Argentina Default Bond Battle Shake Up: Accuses Hedge Funds of Fraudulent Profiteering; Calls on US SEC to Investigate

Argentina, led by President Cristina Fernandez de Kirchner, to stop spouting ‘half truths’ about its second default in 12 years and return to talks with bondholders Photo: Reuters

By Andrew Trotman, The Telegraph – August 4, 2014 – http://tinyurl.com/mxvso6r

Argentina will ask the US markets watchdog to probe two hedge funds involved in its $1.5bn default, saying that they used “fraudulent manoeuvres” to make “incredible profits”.

Cabinet chief Jorge Capitanich has said he will urge the Securities and Exchange Commission to act after the unnamed funds allegedly made money from “privileged information”.

Argentina officially defaulted on Friday after the International Swaps and Derivatives Association ruled that its failure to pay $539m to its creditors earlier this week constituted a “credit event”.

The ISDA’s move will almost certainly trigger credit default swaps on Argentina’s debt worth $1bn.

Mr Capitanich also called on “bondholders, trustees and clearing agencies” to take legal action against what his country has labelled “vulture funds”.

Last week, a US judge told Argentina to stop spouting “half truths” about its second default in 12 years and return to talks with bondholders.

The South American nation has repeatedly denied it has defaulted, blaming the US government for stopping it agreeing a deal with creditors that would draw a line under its last default in 2002.

“Let’s cool down any idea of mistrust [and] let’s go back to work,” US District Judge Thomas Griesa, who has jurisdiction over the bonds after Argentina agreed to hold talks under New York law, said on Friday.

He also ordered President Cristina Fernandez de Kirchner’s government to return to the negotiating table with bondholders, adding that the disparaging remarks should stop because nothing will eliminate Argentina’s obligations to pay bondholders – a fact that its government is ignoring.

“What occurred this week did not extinguish or reduce the obligations of the Republic of Argentina.”

Argentine officials deny the country has defaulted because they deposited $539m for creditors in a bank intermediary. But Mr Griesa blocked that deposit in June, saying it violated his ruling that Argentina must first pay $1.5bn to settle its dispute with holdout investors first.

“To say that Argentina is in technical default is a ridiculous hoax,” Mr Capitanich said after last week’s deadline for talks had passed. He accused Mr Griesa of acting as an “agent” for what the country has labelled “vulture funds”.

“There’s been mala praxis here by the US justice system, for which all three branches of the government are responsible. Argentina has tried to negotiate in good faith,” he added.

Mr Capitanich has previously warned that Argentina is considering calling for a debate at the United Nations and launching an appeal at the International Court of Justice in The Hague.

“We can’t hold any positive expectations because [Mr Griesa] has always held the view of someone who is partial,” Mr Capitanich said on Friday.

Mr Capitanich also announced on Monday that Buenos Aires has formally asked Mr Griesa to dismiss the mediator in the case, Daniel Pollack, accusing him of failing to be impartial.

Mr Griesa rejected the move. “The purpose of this ruling is to confirm that Daniel Pollack, the Special Master appointed by the court to preside over settlement negotiations, will remain in office,” he said.

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