Editing Distressed securities (section)

==Sovereign debt==

In 2003, Seveq observed that the emergence of the secondary debt market led to a "modern sovereign debt litigation" and the creation of an industry of "professional suers of foreign states".{{Sfn|Seveg|2003}}{{Sfn|Blackman|Mukhi|2010|p=49}}

In a 2010 article, Blackman and Mukhi examined a series of litigations employed by distressed funds investors in their lawsuits against defaulted sovereign states.{{Sfn|Blackman|Mukhi|2010|p=49}} The business plan involved buying the sovereign debt instruments at a deep discount based on a very high risk, and then attempting to enforce the full claim. The strategy is most effective when the sovereign state lacks bankruptcy protection. These investors however are constrained by "the [[sovereign immunity|sovereign-immunity]] rules that national legislatures have enacted and national courts have elaborated" to protect the vulnerable nation states from litigation.{{Sfn|Blackman|Mukhi|2010|p=49}}

While private debtors have the resource of bankruptcy protection, sovereign states do not.{{Sfn|Blackman|Mukhi|2010|p=48}} There have been "sporadic calls for a bankruptcy analogue for sovereign states" similar to the bankruptcy process for private debtors, however these calls have lacked momentum.<ref group="Notes">"When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open, and avowed bankruptcy is always the measure which is both the least dishonourable to the debtor, and least hurtful to the creditor." Adam Smith (1776)</ref>{{Sfn|Blackman|Mukhi|2010}}{{Sfn|Smith|1776}}{{Sfn|Krueger|2002}}

According to the [[African Development Bank Group]], at least twenty [[heavily indebted poor countries]] in Africa have been threatened with or subjected to legal actions by commercial creditors and hedge funds since 1999.<ref>{{cite web|title=Vulture Funds in the Sovereign Debt Context|url=http://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context/|publisher=African Development Bank Group|access-date=28 July 2014}}</ref>

===Zambia===
In 1999, the US firm Donegal International purchased $40 million of [[Zambia]]n debt owed to [[Romania]] for the "discounted purchase price" of $3.2 million. In 2007, a British high court granted the company "permission to enforce a claim for tens of millions of dollars against the [[Government of Zambia]]".

===Liberia===
In 2009, a British court awarded $20&nbsp;million to hedge funds suing [[Liberia]]. Before the hedge funds could collect their money, the Debt Relief (Developing Countries) Act 2010<ref>{{cite web|url=http://www.legislation.gov.uk/ukpga/2010/22/pdfs/ukpga_20100022_en.pdf |title=Debt Relief (Developing Countries) Act 2010 |access-date=2014-07-28}}</ref> was passed in the [[UK parliament]] in 2010 after Liberian president and 2011 [[Nobel Peace Prize]] winner [[Ellen Johnson Sirleaf]] appeared on the BBC ''[[Newsnight]]'' program for the hedge funds to "have a conscience and give this country a break".<ref>{{cite news|last=Jones |first=Meirion |url=http://news.bbc.co.uk/1/hi/programmes/newsnight/8610062.stm |title=Newsnight - UK stops 'vulture funds' picking on poor |work=BBC News |date=2010-04-08 |access-date=2013-10-15}}</ref>

That act caps what the hedge funds can collect, they had to settle with Liberia for just over $1&nbsp;million, and effectively prevents them suing for exorbitant amounts of money in United Kingdom courts. Nick Dearden of the [[Jubilee Debt Campaign]] said of the change, "It will mean the poorest countries in the world can no longer be attacked by these reprehensible investment funds who grow fat from the misery of others". The law was made permanent in 2011 but there are still havens for this activity, such as the [[Channel Islands]] and the [[British Virgin Islands]].<ref>{{cite news|url=https://www.theguardian.com/global-development/2011/nov/15/vulture-funds-how-they-work |title=Vulture funds—how do they work?|work=The Guardian |access-date=2013-10-15 |location=London |date=15 November 2011}}</ref>

