro Mining Ltd. RML-X, finally secure compensation as part of a U.S. court process, the domino effects of their triumph will be felt across the Americas.
That’s because the financial redress sought by Crystallex, Rusoro and 14 other companies – which have claims collectively worth more than US$20.58-billion – hinges on a related U.S. court-ordered sale of Venezuela-owned CITGO Petroleum Corp.
Houston-based CITGO is the fifth-largest oil refiner in the United States and sells fuel through a chain of 4,000 gas stations. It is owned by Venezuela’s state oil company, Petróleos de Venezuela, S.A., or PDVSA.
PDVSA, meanwhile, is under sanctions by Washington and allegedly implicated in the narco-terrorism case against Mr. Maduro, according to a U.S. indictment.
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As PDVSA’s most prized asset, CITGO served as a cash cow for Caracas for decades. But in 2019, it distanced itself from its Venezuelan parent and halted payments because of sanctions imposed by Mr. Trump.
CITGO’s pending purchase by Amber Energy, a subsidiary of hedge fund Elliott Investment Management, is expected to be one of the largest U.S. court-ordered foreign-asset sales in recent history.
Transferring CITGO’s ownership to a U.S. company would bolster Mr. Trump’s oil agenda for the South American country. It would also deliver a devastating blow to PDVSA, which is the Venezuelan government’s largest source of revenue, and risk aggravating a humanitarian crisis already marked by rampant poverty, malnutrition and the displacement of millions of people.
How Caracas controls U.S.-based CITGO
Venezuela wholly owns Petróleos de Venezuela, S.A. (PDVSA), a state-run oil company
VENEZUELA
PDVSA
PDVSA wholly owns PDV Holding, Inc. (PDVH)
Delaware corporations
PDVH
PDVH wholly owns CITGO Holding, Inc.
CITGO
Holding,
Inc.
CITGO Holding wholly owns CITGO Petroleum Corp.
CITGO
Petroleum
Corp.
THE GLOBE AND MAIL, SOURCE: U.S. DISTRICT
COURT DISTRICT OF DELAWARE
How Caracas controls U.S.-based CITGO
Venezuela wholly owns Petróleos de Venezuela, S.A. (PDVSA), a state-run oil company
VENEZUELA
PDVSA
PDVSA wholly owns PDV Holding, Inc. (PDVH)
Delaware corporations
PDVH
PDVH wholly owns CITGO Holding, Inc.
CITGO
Holding,
Inc.
CITGO Holding wholly owns CITGO Petroleum Corp.
CITGO
Petroleum
Corp.
THE GLOBE AND MAIL, SOURCE: U.S. DISTRICT
COURT DISTRICT OF DELAWARE
How Caracas controls U.S.-based CITGO
VENEZUELA
Venezuela wholly owns Petróleos de Venezuela, S.A. (PDVSA), a state-run oil company
PDVSA
PDVSA wholly owns PDV Holding, Inc. (PDVH)
Delaware corporations
PDVH
PDVH wholly owns CITGO Holding, Inc.
CITGO Holding, Inc.
CITGO Holding wholly owns CITGO Petroleum Corp.
CITGO Petroleum Corp.
THE GLOBE AND MAIL, SOURCE: U.S. DISTRICT COURT DISTRICT OF DELAWARE
Amber’s US$5.9-billion bid for CITGO – blessed by a U.S. judge in late November as the U.S. military prepared to capture Mr. Maduro – is being contested by Venezuela.
Venezuelan officials, including interim president Delcy Rodríguez, a former PDVSA executive, have argued the U.S.-court-supervised CITGO sale amounts to theft.
This past November, Ms. Rodríguez, who was then serving as vice-president in the Maduro regime, characterized it as “a vulgar and barbaric dispossession of a Venezuelan asset on United States territory through a fraudulent process.”
Another TSX-listed mining company, Gold Reserve Ltd. GRZ-X, which redomiciled to Bermuda from Canada in 2024, is also owed money by Venezuela. It, too, is challenging the U.S. court’s endorsement of the Amber takeover proposal, albeit for different reasons.
Gold Reserve is a rival bidder for CITGO. It argues the U.S. court erred in supporting the proposed Amber acquisition because its US$7.9-billion bid is a superior offer. It also contends there were serious flaws in the court’s auction process.
Venezuela and Gold Reserve could be successful in their appeals. More likely, however, is that these last-minute legal petitions will be extinguished later this year, and the two aggrieved Canadian miners, Crystallex and Rusoro, will finally receive their money.
“The recommended Amber bid does not shock the conscience or constitute a manifest injustice under any set of reasonably foreseeable circumstances,” Judge Leonard Stark of the U.S. District Court in Delaware wrote on Nov. 25.
Judge Stark acknowledged that the impending CITGO sale is more than just a commercial dispute because it has societal implications for Venezuela and national-security considerations for the U.S.
Still, he stressed: “Adverse humanitarian and policy impacts of the sale process are for the executive branch to evaluate, not the court.”
