Hedge fund fights to halt $506 million claim in New York federal court

A hedge fund has cited an underlying arbitration agreement as the basis for removing to federal court a lawsuit against it by Kazakhstan. The lawsuit accuses it of conspiring with Moldovan oil and gas investors to secure an allegedly fraudulent half-billion dollar arbitral award against the country.

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.

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 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.

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.

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.

A spokesperson for Argentem Creek Partners said:

“For seven years Kazakhstan have bent over backwards to avoid paying this award. In the US courts, they have suffered multiple defeats, including an attempt at using RICO statutes to discredit the claimants. Their attempt at delaying discovery in the enforcement proceedings has failed. Now their attempts to lay false allegations against a foreign investor will fail, just as similar tactics have failed in other jurisdictions. This award is final, binding and non-appealable, and the Ministry of Justice need to accept that before irreparable damage is done to Kazakhstan’s reputation as a serious, modern, investor-friendly economy.”

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.

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