A hedge fund has cited an underlying arbitration agreement as the basis for removing to federal court Kazakhstan’s lawsuit accusing it of conspiring with Moldovan oil and gas investors to secure an allegedly fraudulent half-billion dollar arbitral award against the country, wites Caroline Simson
Entities of emerging markets investment manager Argentem Creek Partners and its founder and CEO, Daniel Chapman, told the New York federal court on Monday that the dispute relates to an arbitration clause contained in a “sharing agreement” with Moldovan investors Anatolie Stati and his son Gabriel Stati.
The Statis won the $506.7 million award in 2013 after Kazakhstan seized their petroleum operations in the country, though Kazakhstan has accused the Statis of submitting false documents in the arbitration and inflating the value of their investment to influence the damages calculation undertaken by the tribunal.
In addition to Kazakhstan, the claims against Chapman and the Argentem Creek entities in the New York litigation are being pursued by another investor in the Stati projects, Outrider Management LLC.
Chapman and Argentem claim that means that the dispute falls under an arbitration clause in the sharing agreement with the Statis mandating that disputes be settled under the arbitration rules of the International Chamber of Commerce.
Norton Rose Fulbright partner Matthew H. Kirtland, representing Kazakhstan, characterized the move by Chapman and the Argentem Creek entities as a stalling tactic, saying they would not do so if they had a defence to the merits of the allegations.
He noted that, unlike New York federal courts, New York state courts allow parties to take written discovery before any preliminary motions are decided. Kazakhstan and Outrider have been engaging in such discovery, and Chapman wants to halt it, Kirtland alleged.
“This is a desperate effort by Chapman to try to stall the case, stop our clients’ ongoing discovery and avoid public litigation of Chapman’s complicity in the Stati fraud,” he said. “This is the second time Chapman has engaged in such improper tactics. The first was their failed injunction motion, which was flatly rejected by the Washington court.”
Kirtland is referring to U.S. District Judge Amy Berman Jackson’s decision last month nixing Argentem and Chapman’s bid to halt the New York litigation. Counsel for Chapman and Argentem declined to comment on Wednesday.
Kazakhstan and Outrider have accused Chapman and a variety of Argentem entities in the litigation of conspiring with the Statis and a “murky web” of the pair’s companies. The Statis purchased two Kazakh companies between 1999 and 2004 called Kazpolmunay LLP, or KPM, and Tolkynneftegaz LLP, or TNG, that were licensed to find and produce oil and gas in Kazakhstan. They sold notes to third-party investors to fund these operations through an entity called Tristan Oil Ltd., according to the suit.
Black River Asset Management LLC was among the entities that bought notes sold by the Statis. Argentem and subsidiary Argentem Creek Partners were spun out from Black River in 2015, and Chapman, who had managed the investments for Black River, became the owner and CEO of Argentem Creek Partners, according to the suit.
Kazakhstan alleges that the Statis stole money invested in the notes by engaging in fraudulently inflated transactions that stripped assets from KPM and TNG and put the money into their own pockets.
The country claims that Chapman and the Argentem Creek entities found out about this allegedly fraudulent scheme around 2011, while the arbitration against Kazakhstan was ongoing. Instead of taking legal action against the Statis at that point, Chapman allegedly decided to conspire with them to perpetrate the “key lie” that fraudulently inflated transactions were legitimate business expenses, the suit alleges.
The alleged fraud includes a scheme by the Statis to inflate the value of their investment in a liquefied petroleum gas plant to influence the damages calculation undertaken by the arbitral tribunal.
Chapman and several other investors who purchased the Tristan notes signed an agreement in late 2012 to share in the proceeds of any arbitral award against Kazakhstan, the suit alleges.