Then-Venezuelan president Hugo Chávez, left, delivers a speech in Caracas in 2010, next to then-foreign minister Maduro. In 2011, Mr. Chávez nationalized Venezuela’s oil industryMIGUEL GUTIERREZ/AFP/Getty Images
The origins of this story stretch back to 2002, when Crystallex, the lead plaintiff in this case, signed an agreement with a Venezuelan state-owned entity to develop a mine near El Dorado, the city of gold, in the country’s southeast.
Known as Las Cristinas, the site has one of the world’s largest gold deposits, with proven and probable reserves of 17 million ounces. Crystallex spent hundreds of millions of dollars to develop the site. The Venezuelan government, however, never provided the necessary permits to mine the gold.
Then in 2011, Mr. Chávez nationalized the industry and expropriated Las Cristinas without compensation. That sent Crystallex’s shares into a tailspin on the Toronto Stock Exchange, tumbling to 15 cents, before the company was delisted in 2012. Its prospects hobbled, Crystallex sought court protection from its creditors.
(Toronto-based Crystallex, which is incorporated federally and also registered in Ontario, continues to have an active status in both registries. It is unclear whether it still has operations. Its lawyers and corporate directors, including former federal cabinet minister Sergio Marchi, did not provide comment.)
Mr. Chávez handed the mining rights for Las Cristinas to PDVSA. It, in turn, sold a 40-per-cent interest in those rights to the Venezuelan Central Bank for US$9.5-billion.
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Not long after losing Las Cristinas, Crystallex filed for arbitration at the International Centre for Settlement of Investment Disputes, a World Bank institution that resolves conflicts between countries and foreign investors. In doing so, Crystallex claimed the expropriation violated an investment treaty between Canada and Venezuela. It eventually won a US$1.2-billion award plus interest.
Crystallex, though, needed legal help to collect because Venezuela was dodging payments to foreign investors.
“We will not recognize any decision,” Mr. Chávez declared in 2012. “We are not going to pay them anything.”
After Mr. Chávez died in 2013, Mr. Maduro succeeded him as president. He also refused to pay the awards.
Venezuela’s state oil company, Petróleos de Venezuela, S.A., or PDVSA, is under sanctions by Washington.MIGUEL ZAMBRANO/AFP/Getty Images
Venezuelan officials, however, privately predicted that PDVSA’s largest asset, CITGO, would become the target of U.S. legal actions to enforce the arbitration awards.
So, the government took pre-emptive action to convert CITGO’s value into cash and move it out of the U.S. It instructed PDVSA to co-ordinate financial transactions to wring the maximum value out of CITGO by saddling its holding company with debt and then shuttling the funds to Venezuela by way of shareholder dividends.
Specifically, Delaware-based CITGO Holding Inc., the entity that controls CITGO Petroleum, issued US$2.8-billion in junk debt, at a 12-per-cent interest rate, and transferred the proceeds to its immediate parent, PDVH, as a shareholder dividend. The funds continued to flow up the corporate hierarchy to PDVSA and, ultimately, the Venezuelan government.
“The transaction had no legitimate purpose and was designed deliberately to hinder and delay Venezuela’s creditors,” Crystallex said in its legal complaint.
Crystallex’s lawyers then made a captivating legal argument: PDVSA is the Venezuelan government’s “alter ego.”
The alter ego legal doctrine allows a court to hold a company’s shareholders responsible for its debts if the business lacks a separate identity from its owners and functions as a front for them to perpetrate wrongdoing, such as fraud.
Crystallex’s lawyers employed this concept, arguing that PDVSA and Venezuela were indistinguishable from each other, as a means of seeking restitution.
They pointed to Venezuela’s Constitution, which provides for government control of the oil company. Additionally, they argued that government officials routinely use PDVSA’s assets, such as its planes, and run the business on a day-to-day basis.
Ms. Rodríguez, for example, concurrently served as PDVSA’s vice-president of international affairs and Venezuela’s minister of foreign affairs.
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In 2018, a U.S. court was persuaded by Crystallex’s argument that PDVSA and Venezuela are “one and the same,” setting a precedent for other claimants.
If PDVSA is the alter ego of Venezuela, then CITGO, its U.S. asset, could be used to pay defaulted judgments against the government through a court-supervised sale process.
The U.S. District Court in Delaware then created a ranking of affected creditors. Crystallex, which is owed more than US$1-billion, was given top priority because it was the first to launch legal action back in 2017.
Vancouver-based Rusoro Mining, which is listed on the TSX Venture Exchange, ranks seventh. Its claim is related to the expropriation of its Venezuelan gold mining properties in 2012, including its previous 95-per-cent ownership interest in the Choco 10 mine and a 50-per-cent stake in the Isidora mine.
The junior miner eventually sought arbitration and won an award worth US$2.25-billion. But the amount collectible under the CITGO process is US$1.55-billion. The difference is due to the interest differential between the two processes.
“Rusoro remains committed to collecting the full amount of the award through all lawful means,” CEO Andre Agapov stated in December.
The creditor list also includes 14 other businesses, including Gold Reserve, French multinational Saint-Gobain and U.S. companies ConocoPhillips, Northrop Grumman and Koch Industries.
Trouble is, Amber’s bid for CITGO covers only a portion of the total outstanding claims. Inevitably, some creditors “will be left out of the money and left to consider trying to enforce their judgments elsewhere,” Judge Stark said.
