Via Financial Times

A partner at OTC Global Holdings, one of the largest wholesale commodities brokers, has sued its founders, alleging the company was in danger of financial failure while it was charged as much as $300,000 per month on personal expenses such as restaurants, ski trips and sport tickets.

John Klosek claimed in a petition filed in a Texas court this week that OTC co-chief executives Javier Loya and Joseph Kelly had taken money from the company through unreported compensation and received $4.2m in interest-free loans. Mr Loya and his assistant charged millions of dollars of personal expenses to company credit cards, the complaint alleged.

This year the company borrowed at interest rates of more than 10 per cent from lenders including Mr Loya’s brother Miguel Loya, a senior executive at the oil trading house Vitol. Mr Klosek warned in the lawsuit that the Houston-based company is at risk of liquidation.

“Defendants have embezzled and allowed others to embezzle many millions of dollars and have essentially used OTC Global’s revenues as their personal bank account,” the lawsuit said.

OTC Global is an intermediary in the low-profile world of over-the-counter energy markets, where commodity merchants, utilities and hedge funds transact oil and natural gas in large blocks outside the walls of futures exchanges.

The company claims to be the largest independent institutional commodity broker in the world, according to its website. This year it was named “Broker of the Year” by Energy Risk, a trade publication.

OTC acknowledged the existence of the lawsuit, saying Mr Klosek filed it after his termination from the company. “The company and individuals named in the lawsuit deny the accusations and will take all appropriate actions to protect the interests of the company,” a spokesperson said.

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Mr Kelly claimed that he did not have a corporate credit card, the lawsuit said.

The court filing alleged OTC was in financial distress and had breached loan covenants. OTC Global’s 2018 audited financial statement, completed in June this year by its accountants, raised “substantial doubt” about the Delaware limited partnership’s ability to “continue as a going concern”.

Miguel Loya’s loan to the company totalled $5m at 10 per cent interest, with an added $500,000 due if the company was sold, according to the lawsuit. Another lender, a fund managed by New York-based commodities investor Ernest Scalamandre, provided financing at 13 per cent.

Vitol declined to comment on behalf of Miguel Loya. Mr Scalamandre also declined to comment.

“They’re desperately trying to get money to cover the debts of the company. It shouldn’t be in this shape. It should be a money machine,” said Adam Schiffer, an attorney for Mr Klosek, who he said remains a shareholder in the company.

The lawsuit claims that Javier Loya lived a high life charged on a corporate credit card. It said that he charged the company $17,000 for his daughter’s 16th birthday party and bought her and some of her friends first-class tickets to fly to a ski resort in Aspen, Colorado.

Mr Klosek claimed that Mr Loya spends $4,000 dining out at posh restaurants such as Nobu and Houston’s Post Oak Bar “multiple times in the same week”.

Mr Loya and his assistant’s expenses on the company credit card totalled $2.7m between January 2018 and October 2019 and also included pro basketball, football and baseball tickets charged to OTC, the petition said.

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