After years of wrangling, New York lawmakers have a chance to give indebted nations some breathing room — if a key bill can survive the state assembly and governor’s office. If it passes, the law would limit the ability of a handful of notorious firms to buy cheap national debt just to sue for full repayment.
New York has become the battleground because most international debt contracts are governed by New York law, giving the state’s courts enormous power over global financial disputes. That makes New York legislation uniquely powerful in curbing vulture fund behavior worldwide.
Buying distressed debt to sue for full repayment has netted so-called vulture funds billions from vulnerable nations over the years, including one infamous example where hedge fund Elliott Investment Management made over $2 billion (almost a 400 percent return on its investment) from a struggling Argentina.
To clamp down on vulture funds, advocates and a handful of legislators are betting on a controversial legal defense known as champerty. If it works, it will give some latitude to developing nations at a time of acute debt crisis, but the legislation faces an uphill battle even after passing the state senate last week.
“We can’t continue to destroy countries, wreaking international havoc, so that a few hedge funds can game our system to build their personal wealth,” the bill’s sponsor Senator Liz Krueger said in a statement. “We need to shut them down.”
The champerty defense, which was originally intended to crack down on rich aristocrats in medieval…
Auteur: Justin Villamil
