The CITGO auction process is becoming increasingly complicated due to the ongoing battle between PDVSA and PDVH against the holders of PDVSA 2020 Bonds, whom they accuse of distorting their rights and manipulating decisions in their favor. Concurrently, this conflict unfolds in the Delaware court amid PDVSA’s confrontation with MUFG Union Bank N.A.
PDVSA’s subsidiaries argue that the PDVSA 2020 Bondholders seek to unduly influence the selection of a winning bid in the Crystallex International Corp. case against the Bolivarian Republic of Venezuela, being overseen by the Delaware court which is supervising the sale of the Venezuelan refinery on U.S. soil.
PDVH refutes the bondholders’ claims regarding their rights to request a precautionary measure under U.S. sanctions, emphasizing that OFAC’s licenses and policies do not authorize the actual enforcement of their alleged equity rights.
PDVH reminds that the Southern District Court of New York recently granted summary judgment in favor of PDVH and PDVSA, completely dismissing the “alter ego” claims. The decision was based on two independent grounds: the lack of evidence for extensive control and the inequity of piercing the corporate veil.
PDV Holding’s Victory in New York
On June 27, 2025, Nichols, Arsht & Tunnell LLP, representing PDV Holding Inc. (PDVH) and CITGO Petroleum Corp. (CITGO), submitted a communication to Judge Leonard P. Stark of the U.S. Court of Appeals for the Federal Circuit to update him on the “alter ego” litigation in New York involving their clients.
In this context, it was reported that the New York Court issued a summary judgment favoring PDVH and PDVSA, dismissing the “alter ego” claims against PDVH for two main reasons:
- the plaintiffs failed to demonstrate extensive control;
- and piercing the corporate veil would have been inequitable.
New York Court Decision
PDVH and CITGO informed Judge Stark that the plaintiffs did not manage to prove that PDVSA “extensively controlled” PDVH. Specifically, “they could not satisfy any of the [five] alter-ego factors” applicable under the Bancec jurisprudence of the Second Circuit.
Furthermore, the court determined that piercing the corporate veil would be “inequitable under Bancec.” This conclusion was based on the proceedings in the Delaware Court, where “PDVSA has not avoided its obligations while exploiting the benefits of the U.S. court.”
Additionally, it was deemed that the plaintiffs had a “remedy available at law,” namely, “the attachment of PDVH’s shares in the Crystallex litigation.”
Confidentiality of CITGO Auction Offers
On June 26, 2025, PDV Holding Inc. (PDVH) and CITGO Petroleum Corporation (CITGO) communicated to Judge Leonard Stark the reasons for a prior communication that detailed the offers received during a bidding period, which was submitted under seal for confidentiality.
They clarified that the information was considered confidential by the court expert and should not be disclosed publicly. They presented a version of the confidential letter for the public record, with the approval of the Special Master.
PDVH and CITGO emphasize their commitment to the guidelines set by the court expert and the terms of the Confidentiality Order concerning sensitive information regarding the CITGO auction process.
PDV Holding’s Objections
On June 26, 2025, PDV Holding Inc. (PDVH) submitted a communication to Judge Leonard Stark, of the U.S. District Court for the District of Delaware overseeing the Crystallex Int’l Corp. against the Bolivarian Republic of Venezuela, to alert him of the distortion the ad hoc group of PDVSA 2020 Bondholders is making of their rights in pursuit of benefits.
PDVH informs Judge Stark that the validity of the alleged Pledge over 50.1% of the shares of CITGO Holding Inc. (CITGOH) is debated in the U.S. District Court for the Southern District of New York through the case Petróleos de Venezuela S.A. against MUFG Union Bank N.A. et al.
They emphasize that summary judgment motions in that case are already “fully informed,” making it “improper to allow the Bondholders to influence or distort these proceedings” given the advanced stage of the litigation.
Motivations and Tactics of the PDVSA 2020 Bondholders
According to PDVH, the only beneficiaries of the uncertainty created by the lack of a decision on the merits in the 2020 Bonds Litigation are the 2020 Bondholders themselves, who “have no judgment and are not creditors in this Court.”
They accuse these bondholders of “repeatedly threatening to seek relief, including injunctive relief, to prevent the selection of any bid that does not pay them in full.” Therefore, PDVH believes their actions, both in the Delaware court and in other jurisdictions, are “clearly designed to extract payment from the disputed Pledge without regard to pending proceedings.”
They recall that when PDVH sought to expedite the decision in that case, the PDVSA 2020 Bondholders opposed it, demonstrating their intention to benefit from ambiguity, as they want to maintain their claim that they alone should be paid first and in full in the CITGO auction process, despite having no judgment in their favor.
