Venezuelan Central Bank files federal lawsuit to block exchange rate website

By Jessica Karmasek | Nov 3, 2015

WILMINGTON, Del. (Legal Newsline) - The Central Bank of Venezuela has filed a lawsuit in a U.S. federal court, alleging that a group of Venezuelan exiles living in the United States are conspiring to manipulate the value of the country’s currency by “deliberately misrepresenting and falsifying it on a massive scale.”

The Central Bank, an autonomous government entity that is tasked with developing the country’s currency exchange policy and monetary policy, and implementing said policies, filed its complaint in the U.S. District Court for the District of Delaware Oct. 23.

The bank contends in its 32-page complaint that the defendants -- DolarToday LLC; Gustavo Diaz Vivas, an Alabama resident; Ivan Dario Lozada-Salas, a Washington state resident; and Enrique Altuve Lozada, a Florida resident -- have harmed the Venezuelan people and the bank by publishing on a website allegedly misleading black-market exchange rates for dollars.

In particular, the bank charges that the defendants have violated the Racketeer Influenced and Corrupt Organizations Act, Venezuelan Civil Code and Delaware common law prohibiting unjust enrichment.

“The economic and reputational damage that Defendants have caused the Central Bank are independent of the hardships that Defendants have imposed on the Venezuelan people,” the plaintiff wrote.

According to the Central Bank’s complaint, Venezuela is facing some serious economic challenges.

In 2013, the country devalued its currency due to rising shortages on milk, flour and other necessities.

In 2014, it entered an economic recession.

Currently, Venezuela has the world’s highest inflation rate, with a rate surpassing 100 percent.

The Central Bank contends the defendants “virulently oppose” the country’s current elected leaders -- but not out of concern for their countrymen.

“To the contrary, Defendants seek only to grab riches and power for themselves and their friends, willingly increasing the hardships of ordinary Venezuelans in the process,” the plaintiff wrote. “And in a ruthless exercise of realpolitik, Defendants seek to trick the Venezuelan populace that elected the Republic’s current government, hoping that voters will turn on their leaders, and blame them for the harm caused by Defendants.

“Indeed, Defendants hope that the discontent arising from their own misconduct will usher in a new government that will enable Defendants and their allies to get even richer, again at the expense of the Central Bank and ordinary citizens of Venezuela.”

Since 1998, the Venezuelan government has worked to clamp down on corrupt individuals and organizations.

The Central Bank contends that some individuals, the defendants included, “greatly resented” the clamp-down.

The bank alleges that Diaz, for one, played a key role in a short-lived 2002 coup against the government, eventually fleeing to the United States.

“In the United States, the Individual Defendants have been seeking new ways to feed their greed, and in the process return Venezuela back to the way it was before December 1998,” the plaintiff wrote, pointing to the defendants’ website.

According to the Central Bank’s complaint, the defendants intended the website to be the “authoritative source of a daily exchange rate for the Republic’s currency, the bolívar fuerte (commonly known simply as the ‘bolívar’), against the United States dollar (the ‘DT Rate’), from which they could, on information and belief, reap personal financial gains.”

The defendants, the bank alleges, also created -- or commissioned the creation of -- a mobile app for Android and iOS users. Like the website, the app displays the “current” DT Rate.

“Defendants conspired to use a form of cyber-terrorism to wreak, and in fact they have wreaked, economic and reputational harm on the Central Bank by impeding its ability to manage the Republic’s economy and foreign exchange system,” the plaintiff wrote.

The Central Bank alleges in its complaint that the defendants’ actions are:

- Exacerbating inflationary pressures that diminish the purchasing power of the Venezuelan people and the Central Bank;

- Diminishing the value of the Central Bank’s seigniorage for the new currency it prints (or the coins it mints) or that it newly puts into circulation;

- Depriving the Central Bank of the higher real returns that it would otherwise receive on monies it lends to other financial institutions and entities;

- Causing trade to be withheld from the Central Bank, as capital that it would otherwise retain or attract instead leaves, with investors seeking returns from other world economies; and

- Creating the false impression that the Central Bank and the Republic are incapable of managing Venezuela’s economy.

According to the bank’s complaint, defendant Diaz, a former colonel in the Venezuelan Army and deputy chief of the Casa Militar, the Venezuelan equivalent of the U.S. Secret Service, was granted political asylum in the U.S. in October 2005. He resides in Hoover, Ala., at the same address listed for DolarToday.

Defendant Lozada worked at CANTV, Venezuela’s largest telecommunications company until 2005, when he immigrated to the U.S. The Central Bank alleges Lozada, who resides in Sammamish, Wash., is a principal of DolarToday and helps support the website.

Defendant Altuve, a cousin of Lozada, immigrated to Miami in early 2002. The bank alleges he also is a principal of DolarToday, and posts the DT Rate on the website daily -- sometimes “updating” it multiple times a day, the bank alleges -- and directs or helps direct the website’s movement to mirror sites to evade Venezeulan efforts to block the website within the country.

The Central Bank, in its lawsuit, is requesting the federal court enter judgment in its favor. Specifically, it seeks:

Damages for all harm suffered; treble damages for the defendants’ RICO violations; exemplary damages; treble damages for the defendants’ false and misleading advertising; attorneys’ fees, expenses and costs; prejudgment interest; post-judgment interest; a permanent injunction prohibiting the defendants “and those in active concert with them” from continuing to publish the “false and fraudulent” DT Rate; and a jury trial.

Wilmington law firm Morris Nichols Arsht & Tunnell LLP is representing the Central Bank. Squire Patton Boggs LLP, in Palo Alto, Calif., is of counsel.

Judge Gregory Sleet is presiding over the case.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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