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Blavatnik cleared of fraud claims over Lyondell Chemical buyout

Len Blavatnik, the billionaire investor, has been cleared of fraud claims related to his $19bn buyout of Lyondell Chemical, according to a ruling from a US federal bankruptcy judge issued late on Friday.

Mr Blavatnik combined Basell, his chemicals business, with Lyondell in 2007 to create LyondellBasell (LBI), funding the transaction with more than $20bn of debt. The business quickly collapsed from the combination of the financial crisis and its heavy debt load, filing for bankruptcy protection in early 2009.

After it reorganised, a trustee was assigned to pursue fraud claims against Lyondell’s management on behalf of creditors. The trustee accused management of manipulating financial projections, which boosted the buyout price but rendered LBI insolvent at the time the deal closed. The trustee had further alleged Mr Blavatnik was aware of the manipulated projections.

Mr Blavatnik had bought a 9 per cent “toehold” stake in Lyondell before the buyout, and ultimately sold it at a large premium. Legal doctrine allows beneficiaries of fraud to have their gains clawed back, and Mr Blavatnik’s liability could have been as high as $5bn, according to the trustee.

Of nine counts against him, he was found to be liable on one count with a judgment against him of $7.2m related to a lending requirement Mr Blavatnik’s firm, Access Industries, failed to provide LBI in late 2008.

“Len Blavatnik is very happy with the thorough and complete analysis of Judge Glenn and gratified that justice has been served after having this case pending for over nine years,” said his attorney Rick Werder of Quinn Emmanuel.

Judge Martin Glenn wrote: “The cornerstone of the trustee’s case is the assertion that the refreshed projections . . . were fraudulently prepared and wildly inflated, and resulted in a combined company that was predestined to fail.

“In essence, the trustee argues that a merger based on these refreshed projections necessarily left LBI with inadequate capital. The trustee, however, failed to prove his case.”

Judge Glenn added that he found the testimony of the trustee’s financial experts to be “unreliable”.

Mr Blavatnik had maintained that by contributing his unit, Basell, to the deal at a valuation of $6bn he was the biggest victim when LBI filed for bankruptcy. A series of leveraged buyouts completed before the financial crisis led to lawsuits against buyout investors and Wall Street banks. Lyondell board members and the Wall Street banks that participated in the buyout financing have previously settled creditor claims against them.

Along with the private equity firm Apollo Global, Mr Blavatnik provided bankruptcy exit financing to LBI. Apollo and LBI made several billion dollars as the petrochemical industry recovered quickly. Apollo claims today that the reorganisation of LBI is the most profitable private equity investment in history. Mr Blavatnik’s firm Access Industries still owns 16 per cent of the now listed LBI, a stake valued at more than $5bn.

An attorney for the litigation trust declined to comment late on Friday.

Via FT