===Congo===
[[FG Hemisphere]] of Brooklyn, sued [[Democratic Republic of the Congo]] for a debt from [[Yugoslavia]] in the 1970s, which it had picked up for $3.3 million. FG sued in [[Hong Kong]], [[Australia]], and [[Jersey]], which was not covered by the [[UK law]] against hedge funds involved in sovereign debt. The [[Government of the People's Republic of China|Chinese government]] blocked the attempt to sue in Hong Kong but the Jersey court awarded $100&nbsp;million to FG. A series of attempts were then made in Britain and the United States by organizations such as [[Jubilee USA Network]], [[Oxfam]] and the Jubilee Debt Campaign to change the laws so that hedge funds would not be able to collect on their awards. The [[Jubilee Debt Coalition]]'s Tim Jones traveled to Jersey in November 2011 to ask the government to ban hedge funds involved in sovereign debt. He told ''[[The Guardian]]'' that the Democratic Republic of the Congo "desperately needs to be able to use its rich resources to alleviate poverty, not squander them on paying unjust debts".<ref>{{cite news|url=https://www.theguardian.com/global-development/2011/nov/15/vulture-funds-jersey-decision |title=Vulture funds await Jersey decision on poor countries' debts|work=The Guardian |location=London |access-date=2013-10-15 |first1=Greg |last1=Palast |first2=Maggie |last2=O'Kane |first3=Chavala |last3=Madlena |date=15 November 2011}}</ref>

When FG's owner Peter Grossman was doorstepped by freelance reporter [[Greg Palast]] and asked whether he thought it was fair to take $100 million for a debt he had paid $3&nbsp;million for, he responded, "Yeah I do actually…I'm not beating up the Congo. I'm collecting on a legitimate claim".<ref name=july18bbc>{{cite news|last1=Jones|first1=Meirion|title=Vulture fund's $100m DR Congo claim blocked|url=https://www.bbc.com/news/business-18894874|work=BBC News|date=18 July 2012}}</ref>

FG Hemisphere is attempting to enforce an ICC arbitration award for $116&nbsp;million owed by the [[Democratic Republic of Congo|Democratic Republic of the Congo]]. The award was originally issued by an arbitral panel of the [[International Chamber of Commerce]] (ICC) in favor of [[Energoinvest]] DD of [[Bosnia]] in the amount of $39&nbsp;million and then sold to FG&nbsp;Hemisphere.<ref>{{cite news|last=Stewart|first=Heather|title=Vulture fund swoops on Congo over $100m debt|url=http://www.mathaba.net/go/?http://www.guardian.co.uk/world/2009/aug/09/congo|archive-url=https://web.archive.org/web/20140530080419/http://www.mathaba.net/go/?http://www.guardian.co.uk/world/2009/aug/09/congo|url-status=usurped|archive-date=May 30, 2014|access-date=5 March 2013|work=The Guardian|date=8 August 2009}}</ref> The award had been issued by the ICC in respect of unpaid construction contracts pursuant to which Energoinvest supervised construction of high-tension power lines, which are still in service, for transmission of power from the [[Inga–Shaba HVDC|Inga–Shaba dam]] in the Congo—then known as Zaire.

===Peru ===
In 1983, [[Peru]] was in economic distress and had large amounts of external debt. In 1996, the nation restructured its debts. The original loans were exchanged for [[Brady Bonds]], dollar-denominated bonds issued in the original amount of the loans. [[Paul Singer (businessman)|Paul Singer]]'s [[Elliott Associates]], a New York-based hedge fund, purchased $20.7 million worth of defaulted loans made to Peru for a discounted price of $11.4 million. Elliott Associates, holding the only portion of Peru's debt remaining outside the restructure, sued Peru and won a $58 million settlement. Unable to pay the $58 million, Peru, continued to repay creditors that held Brady Bonds. Elliott filed an injunction to prevent Peru from paying off its restructured debt without also paying Elliott. It was argued that Peru violated the "[[pari passu]]" clause, which states that no creditor can be given preferential treatment.

