The Sovereign Mirage: 9 Years, Two Arbitrations, Total Loss

LexShares Case #254: A Turkish contractor built $1.5 billion in infrastructure for a Central Asian state. Then the government stopped paying. Two international arbitrations and nine years later — nothing.

The Numbers

Invested	$50,000
Returned	$0
Net Loss	($50,000)
MOIC	0.00x
IRR	-100%
Holding Period	3,270 days

The Case

A Turkish construction and energy company completed major industrial projects across a Central Asian state — power plants, refineries, infrastructure. The contracts totaled approximately $1.5 billion in value. The work was done. The facilities were built and operational.

The government didn’t pay.

Across multiple projects, the state withheld retention payments, terminated contracts without cause, and simply refused to pay amounts owed. The contractor claimed $55+ million in damages across three projects:

Project	Claimed Amount	Issue
Government ministry (5 facilities)	$15,650,000	Unpaid 5% retention
Oil refinery	€35,000,000	Wrongful termination + unpaid amounts
Power plant	€9,200,000	Unpaid 5% retention

The $300,000 fund was structured with counsel on a hybrid contingency fee. The claims were to be filed at the World Bank’s international arbitration tribunal in Washington, D.C., under an investment treaty. On paper, it looked like a strong case — concrete infrastructure built, contracts signed, payments withheld. Sovereign states stiffing contractors isn’t unusual, and investment treaty arbitration exists precisely for situations like this.

What I didn’t fully appreciate: there’s a vast difference between having a valid claim and being able to prosecute it.

The First Arbitration: Wrong Party

In July 2017, two months after my investment, the first case was filed. But there was a problem — and it was fundamental.

They filed under the wrong company.

The holding company — the parent — filed the claim. But the contracts with the government were signed by the operating subsidiary. In investment treaty arbitration, only the party that actually made the investment can bring the claim. A parent company can’t sue on behalf of its subsidiary’s contracts.

The respondent state raised this objection under an expedited procedure. The tribunal agreed, finding the case “manifestly without legal merit” — the harshest possible dismissal. The parent was ordered to pay nearly $1 million in costs. They never paid.

This wasn’t a close call. Filing under the wrong entity is the kind of basic error that makes you question the competence of the legal team. It wasted three years and created a costs liability that would haunt the second attempt.

Four Years of Limbo

After the first dismissal in 2020, the case entered a four-year dead period. Counsel spent years in “dialogue” about whether to refile or sunset the claim entirely. By early 2024, there had been no substantive progress. Then in March 2024, a mysterious third party appeared, allegedly willing to represent the contractor’s subsidiary despite its ongoing bankruptcy proceeding — but counsel couldn’t find any actual new filing at the tribunal.

Finally, in May 2024, a second arbitration was filed — this time under the correct party.

The Second Arbitration: Right Party, No Money

The second case expanded the claims to five projects and over €100 million, adding a gas processing facility and outdoor lighting contract to the original three.

The early signs were cautiously encouraging. Arbitrators were appointed in April 2025. A first session was held. The tribunal set a procedural calendar. The claimant filed its Memorial in July 2025.

But problems were accumulating beneath the surface. The contractor had been bankrupt since November 2016 — before I even invested. No employees, no revenue, no assets except this claim. Everything depended on a third-party funder that had been incorporated with minimal capital and was grossly undersized for an international arbitration against a sovereign state.

Then the claimant admitted in its Memorial that it had lost access to its accounting system. The financial records needed to prove damages were unavailable.

The respondent — pointing to the unpaid ~$1 million costs award from the first case — demanded security for costs. The tribunal ordered the claimant to obtain After-the-Event (ATE) insurance. The policy was approved, but the funder couldn’t pay the premium.

In December 2025, the Tribunal suspended proceedings for three months. The funder never came up with the money.

In April 2026, the Tribunal issued an order discontinuing the proceeding. The case was over.

