Hedge Funds Can’t Pry Into Argentina

MANHATTAN (CN) - Argentina may have threatened Citibank with "grave risk for civil, regulatory, and criminal liability" if it follows a U.S. judge's ruling instead of its own laws, but a federal judge won't intervene in the bond fight while an appeal is pending.

U.S. District Judge Thomas Griesa, presiding over Argentina's debt restructuring battle with two New York hedge funds, weighed his words extremely carefully Wednesday before reacting to the Latin American nation's latest maneuver.

Pausing thoughtfully before every clause, Griesa said: "I do not deny that there might be conduct, there may be warnings, there may be information which could indicate that there might be efforts by the Republic of Argentina to get Citibank to do what may be in violation of this court's orders."

Griesa in July issued an order allowing Citibank a "one-time" transfer of funds to Argentina, which already has been paid.

All further transfers, he ruled, would be banned until Argentina paid off $1.3 billion it owed to hedge funds NML Capital and Aurelius Capital Management, for debts the companies bought during the nation's default in 2001.

Argentina has described these funds, owned by prominent Republican donor billionaire Peter Singer, as "vulture funds" for buying distressed debt for pennies on the dollar and then suing to enforce the original terms.

In 2005 and 2010, Argentina engaged in two restructuring plans that satisfied roughly 93 percent of the creditors; NML and Aurelius were the lone "holdouts" of that deal.

While a New York appeals court labeled it a "uniquely recalcitrant debtor," Argentina has bristled at the intrusion on its sovereignty. Its financial ministry sent Citibank's subsidiary a stern letter on Aug. 6, demanding another payment by Sept. 30.

The letter called Griesa's ruling forbidding another transfer "unheard of and unprecedented."

With that ruling under appeal, Citibank's attorney Karen Wagner described what appeared to be a Catch-22 for the megabank, in a motion on Aug. 6.

"If Citibank Argentina does not make payment, both the bank and its employees will be at grave risk for civil, regulatory, and criminal liability," Wagner wrote. "If it does make the requisite payments, it will risk contempt sanctions in the district court."

Wagner urged the court to schedule the hearing before the Argentina's Sept. 30 payment deadline, to reverse Griesa's order.

The appeal hearing is slated for Sept. 18. The hedge funds on Wednesday requested a hearing to ask Griesa to probe Argentina's secret talks with Citibank and its Buenos Aires-based subsidiary.

Attorney Kevin Reed, representing NML for Quinn Emanuel Urquhart & Sullivan, said he wanted to uncover "any demands, threats, or inducements" that Argentina made to Citibank, or other "intimidation of third parties."

Speaking for Citibank, Wagner claimed that her adversary was trying to gain a strategic advantage for the upcoming appellate court battle.

"We're dealing here with a request to provide discovery in order to enlarge the record for the 2nd Circuit," she said.

She added later: "There is no reason on Earth to be doing this right now."

Apparently agreeing, Griesa reserved decision on the matter.

"This court should take no action at this time while this appeal is pending before the Court of Appeals," he said.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit