Judge Won’t Act On Argentina Default Memo

Jun 9 2014 | 10:45am ET

The judge who ordered Argentina to pay hedge-fund holdouts from its 2001 default in full refused last week to sanction the country over a memorandum from its lawyers suggesting the country default if his rulings are upheld.

Argentina is asking the U.S. Supreme Court to hear its appeal of U.S. District Judge Thomas Griesa’s order, which has already been upheld by a federal appeals panel. In its brief with the high court, Argentina vowed to comply with the Second Circuit Court of Appeals ruling should the justices refuse its appeal. But, according to a memo written by its U.S. lawyers obtained by holdout Elliott Associates, the country apparently plans to default again to avoid paying the holdouts.

On May 2, attorneys from Cleary Gottlieb Steen & Hamilton told Argentine Economy Minister Hernán Lorenzino that the country’s “best option” should the Supreme Court fail to reverse  would be to “default and then immediately restructure all of their external bonds such that their payment mechanism and other related aspects stay outside the reach of American courts.”

Elliott demanded that Griesa hold Argentina to account for the plan to evade his rulings, calling the document “a smoking gun,” but the judge declined, saying that the memo was privileged—and ordering the hedge fund to redact any mention of it in court documents.

At Friday’s hearing, Argentina lawyer Carmine Boccuzzi made clear that the default plan was in no way an evasion of the rulings. “Given the fact that the Republic does not have the resources to pay all of the holdouts… there will likely be a default, an across-the-board default. That is what we have said. That is what is going on.”

The Supreme Court is set to consider Argentina’s petition this week, although it may choose to withhold a decision on the matter until later.


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