===Argentina ===
In 2001, [[Argentina]] [[December 2001 riots in Argentina|defaulted]] on roughly $81 billion. NML Capital, LTD., a hedge fund that is a subsidiary of [[Elliott Management Corporation]], purchased Argentine debt on a [[secondary market]] for a lower price. Ninety-two percent of creditors restructured in 2005 and 2010 for roughly $0.30 on the dollar.<ref>{{cite news|last=Moffett|first=Mathew|title=Argentina Releases Debt-Swap Details|url=https://www.wsj.com/articles/SB10001424052702303950104575185772669803524?mod=googlewsj|access-date=5 March 2013|work=The Wall Street Journal|date=April 16, 2010}}</ref> NML Capital rejected the proposal and sued Argentina for the full amount in New York State courts. NML Capital's main argument is that the "[[pari passu]]"—[[Latin]] for "on equal footing"—clause in the original contract requires Argentina to pay back all of its creditors, including those who did not agree to restructure, if it paid back one creditor.<ref>{{cite web|title=The pari passu clause and the Argentine case | url = http://www.allenovery.com/SiteCollectionDocuments/The%20pari%20passu%20clause%20and%20the%20Argentine%20case.pdf|work=Overy and Allen Global Law Intelligence Unit|publisher=Web|access-date=5 March 2013}}</ref> Since Argentina had already begun to repay the creditors that restructured, Elliot argued that it also deserved to be paid back.

On October 2, 2012, [[NML Capital Limited|NML Capital Ltd.]], a hedge fund based in the [[Cayman Islands]], which held Argentine debt not included in [[Argentine debt restructuring]],<ref name="[2010] EWCA Civ 41">{{cite web|title=Republic of ''Argentina v. NML Capital''|url=http://www.bailii.org/ew/cases/EWCA/Civ/2010/41.html|publisher=Royal Courts of Justice|access-date=October 19, 2012|date=April 2, 2010}}</ref> impounded the ''[[ARA Libertad (Q-2)|Libertad]]'', an Argentine Navy training ship in [[Tema]], [[Ghana]]. The Ghanaian court held that Argentina had waived sovereign immunity when it contracted the [[sovereign debt]] being enforced.<ref name=NYT101812>{{cite news|title=Seizure of Ship From Argentina Forces Shake-Up|url=https://www.nytimes.com/2012/10/19/world/americas/seizure-of-argentine-ship-forces-shake-up.html|access-date=October 19, 2012|work=The New York Times|date=October 19, 2012|author=Emily Schmall}}</ref>

In November 2012, the New York State Court ruled in favor of Elliot and the other holdouts on the merits of the ''pari passu'' argument, and ordered Argentina to pay $1.3 billion on December 15—the very same date that Argentina was supposed to pay the creditors who had agreed to the restructure. An appeals court heard oral arguments on February 27, and in June 2014, the [[U.S. Supreme Court]] rejected Argentina's appeal.<ref name="au.finance.yahoo.com">[https://au.finance.yahoo.com/news/argentina-makes-debt-case-us-063530886.html "Argentina makes debt case in US newspapers"], AFP wire, June 23, 2014</ref> The [[Center for Economic and Policy Research]] reported on an [[Organization of American States]] special meeting on July 3, 2014, among foreign ministry officials, in [[Washington, D.C.]], to discuss the situation. The resolution was passed with the support of all OAS member states other than the United States and Canada.<ref>Main, Alexander, [http://www.cepr.net/index.php/blogs/the-americas-blog/us-on-its-own-once-again-at-oas-meeting-on-argentinean-sovereign-debt "U.S. on Its Own, Once Again, at OAS Meeting on Argentinean Sovereign Debt"] {{Webarchive|url=https://web.archive.org/web/20140714131501/http://www.cepr.net/index.php/blogs/the-americas-blog/us-on-its-own-once-again-at-oas-meeting-on-argentinean-sovereign-debt |date=2014-07-14 }}, CEPR website, July 9, 2014</ref>

In July 2014, a U.S. federal judge ruled in favor of NML Capital Ltd., a unit of Michael Sheehan's Elliott Management, against [[Argentina]]. The country owes its creditors more than $1.3 billion.{{Sfn|Slater|2014}} According to Mark Weidemaier, a law professor at the [[University of North Carolina]], the ruling was one of "the most significant litigation victories that a holdout creditor has ever achieved" in the realm of sovereign debt.{{Sfn|Slater|2014}} A July 2014 article in ''[[The Wall Street Journal]]'' by [[Georgetown University|Georgetown]] [[Georgetown University Law Center|Law professor]] Adam J. Levitin argued that the relationship between distressed securities investors and the U.S. court system should be revisited. He claimed that while these distressed debt [[investment funds]] can choose to "play the game" and "put their head in the mouth of the [[Leviathan]]", the U.S. courts should not choose to.{{Sfn|Levitin|2014}}