A coal company owned by Gov. Jim Justice claims it was deceived by a global lender and now faces “a clear and present threat.”
Those allegations were laid out in a federal lawsuit filed Monday in U.S. District Court for the Southern District of New York. In the 45-page filing, Justice-owned Bluestone Resources accuses Greensill Capital of a “continuous and profitable fraud” enacted “under the guise of establishing a long-term financing arrangement.” It also claims “reputational damage has already been serious” in the days since Greensill filed for insolvency on March 8.
The lawsuit seeks punitive damages and expenses “in an amount to be determined at trial.”
In addition to Bluestone Resources, sister entities Bluestone Coal Sales Corp. and Blackstone Energy LTD, are listed as plaintiffs in the lawsuit, along with Justice and his wife, Cathy, and their son, James C. Justice III. Lex Greensill, CEO and founder of the London-based firm bearing his name, and Vice Chairman Roland Hartley-Urquhart are identified as defendants.
The lawsuit comes after Greensill’s operations were frozen and its banking unit taken over by regulators. The Wall Street Journal reported that the 10-year-old bank, once valued at $4 billion, is now worth approximately $100 million.
Requests for comment sent to the Governor’s Office, as well as to the Manhattan law firm Sullivan & Cromwell, which filed the lawsuit, went unanswered. The advisory firm Grant Thornton UK, administrators of Greensill during its insolvency process, would not comment.
Greensill’s relationship with Bluestone was significant to both companies.
The Journal, citing an internal company document, reported that more than 70% of Greensill’s 2020 revenue — and 90% the year before — came from a handful of clients. That core group accounted for the vast majority of the $150 billion of financing Greensill provided in 2019, according to its website.
Among those five clients was Bluestone, which borrowed $850 million from Greensill in spring 2018. But that transaction broke away from Greensill’s normal playbook. The company usually provided short-term loans that allowed clients more flexibility with on-hand cash flow.
The Bluestone loan, however, was to be in play for years while other, shorter-term loans rolled over. The lawsuit claims Bluestone paid $108 million to Greensill in fees and another $100 million in warrants to purchase stakes in the coal company.
Those terms and actions, the lawsuit alleges, led Bluestone to believe it had secured a long-term financing partner.
“I think this type of lawsuit will be hard to be supported in a court of law,” Mike Pagano, professor of finance and real estate at the Villanova School of Business, said via email, “because Bluestone’s financial managers should have taken into consideration the risk of depending to a large extent on one type of lender [Greensill] which is also dependent on continuously financing itself via short-term debt securitizations.”
The lawsuit claims the relationship became strained over the past year.
Hartley-Urquhart asked Justice III on Feb. 9 to send its loan payment directly to Credit Suisse AG, a primary Greensill creditor. Hartley-Urquhart also urged Justice III to assume the blame for a payment Greensill missed to the Swiss bank, according to the lawsuit.
The lawsuit also claims Bluestone was pressured last year into selling coal to GFG Alliance, a London-based conglomerate and Greensill’s largest client. Bluestone said it has yet to be paid for delivery of that coal.
The lawsuit also alleges that Greensill enticed Bluestone to increasingly rely on the lender even as its own financial situation crumbled. The relationship completely deteriorated last week, when Japanese insurer Tokio Marine declined to renew a $4.6 billion insurance contract with Greensill. Credit Suisse also froze most of Greensill’s accounts and called for repayment of a $140 million loan.
Insolvency proceedings followed, sending ripples throughout a vast network of connected industries and businesses worldwide.
Bluestone said “vendors, suppliers, customers, and bonding companies reached out immediately to express serious concern regarding the impact Greensill Capital’s demise will have on Bluestone’s liquidity and cash flow. Such trickle-down impact from the implosion of Greensill will have long-standing effects on Plaintiff Bluestone’s business.” It also contended harm to the individual plaintiffs.
In a statement Tuesday, Bluestone said it has engaged potential lenders and has “adequate working capital to support its operations, to serve its customers and to maintain its relations with all its stakeholders.”