For its part, Gold Reserve argues that its offer for CITGO would have resolved more creditor claims.
“Gold Reserve’s fully-financed bid is superior because it has the highest price, which means that it complies with Delaware law and will satisfy the most creditors and provide Venezuela the most debt relief – by a margin of $2-billion,” said vice-chair Paul Rivett in a statement.
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Judge Stark, though, ruled that the Amber bid for CITGO was more likely to close even with a lower price because it also includes a provision to pay US$2.1-billion to a group of investors that own PDVSA’s distressed debt.
Indeed, those holders of a defaulted PDVSA bond, which was supposed to mature in 2020, represent a wild card in the CITGO sale. The bond’s collateral is a 50.1-per-cent equity stake in CITGO.
The Maduro regime defaulted on its bond payments in 2019. A New York court later granted the 2020 bondholders a judgment of US$2.85-billion plus interest.
Although those bondholders will be accepting a discount under the Amber deal, Judge Stark said the Gold Reserve bid does not offer them a workable alternative.
Said Mr. Rivett: “Gold Reserve’s existing bid included a mechanism for providing compensation to the 2020 bondholders, if and when necessary.”
A PDVSA oil-refining plant in Puerto La Cruz in November, 2021.YURI CORTEZ/AFP/Getty Images
Petitions by Venezuela and Gold Reserve are being heard by the U.S. Court of Appeals for the Third Circuit.
Venezuela, for one, is trying to quash the CITGO sale order. It estimates that CITGO is worth more than US$18-billion but is being sold to Amber on the cheap.
“A forced judicial sale of this magnitude would be an enormously significant step under any circumstances,” states its brief. “That it involves the transfer into private hands of by far the most important U.S.-based asset of a foreign sovereign underscores just how consequential this case is.”
The U.S. government was invited by the court to offer an opinion on how the capture of Mr. Maduro could affect this case, but it had not done so as of Feb. 2.
There is no deadline for the appeals court’s decision. If it allows the CITGO sale to proceed, an arm of the U.S. Department of the Treasury must issue a special licence for the transaction because PDVSA remains under sanctions. On Feb. 2, the U.S. Treasury took action to shield CITGO from its creditors until March 20.
The U.S. Treasury did not respond to a request for comment. Given the stakes, however, the final decision likely rests with Mr. Trump himself.
CITGO, meanwhile, recently made its first purchase of Venezuelan crude oil since 2019, Reuters reported on Jan. 29, citing two confidential sources.
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Court filings suggest the CITGO sale could close later this year. Amber recently extended the deadline to Sept. 30, according to Gold Reserve’s Mr. Rivett. (Amber declined to comment.)
It is not known what Crystallex would do with the money, although a court filing suggests that its award could be used to pay its creditors.
Rusoro, meanwhile, will receive US$400-million in cash and US$650-million of a debt instrument in the form of convertible notes.
“We will be paid on closing, the cash will go to settle our liabilities and once we realize on the value of the preferred/convertible we will return the cash to shareholders,” spokesman Gordon Keep said in an e-mail.
Critics of the court-ordered CITGO sale, however, say it is “economically catastrophic” given the low price and an inequitable use of U.S. enforcement mechanisms for arbitration awards.
“No jurist can view that outcome as anything other than shocking and the steal of an asset for a super cheap price,” said Orlando Viera-Blanco, who is a lawyer and Venezuela’s former ambassador to Canada.
He also contends the alter ego doctrine was wrongly applied in this case because Delaware law requires proof that a subsidiary was created to be a sham or used to perpetrate fraud– not merely that it is controlled by its parent.
“Judge Stark expressly found no such fraud existed.”
Venezuela’s former ambassador to Canada Orlando Viera Blanco, shown in 2020, said the forced sale of CITGO would ‘reshape Venezuela’s fiscal position, diplomatic leverage, and capacity to rebuild a post-Maduro economy.’Justin Tang/The Globe and Mail
Mr. Viera-Blanco says this case is more than an isolated commercial dispute because it reflects how sovereign defaults, economic restrictions, and geopolitical conflicts intersect with U.S. courts.
“CITGO is Venezuela’s most valuable international asset; its forced sale would reshape Venezuela’s fiscal position, diplomatic leverage, and capacity to rebuild a post-Maduro economy,” he said.
“It also raises questions of sovereign asset protection in U.S. jurisdiction, particularly when a state both defaults on obligations and faces political turmoil.”
To be sure, if the Third Circuit Court rejects the appeals, proceeds from the CITGO sale will go to creditors and not the Venezuelan government.
Mr. Maduro is responsible for ravaging Venezuela’s economy, perpetrating human rights abuses and squandering state assets, including PDVSA, according to assertions detailed in a U.S. court filing.
Yet there are also concerns that if a transitional government cannot use CITGO’s revenues for economic reconstruction, it would compound the suffering of ordinary Venezuelans already gripped by poverty.
Crystallex, Rusoro and other creditors have the right to seek restitution. But as the saying goes, justice and judgment are often a world apart.
With a report from Stephanie Chambers