* Venezuela, Gold Reserve say risk linked to bondholders' claim is not worth $2 billion * Delaware judge expected to select a winner after court hearing * Motions over alleged conflict of interest remain pending (Adds Gold Reserve's arguments in paragraphs 6-8) By Marianna Parraga HOUSTON, Oct 21 (Reuters) – Lawyers representing U.S. refiner Citgo Petroleum and its owner Venezuela asked the court on Tuesday to reject a bid from an affiliate of Elliott Investment Management due to its "low price," which was below a rival offer submitted to court, and said the sale process was "defective." A Delaware court is trying to complete the auction of Venezuela-owned PDV Holding, Citgo Petroleum's parent, to compensate up to 15 creditors for debt defaults and asset expropriations in the South American country. A $5.9 billion bid from Elliott's affiliate Amber Energy was recommended in August by an officer overseeing the court-ordered auction, a switch from his previous recommendation of a $7.4 billion offer from a subsidiary of Gold Reserve. Amber's bid includes a separate pact to pay $2.1 billion to holders of a defaulted Venezuelan bond. Delaware Judge Leonard Stark is expected to determine the final winner after a court hearing this week to discuss the bids and motions filed by Venezuela and Gold Reserve to disqualify the judge, the court officer evaluating the bids and two advising firms over alleged conflict of interest. Amber's bid "is so low … that it shocks the conscience of this court and can't be confirmed," Nathan Eimer, counsel for Citgo and PDV Holding, said during the hearing. Gold Reserve also asked the court to reject Amber's bid and approve the offer submitted by its subsidiary instead, which after being raised to $7.9 billion in August is about $2 billion higher in price but does not include an agreement to pay the Venezuela bondholders. Gold Reserve's bid intends to distribute auction proceeds among a larger number of creditors in Delaware, instead of settling the bondholders' claim, which is pending a final resolution over the notes' validity in a separate New York case. "It would be a fundamental injustice in the event a substantial amount of value was diverted from the attached judgment creditors here to the 2020 bondholders on the basis of a security, a pledge instrument that might be deemed invalid," said Matthew Kirtland, counsel for Gold Reserve. Since the U.S. imposed sanctions on Venezuela and the administration of President Nicolas Maduro in 2019, Citgo severed ties with its ultimate parent, Caracas-headquartered oil company PDVSA, and is now controlled by boards appointed by an opposition-led congress. Both Maduro's government and the political opposition led by Maria Corina Machado reject the court-organized auction. The U.S. Treasury Department, which has shielded Citgo from creditors in recent years, must approve the auction's winner. (Reporting by Marianna Parraga Editing by Marguerita Choy)
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