Timeline

Date	Event
Nov 2016	Contractor declared bankrupt
May 2017	My investment — $50,000
July 2017	First arbitration filed — wrong party (the parent company)
April 2019	Incremental funding call to pay tribunal fees and lift stay
Aug–Oct 2019	Respondent files expedited objection; first procedural conference held
June 2020	First arbitration dismissed — “manifestly without legal merit”; ~$1M costs awarded to respondent
2020–2024	Four years of limbo — counsel debates refiling vs. sunsetting the claim
May 2024	Second arbitration filed — correct party (the subsidiary); claims expanded to €100M+
April 2025	Arbitrators appointed; first session held; respondent requests security for costs
July 2025	Claimant’s Memorial filed (admits missing key financial records)
Oct 2025	Tribunal orders ATE insurance as security for costs
Dec 2025	Proceedings SUSPENDED — funder failed to pay ATE insurance premium
April 2026	CASE DISCONTINUED

What the Offering Materials Said vs. What Happened

Offering Pitch	Reality
$55M+ in damages	$0 recovered — no tribunal ever ruled on the merits
Completed infrastructure projects	True — but the claimant lost the financial records needed to prove damages
Investment treaty protections	Never tested — first case dismissed on standing, second case ran out of money
International arbitration (enforceable worldwide)	Moot — no award was ever issued
Hybrid contingency counsel	Filed under the wrong entity in the first arbitration

Warning Signs I Missed

Red Flag	What It Meant
Claimant declared bankrupt before my investment	No financial resources to prosecute the claim; entirely dependent on third-party funding
Sovereign defendant	Unlimited legal budget, no settlement pressure, enforcement uncertain even with an award
Pre-litigation stage — no case filed yet	I invested before a single filing was made; the legal theory was untested
Two-person legal team	A $55M+ sovereign arbitration with a team of two; eventually filed under the wrong entity
Complex multi-project, multi-contract structure	Three separate projects, different contract types — proving each claim multiplied the burden

What I Learned

Sovereign arbitration is not litigation. Suing a company in a US court is different from bringing an investment treaty claim against an authoritarian state at the World Bank. The timelines are measured in decades, not years. Enforcement is uncertain even if you win. And the defendants are sovereign states with unlimited legal budgets funded by natural resource wealth.

The claimant’s financial health matters as much as the merits. The contractor had legitimate claims — $1.5 billion in completed infrastructure, contracts signed, payments withheld. None of that mattered because the entity pursuing the claim was bankrupt and the funder couldn’t cover basic costs like an insurance premium.

Filing under the wrong party isn’t a technicality — it’s malpractice. The first arbitration was dismissed as “manifestly without legal merit” because the parent company filed instead of the subsidiary. This wasted three years, created a costs liability, and emboldened the defense for round two.

Four years of “we’re considering our options” means there are no good options. From 2020 to 2024, the updates were variations on “dialogue with counsel on refiling vs. sunsetting.” That’s four years of a bankrupt claimant trying to find someone willing to fund a case that had already failed once. The eventual refiling didn’t change the fundamental problem.

Nine years of hope is expensive. Beyond the $50,000 in lost capital, there’s the opportunity cost. That money invested in the S&P 500 in May 2017 would have roughly doubled. Instead, I spent nine years receiving sporadic updates about procedural orders, waiting for a resolution that never came.

The Final Score

Claimed damages (offering)	$55,000,000+
Arbitrations filed	2
Arbitrations reaching the merits	0
Years invested	9
Final recovery	$0

This was my 4th LexShares investment and my second-largest loss. A Turkish contractor built $1.5 billion in real infrastructure for a Central Asian government and got stiffed. The first lawyers filed under the wrong company. The second funder couldn’t pay an insurance premium. After nine years, two international arbitrations, and $50,000 of my money, no tribunal ever considered whether the government actually owed anything. The buildings still stand. The money never left.