Bondholders with judgments against Argentina can’t seize $105 million of Argentine central bank assets held at the Federal Reserve Bank of New York, a federal appeals court ruled.
A three-judge panel in New York ruled today that the Foreign Sovereign Immunities Act bars NML Capital Ltd. and EM Ltd., which hold almost $2.4 billion in judgments against Argentina, from collecting funds belonging to Banco Central de la Republica Argentina.
The decision overturns an April 2010 ruling by U.S. District Judge Thomas Griesa permitting the seizure. The appeals court, while citing Argentina’s “appalling record of keeping its promises to its creditors,” vacated Griesa’s order and sent the case back to his court for further proceedings.
The judgments stemmed from Argentina’s 2001 default on $80 billion owed to foreign creditors. The republic hasn’t made principal or interest payments since the default, the court said. EM and NML chose not to participate in debt-restructuring proposals made by Argentina, according to the opinion.
The decision “is wrong,” NML said in a statement. “We are deeply disturbed by the potential consequences of such broad and unwarranted immunity, which will enable foreign nations to abuse the U.S. Federal Reserve system in order to advance their own unscrupulous efforts.”
NML said it is considering whether to pursue a further appeal in the case.
“My client is pleased with the result,” said Jonathan Blackman, a lawyer for the Republic of Argentina.
Joseph Neuhaus, an attorney for Banco Central de la Republica Argentina, declined to comment. EM lawyer David Rivkin didn’t immediately return a call seeking comment.
The Foreign Sovereign Immunities Act limits legal actions against foreign governments. The law specifically protects the assets of a central bank “held for its own account,” the court said, in an opinion written by U.S. Circuit Judge Jose Cabranes.
The court said Argentina’s central bank is entitled to the protection regardless whether it is independent from its parent state. The court also held that, while Argentina waived its right to invoke sovereign immunity to shield its assets, the foreign sovereign immunities law bars EM and NML from collecting from Argentina’s central bank.
Today’s ruling comes in the second appeal in the case. The appeals court earlier ruled against an attempt by EM and NML to seize the funds on different legal grounds.
‘Fraud and Injustice’
In his April ruling, Griesa said Argentina’s use of funds from its central bank “contributed to fraud and injustice perpetrated by the republic on the bondholders.” He said Argentina used the funds “to pay billions of dollars to get rid of debts which the republic wished to be rid of” while refusing to pay bond debt.
“Argentina’s record in global bond markets has given new meaning to the concept of caveat emptor,” Cabranes wrote in the opinion today. “Even when the Argentine people offer a substantial premium to those adventurous souls who risk a loan to the country, for many investors, the experience of being a creditor to the republic has been a profile in disappointment.”
The case is NML Capital v. Banco Central de la Republica Argentina, 10-1487, U.S. District Court, Southern District of New York (Manhattan).