Argentina Warned of Contempt in U.S. Over Advertisements

By Erik Larson and Katia Porzecanski  

Argentina may be held in contempt of court if the country’s officials don’t stop issuing false and misleading statements about a dispute between two groups of bondholders, said the U.S. judge overseeing the case.
The nation’s lawyers were called into Manhattan federal court yesterday for an emergency hearing after Argentina published full-page ads in the New York Times and the Wall Street Journal the previous day challenging the court’s jurisdiction.
The ads, which said Argentina wants to keep paying its debt but has been prevented by U.S. District Judge Thomas Griesa, misled the public, the judge said. Argentina’s obligations are the same to holders of restructured debt from a 2001 default and investors who rejected the new terms, Griesa said. The judge said he had warned against such false statements just a week ago.
“Surely there will be a cessation of false and misleading statements by the republic,” said Griesa, who has overseen the dispute for more than
a decade. “If there is not, it will be necessary to consider contempt of court.”
A series of rulings by Griesa bar Argentina from making interest payments to holders of its restructured debt unless it also pays more than $1.5 billion to a group of hedge funds, led by billionaire Paul Singer’s Elliott Management Corp., that hold the country’s defaulted bonds and filed the lawsuit. Griesa’s order -- and the failure of the two sides to reach a settlement -- led to a second default for the country last month.

No Doubt

Argentina “without a doubt” has obligations to the exchange debt holders, Griesa said. “But it also has obligations to people who did not exchange.”
A group of Italian investors who didn’t exchange asked the judge in a filing in a separate case on Aug. 7 to force Bank of New York Mellon Corp. to repay them from $579 million that’s being held in a frozen account.
Argentina deposited the money in June to make an interest payment to holders of the exchanged debt. Griesa froze the money until the country pays holders of the defaulted debt.
“There’s a good number of the holdouts who paid 100 cents on the dollar for their bonds,” said Rudolph Di Massa, an attorney for the bondholders who aren’t included in the group led by Singer. “Many of the Italians I represent, this was part of their retirement fund and they’ve been waiting now for 15 years.”

BNY Mellon

Lawyers for Singer’s NML Capital Ltd. said yesterday in a letter to Griesa that Argentina had threatened BNY Mellon with litigation for obeying an order by the judge. NML Capital’s lawyers said Argentina, in a separate letter also dated Aug. 6, told Citibank N.A. that it intended to defy a court order when the next interest payment was due.
Griesa, at yesterday’s hearing, urged the parties to keep negotiating a settlement, saying that’s the only way the case will be resolved.
Argentina’s lawyer, Jonathan Blackman of Cleary Gottlieb Steen & Hamilton LLP in New York, told Griesa that Argentina still wants to cooperate and that his firm had no role in drafting the ad. The country published it on its own, he said.
The law firm’s lack of a role in drafting or publishing the ad “is highly important,” Griesa said.

Malicious and Evil

Blackman also said that an affiliate of Elliott Management has a website accusing the lawyer personally, as well as his firm, of causing Argentina’s default in a bid to ramp up legal fees. Blackman called the claims “malicious and evil.”
The website includes an image of Blackman riding on a vulture and claims that he personally told Argentina’s president, Cristina Fernandez de Kirchner, to default. The lawyer handed the judge printed pages from the website.
“My family has to read this sort of stuff,” Blackman said.
Griesa said that while he “deeply regrets” the contents of the website, the Elliott entity may have been driven to “behavior that is wrong” by years of frustration.
Argentina defaulted on a record $95 billion in debt in 2001. Holders of about 92 percent the debt agreed to exchange their bonds for new ones at a discount of about 70 percent in debt restructurings in 2005 and 2010. Holdouts including Singer’s NML Capital sued, seeking full payment.
Standard & Poor’s declared Argentina again in default July 30 after the government missed the deadline to pay interest on $13 billion of restructured bonds.
The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).