Venezuela faces an increasing number of lawsuits and court rulings, this time from a luso-Venezuelan citizen affected by the liquidation of Banco Canarias. He demands payment of over USD 22 million, plus interest and costs, from Venezuela, FOGADE, and USD 6,000,000 held in specific accounts at Morgan Stanley Smith Barney LLC.
This lawsuit is an individual’s attempt to recover financial assets located in the United States, which were pledged as collateral to a Venezuelan bank that was subsequently intervened and liquidated by the Venezuelan government.
Claiming illegal expropriation, Joao Dionisio de Sousa aims to hold Venezuela and FOGADE accountable, invoking exceptions to the sovereign immunity of the U.S. If successful, this action could set a precedent for the recovery of similar assets by third parties affected by sovereign banking interventions.
The Lawsuit
On April 22, 2025, Joao Dionisio de Sousa filed a lawsuit in the U.S. District Court for the Southern District of New York against the Bolivarian Republic of Venezuela, a sovereign nation, and the Deposit Protection Fund (FOGADE), an agency of Venezuela, to demand USD 22,724,000 along with interest and legal costs, as well as any other just and appropriate relief.
De Sousa, a Portuguese citizen also holding Venezuelan nationality, seeks to recover the aforementioned amount in U.S. Treasury bonds that served as collateral for loans from Banco Canarias de Venezuela. This entity was liquidated through FOGADE, and despite the plaintiff fully repaying his loans, neither the government agency nor the sub-custodians—Morgan Stanley and the now-bankrupt Lehman Brothers—have returned the funds.
The complaint argues that Venezuela and FOGADE do not have sovereign immunity under the exceptions for commercial activity and expropriation under the U.S. Foreign Sovereign Immunities Act (FSIA), contending that the retention of the assets constitutes unlawful expropriation and unjust enrichment. De Sousa seeks a declaration that he is the rightful owner of the assets and their immediate return.
Expropriation of Collateral Without Compensation
The plaintiff claims that Venezuela and FOGADE expropriated the collateral without compensation, violating both international and U.S. law. Therefore, De Sousa seeks a judicial declaration that he is the lawful owner of the money and its immediate return, alongside compensation for damages.
The lawsuit states that João Dionísio De Sousa obtained loans from Banco Canarias totaling 86 billion bolívares. To secure these loans, he used seven U.S. Treasury Bonds valued at a total principal of USD 22,724,000, which were held in custody with sub-custodians, specifically Smith Barney CitiGroup (later Morgan Stanley) and Lehman Brothers Inc.
The collateral includes two U.S. Treasury Bonds for USD 3,000,000 each, initially held by Smith Barney CitiGroup (now Morgan Stanley); five Treasury Bonds totaling USD 16,724,000, held by Lehman Brothers Inc.
The intervention of Banco Canarias occurred in November 2009, when the Superintendency of Banking Sector Institutions (SUDEBAN) appointed FOGADE as the liquidator and took administrative control of the intervened bank and its assets. Consequently, the plaintiff asserts that “In this capacity, the Sovereign Defendants own the assets of Banco Canarias, including the Collateral.”
In 2013, De Sousa and FOGADE agreed to modify the loan terms, with the plaintiff pledging three properties as additional collateral. By 2016, the loans were fully repaid, and the intervening agency released the mortgage collateral but stated that it had no documents related to the original collateral, i.e., the Treasury Bonds.
Joao De Sousa contacted Morgan Stanley in April/May 2024 to request the return or confirmation of funds, without success. He also reached out to Lehman, who stated they had allocated all funds for distributions but “may still be holding up to USD 4 million in trust on behalf of FOGADE.”
As of the date of the lawsuit, neither FOGADE nor Lehman has returned the plaintiff’s collateral.
Exceptions to Sovereign Immunity (FSIA)
In his complaint, João Dionísio De Sousa argues that Venezuela and FOGADE do not have sovereign immunity under the FSIA, particularly under the exceptions for “commercial activity” and “expropriation” (28 U.S.C. §§ 1605(a)(2) and (a)(3)).
The complaint alleges that the action is based on “commercial activity conducted in the United States by the sovereign defendants; specifically, it refers to the use of U.S.-based banks to maintain collateral in relation to the loans and their ongoing control over the collateral held by the Banks.
De Sousa asserts that “rights concerning properties taken in violation of international law are discussed, and that property is present in the United States in connection with commercial activity conducted in the United States by the foreign state.”
The plaintiff warns that the case does not involve “the act of state doctrine,” as it does not challenge Venezuela’s sovereign right to intervene in Banco Canarias, but seeks “compensation under U.S. law, international law, and other laws for an expropriation carried out in the U.S.”
Demands from Venezuela and FOGADE
João Dionísio De Sousa seeks compensatory damages on four counts:
Count One: Declaratory Judgment
De Sousa seeks a declaration that he is the lawful owner of the collateral and has the right to its immediate return.
Count Two: Expropriation
He alleges that Venezuela, directly and through FOGADE, expropriated the collateral without justification or compensation, violating international law. Therefore, he claims at least USD 22,724,000 plus interest and costs.
Count Three: Unjust Enrichment
He argues that FOGADE has been unjustly enriched by retaining the collateral after De Sousa repaid his loans.
Count Four: Money Received
He contends that the sovereign defendants received the collateral and, in equity and good conscience, should pay him the total value of the collateral plus interest as the beneficial owner.
Court Order
Jennifer L. Rochon issued an alternative notification order in favor of the plaintiff.
On May 6, 2025, Judge Jennifer L. Rochon of the U.S. District Court for the Southern District of New York ordered the plaintiff, Joao Dionisio de Sousa, to submit a supplemental letter by May 12, 2025.
This request asks for clarification of the notification efforts made to the defendants, namely, the Bolivarian Republic of Venezuela, the Deposit Protection Fund (FOGADE), and USD 6,000,000 held in specific accounts at Morgan Stanley Smith Barney LLC.
The order emphasizes the hierarchy of notification methods under U.S. law and requires proof of previous methods before utilizing subsequent ones. Furthermore, the court requests that the plaintiff clarify which section of the law he proposes to use for notifying Venezuela and whether he seeks the court’s authorization for a specific process server for FOGADE and the defendant in rem. On the specified date, De Sousa submitted the request to the court.
Alternative Notification Order to Venezuela and FOGADE
On May 13, 2025, Judge Jennifer L. Rochon issued an alternative notification order granting the plaintiff, João Dionisio De Sousa, his request to authorize the notification of the citation and the complaint:
To the defendant, the Bolivarian Republic of Venezuela (Venezuela), by diplomatic means, in accordance with Title 28 of the U.S. Code, Section 1608(a)(4) of the Foreign Sovereign Immunities Act (FSIA);
To the Deposit Protection Fund (previously known as the Deposit Guarantee and Banking Protection Fund) (“FOGADE”) and the defendant in rem, under the provisions of Section 1608(b)(3)(C) of the FSIA, in accordance with Venezuelan legislation.
Therefore, the court will permit the plaintiff to notify Venezuela by sending two copies of the citation and the complaint, along with a translation of each into Spanish, via any postal method requiring a signed receipt, which will be directed and dispatched by the court clerk to the Secretary of State in Washington, D.C., to the attention of the Director of Special Consular Services.
Additionally, the court authorized the plaintiff to notify FOGADE and the defendant in rem, at their attention, in accordance with U.S. citation norms and in compliance with Articles 218 to 226 of the Venezuelan Civil Procedure Code, through notification performed by sheriffs or any other duly authorized person, including attorneys licensed to practice in Venezuela acting with judicial authorization.