Distortion of Pledge Rights
PDVH argues that the letter from the PDVSA 2020 Bondholders “deceptively suggests that their alleged rights under the pledge justify an injunctive relief in these proceedings.”
Such a position is refuted by PDVH, as the PDVSA 2020 Bondholders “have no valid lien,” and their assertion “misrepresents the narrow nature of the anti-subordination provisions in the pledge.”
They assert that this provision would only impose “limitations on how CITGOH can issue dividends as ‘earnings’ or ‘other distributions on’ the pledged CITGOH shares.”
U.S. Sanctions
In response to the bondholders’ argument that U.S. sanctions authorize them to assert their alleged rights under the Pledge Agreement and obtain an injunction against the CITGO auction, PDVH counters that such a claim “would be based on the transfer of rights over equity in the CITGOH shares, in clear violation of Executive Order 13835.”
PDVH recalls that General License 5 (GL 5) is a “authorization and not a restriction,” and it is currently not in effect, rendering the bondholders’ claim that GL 5 does not restrict their ability to initiate enforcement action “makes little sense.”
Among other observations, PDVH highlights that OFAC’s non-enforcement policy only covers “steps to preserve the ability to enforce the bondholders’ rights,” but “does not cover the actual enforcement of those alleged rights or the transfers of pledged equity interests.”
Request for Direction to the Court Expert
On June 24, 2025, PDVH and CITGO requested Judge Leonard Stark to order the auction expert of the CITGO auction, Robert B. Pincus, to encourage bidders to offer additional value to the Judgment Creditors, instead of seeking an agreement with the PDVSA 2020 Bondholders.
PDVH and CITGO attached to their request the communication sent to Pincus on June 23, 2025, highlighting the importance of prioritizing such Judgment Creditors in the process.
PDVSA’s affiliates believe that the direction taken by Pincus will be crucial for the outcome of the CITGO auction, especially in how it prioritizes maximizing value for the Judgment Creditors over a potential agreement with the PDVSA 2020 Bondholders.
PDVH and CITGO’s Objections
On June 23, 2025, PDV Holding Inc. (PDVH) and CITGO Petroleum Corporation (CITGO) presented a communication to the attorney for the PDVSA 2020 Bondholders with their objections and perspectives regarding the appraisal by the court expert, Robert Pincus, and the negotiations related to the improved bids in the CITGO auction.
This communication emphasizes concerns regarding the priority of resolving the PDVSA 2020 Bondholders’ litigation versus the sale price and satisfaction of other creditors.
PDVH and CITGO warned that selecting the Red Tree bid as the initial offer would inevitably result in competition among bidders to reach an agreement with the PDVSA 2020 Bondholders rather than enhancing offers to satisfy the judgments of additional Creditors.
They reiterate the risk that bondholders may seek to prevent the CITGO auction, which is considered “not remotely determinative on whether the Court should accept a Final Offer.”
PDVH and CITGO argue that it would be a “fundamental injustice” if a Final Offer placed substantial value on the agreement with the PDVSA 2020 Bondholders only for the New York Court to grant the summary judgment motion of the Venezuelan Parties, concluding that the bondholders have no rights over CITGO Holding.
PDVSA Warns MUFG Wants to Influence the CITGO Auction
Meanwhile, in the Southern District Court of New York, Petróleos de Venezuela S.A. (PDVSA) stated that it does not oppose a motion hearing as requested by the defendants MUFG Union Bank N.A. for a pre-motion conference.
However, they suggest that the defendants’ request is impropely intended to influence the CITGO auction process overseen by the Delaware court.
They argue that MUFG Union Bank N.A. seeks to manipulate the approval of a bid that benefits them instead of allowing the court to decide on the validity of the 2020 bonds. The plaintiffs urge the court to quickly decide on the validity of the bonds to avoid undue interference in the auction.
Judge Katherine Polk Failla scheduled a telephonic conference for July 10, 2025, to address the issues raised by the parties in their letters.
Reasons from PDVSA and PDVH
PDVSA and PDVH believe that MUFG Union Bank N.A. only wants to manipulate the situation for their own benefit, especially regarding a bid from Red Tree Acquisitions LLC, which would benefit the holders of the PDVSA 2020 Bonds by offering them substantial payment.
PDVSA and PDVH urge the court not to grant a postponement and to quickly decide on the validity of the PDVSA 2020 Bonds, as this decision is crucial for the CITGO auction process and would prevent undue interference from the defendants.
They believe that MUFG Union Bank N.A. seeks to pressure Robert Pincus to approve the Red Tree offer and thereby ensure a favorable payment for themselves, raising the specter of a possible injunction that would disrupt the CITGO auction if a competing bid is selected.
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