Elliott Associates goes to Albany, again

June 17, 2010
went to extreme lengths to try to collect as much money from the Latin country as it possibly could:

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Back in the late 1990s, Elliott Associates was embroiled in litigation with Peru. And it went to extreme lengths to try to collect as much money from the Latin country as it possibly could:

A federal district court in New York initially ruled against Elliott, finding that the fund had purchased the debt “with the intent and purpose to sue” and “rejected each and every opportunity to participate in Peru’s restructuring.” Elliott appealed and won. Then the fund began working the political system in New York. With the help of a lobbying firm in Albany, Elliott, through a subsidiary, persuaded the New York legislature to change an obscure law governing compound interest, increasing Elliott’s payout by $16 million, for a total, including interest, of $58 million. It was done so quietly that Peru’s lawyers didn’t find out until after the fact. A few years later the New York State Assembly eliminated another law that Peru had used to defend itself. Three months after the bill became law, Singer gave the lead sponsor, State Assembly Member Susan John, a $2,500 campaign donation.

Today, Elliott Associates is embroiled in litigation with Argentina. And it’s trying a very similar stunt, taking advantage of Albany’s broken system to try to maximize its payout:

Amid the chaos in Albany, the Senate has mooted the issue of deadbeat foreign government borrowers. Senator Brian Foley last month introduced a bill that would subject to special taxes any foreign governments that have defaulted on their debts and defied U.S. court judgments…

This bill is not about general principles. It’s about one judgment-evading foreign state, the only one that fits the bill’s criteria: Argentina…

The government has launched a new exchange offer, hoping to clean up the situation sufficiently to reestablish market access…

Rumor has it that one of the biggest holdouts, Elliott Associates, is behind this bill, which, if passed, would require New York banks, including the New York Fed, to collect a tax on any financial transactions conducted by Argentina. The law would impose new costs on the exchange and complicate it, leading to a delay or even forcing Argentina and its advisers back to the drawing board. That in turn would keep Argentina frozen out of the bond market.

At some point, financial markets are going to have to come to terms with the fact that when you issue a security under New York law, you’re engaging with a legal system which looks in some respects like that of many corrupt emerging markets. The jurists here are generally well-respected and honest, but the legislature is another thing entirely. Elliott might have been the first major hedge fund to work this out, but if it’s successful twice in a row, it surely won’t be the last.


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