Sept. 26 (Bloomberg) -- Argentina lost a bid to throw out a suit in which holders of the nation’s defaulted bonds are seeking a court order to help them seize assets held by the country’s central bank.
U.S. District Judge Thomas Griesa yesterday denied Argentina’s request that he dismiss a suit by NML Capital Ltd. and EM Ltd. asking for a declaration that the Banco Central de la Republica Argentina is an “alter ego” of the country, and therefore liable to pay them almost $2.6 billion.
“I think there is a very legitimate claim by the plaintiffs here that, for certain purposes, BCRA is the alter ego of the Republic,” Griesa said at a hearing in Manhattan federal court.
Argentina in 2001 defaulted on a record $95 billion of foreign debt. Holders of about 91 percent of the bonds agreed to take new exchange bonds in 2005 and 2010, at a deep discount. Some holdout investors have won court judgments against Argentina from the New York court and are trying to find assets they can seize to enforce them.
Argentina has vowed never to pay holders of its defaulted debt, whom the country’s leaders have called “vultures.” The nation’s legislature passed a law in 2005 barring payment of the bonds.
Robert Cohen, a lawyer for NML, yesterday argued that Argentina exerts such extensive control over BCRA that the central bank is nothing more than the country’s alter ego, permitting the court to ignore their separate legal status.
Cohen said a declaration from Griesa may make it easier to seize central bank assets, including from the Bank for International Settlements, an international financial organization based in Basel, Switzerland. In their complaint, the bondholders claim Argentina has used the BIS to shield assets from the nation’s creditors.
“We may be able to have access to $40 billion that’s on deposit in BIS,” Cohen said.
Argentina claimed the suit is barred by the Foreign Sovereign Immunities Act, which limits claims against foreign countries. Argentina also claimed the suit should be dismissed because the bondholders failed to allege sufficient facts to show that Argentina dominates the central bank.
Griesa yesterday expressed skepticism toward the argument that BCRA can be held to be Argentina’s alter ego for all purposes.
“The question of whether the BCRA, in a general way, is liable for the debts of the Republic -- I haven’t ever made any holding about that,” Griesa said.
Last month, the federal appeals court in Manhattan upheld rulings by Griesa in a different case that would force Argentina to pay in full NML and other holders of $1.5 million in defaulted bonds when it makes a payment to the investors who participated in the 2005 and 2010 debt exchanges. Argentina is seeking to appeal that ruling to the U.S. Supreme Court.
In yesterday’s hearing, Griesa, who oversees litigation over Argentina’s defaulted debt, frequently criticized the nation for its failure to pay court judgments.
“What the court is faced with is that for 11 years or so, because of the refusal of the Republic to pay its contractual, just debts, the plaintiffs have been seeking ways to recover,” Griesa said. “They’re seeking ways to recover from somebody who owes them a lot of money and won’t pay.”
The case is EM Ltd. v. Banco Central de la Republica Argentina, 06-cv-07792, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from Katia Porzecanski in New York. Editors: Peter Blumberg, Mary Romano