Venezuela Bandagro Bond Case Draws U.S. Supreme Court Inquiry

The U.S. Supreme Court sought the Obama administration’s views on an Ohio investor group’s effort to sue Venezuela over potentially $900 million in bank notes that the South American country says are forgeries.

The justices asked acting Solicitor General Neal Katyal for his advice on whether the high court should hear the case. A lower court barred Venezuela from invoking a U.S. law that immunizes foreign sovereigns from some lawsuits in American courts.

In seeking Supreme Court review, Hugo Chavez’s Venezuelan government told the justices that the suit by DRFP LLC, which does business under the name Skye Ventures, may be the first of several claims over the disputed bearer bonds.

The notes were allegedly issued in 1981 by the Banco de Desarrollo Agropecuario, then a state-owned Venezuelan bank also known as Bandagro.

Skye Ventures says it acquired its two notes only after the Venezuelan attorney general issued a 2003 opinion declaring them valid. The investor group then demanded payment in Columbus. When Venezuela refused, Skye sued.

The two Skye notes have a face value of $50 million apiece. The investor group said in September that with interest the bonds were worth $900 million.

In ruling 2-1 that the suit could go forward, the Cincinnati-based 6th U.S. Circuit Court of Appeals said Venezuela isn’t shielded by the U.S. Foreign Sovereign Immunities Act because the notes let the holder demand payment in the U.S. The majority said Venezuela’s refusal to pay had a “direct effect” on the U.S., putting the dispute within the province of the American court system.

‘Dramatically Expands’

At the Supreme Court, Venezuela said the lower court ruling “dramatically expands jurisdiction over foreign states, especially in sensitive cases involving government securities that the state itself contends are fraudulent.”

Skye Ventures is urging the high court to reject the appeal, arguing that in “today’s global economy,” the financial activities of foreign countries have enough of an impact on the U.S. to warrant the involvement of American courts.

The case is Republica Bolivariana de Venezuela v. DRFP, 10-1144.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net