A fresh bid has been launched in the United States to prevent diamond giant De Beers from liquidating its Russian affiliate, Archangel Diamond Corporation (ADC), and calling off legal proceedings in Denver, Colorado, and in Stockholm to recover ADC's diamond mining right from two Russian companies charged with fraudulently expropriating it.



Documents filed in the US Bankruptcy Court in Denver on June 26 identify James Passin, Bruce Marks, and Clive Hartz. Passin represents the Cayman Island-registered Firebird Global Master Fund, which says it is owed €76,547 ($107,709) for a business loan to ADC. After De Beers, whose Luxemburg subsidiary Cencan holds 59% of ADC's shares, Firebird is the next largest shareholder of ADC with about 18%.



In the filing, Marks, whose law firm Marks & Sokolov is based in Philadelphia and Moscow, has been ADC's lead attorney in the US litigation, and is owed $135,000. Hartz, a property developer in Western Australia, claims that ADC owes him $50,000 in unpaid director's fees. Hartz is a small shareholder in ADC, and has served for many years as an independent on the ADC board, which is dominated by diamond miner De Beers. None of the three would respond to requests for comment on the record.



The publicly accessible petition has been filed in Denver because the principal asset, which shareholders believe ADC still retains, is its legal case for compensation against the two alleged Russian raiders, Arkhangelskgeoldobycha (AGD) and LUKoil. AGD is wholly owned by LUKoil, one of Russia's leading oil producers and exporters.



Two well-known Russian businessmen, Vagit Alekperov, the chief executive of LUKoil, and Alisher Usmanov, a metals and mining magnate, are named in the US court papers as having participated with the two defendant companies in "a scheme of fraud, breach of express and implied contract, civil conspiracy, intentional interference with contract, breach of fiduciary duty, and unjust enrichment".



ADC is claiming recovery of $30 million in investment, $400 million in its share of profits, and another $800 million in potential profits.



AGD and LUKoil, Alekperov and Usmanov all deny culpability, and have argued that the Colorado court has no jurisdiction over the claims.



In January of this year, diamond miner De Beers called off a joint venture with LUKoil to resolve the legal conflict, and revive the diamond mining project over the next five years.



Since then, however, according to a source who follows the company's internal management closely, and others who have tried negotiating for a buyout of De Beers's shares in ADC, the diamond company De Beers management have been in a state of panic. “Even more importantly, they do not have any money. My hunch is that whatever has been proposed is intended to stop the immediate cash-burn, and save face," the source said.

Between January and May, the De Beers diamond mining group managing director Gareth Penny, and shareholder and head of Canadian operations and mining, Jonathan Oppenheimer, rejected at least one proposal to buy De Beers out of ADC by paying the $9.9 million loan due from ADC to the Cencan subsidiary. Then on May 12, Cencan sent ADC a three-page letter offering "additional financial support to ADC in the context of restructuring of ADC" under the Canadian bankruptcy and insolvency statute.



The letter offered to $200,000 for "restructuring expenses and disbursements", and up to $800,000 to pay off the first sum, and then unsecured ADC creditors.



Diamond miner De Beers insisted, however, on several conditions for the offer, the outcome of which, the letter declared, "would result in Cencan owning 100% of the issued and outstanding shares of ADC, and ADC would cease to be a public company." The ADC board was told that De Beers wanted "to ensure that no ADC shareholder approval of the transactions contemplated by the Proposal is required". The board was also obliged to give its assent "without the need for an ADC shareholder vote."



The letter made clear that because Cencan would not agree to fund the arbitration proceedings against AGD in Stockholm, or the US case against AGD and LUKoil in Colorado, ADC should raise the money on its own to keep litigating. Alternatively, if it could not, "ADC should give consideration to terminating the Arbitration and the Litigation.., to the satisfaction of Cencan prior to the filing [of Cencan's proposal]." Diamond miner De Beers executives Penny and Oppenheimer have declined comment on why they had made these demands.



Legal experts believe De Beers will do everything it can to keep out of the US courts.