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Vulture Funds

Have you been following the NML Capital vs. Argentina vulture debt case?  Learn more about the "'trial of the century' in sovereign debt restructuring."

The term "vulture fund" refers to a hedge fund that seeks to profit by buying up distressed debt on secondary markets for pennies on the dollar then trying to recover up to ten times the purchase price, often by suing in U.S. or European courts.  Vulture funds are usually secretive and are often based in offshore tax havens like the Cayman Islands.  In some cases, there is no information on who actually owns them.

Vulture funds have been known to target cheap debt of poor or financially-distressed countries.  Poor countries that are eligible for debt cancellation are especially vulnerable. Vulture funds have been known to track the debt relief process, buy debt of nations about to get debt relief and then sue the country after it has received a windfall of resources thanks to debt cancellation.

As of late 2011, 16 of 40 Heavily Indebted Poor Countries (HIPC) surveyed by the International Monetary Fund were facing litigation in 78 individual cases brought by commercial creditors. Of these, 36 cases have resulted in court judgments against HIPCs amounting to approximately $1 billion on original claims worth roughly $500 million.

Here is an excerpt from an Op-Ed in Yes! Magazine by Eric LeCompte, Jubilee USA Network's Executive Director:

In 1999, a vulture fund called Donegal International bought a debt owed by Zambia for a knock-down price of $3.3 million. Most of Zambia's debt was canceled and the country began saving $40 million a year when they stopped repaying loans to the World Bank and International Monetary Fund. After Zambia received this debt relief, Donegal sued the African nation for $55 million and in April 2007, the court ruled that Zambia must pay $15.4 million - roughly 65 percent of the debt relief that was specifically directed for development projects. It was a huge profit for the vulture fund and a theft from the poorest Zambians.

Learn more through our Vulture Fund Country Studies.


News and Developments on Vulture Funds

February 18, 2014 - Argentina is expected to officially file its appeal to the US Supreme Court, which will then decide whether or not to hear the case.  Read more in Jubilee USA's press release in anticipation of Argentina's filing.

January 10, 2014 - the US Supreme Court agreed to hear Argentina's appeal in the assets case.  Read more in Jubilee USA's press release.  The Supreme Court's decision was also covered in the Wall Street Journal, the Financial Times, and theWashington Post.

December 6, 2013 - the US government filed a brief with the high court in support of Argentina's appeal on a related case against the holdout creditors.  This case involves whether or not such creditors have the right to receive information related to a country's foreign assets from financial institutions, and the high court's ruling will have a big impact on the ability of predatory hedge funds to target such assets in the future.  The US government's decision was covered by Reuters.

November 18, 2013 - In the landmark debt case between vulture funds and Argentina, the US 2nd Circuit ruled for predatory hedge funds and against the interests of the global poor. We expect Argentina to file an appeal to the US Supreme Court. Read Jubilee Director Eric LeCompte's statement.

November 6, 2013 - Jubilee USA and American Jewish World Service hosted a congressional briefing on responsible lending and borrowing and vulture funds. Check out speeches from our esteemed panel and read the statements from Financial Services Committee Chairman Emeritus Spencer Bachus and Financial Services Committee Ranking Member Maxine Waters here. Read more in our coverage in Inter Press Service.

November 1, 2013 - A US Appeals Court rejected vulture funds' request to remove hold on payments in the landmark debt case between Argentina and vulture funds. Read more in Jubilee USA's statement

October 7, 2013 - The U.S. Supreme Court decided not to take the landmark debt case between Argentina and bondholders led by NML Capital, a hedge fund that buys the debt of countries in financial crisis. Argentina is expected to file a second petition in the coming months that the Supreme Court will review and decide again if it will hear the case. Read Jubilee USA's statements.

August 23, 2013 - The U.S. Circuit Court upheld a previous ruling ordering Argentina to pay $1.33 billion to hold out hedge funds. The 2nd Circuit Court delayed the ruling until the U.S. Supreme Court decides if they will take appeals on the case.

July 26, 2013 - France filed an amicus brief to the US Supreme Court in support of Argentina's request.

July 23, 2013 - The International Monetary Fund's Christine Lagarde planned a similar US Supreme Court filing because of the case's significant implications on poverty and country debt restructurings. Although Lagarde has maintained her concern about the hedge fund behavior, the IMF did not file with the US Supreme Court based on advice from the US Treasury.

July 11, 2013 - German courts sided with Argentina and rejected similar hedge fund claims to Argentine assets in Germany.

June 24, 2013 - Argentina filed an appeal to the US Supreme Court, known as a writ of certiorari, to ask the court to overturn a ruling by the 2nd US Circuit Court of Appeals made last October.  This previous ruling ordered Argentina to pay holdout creditors.  This appeal comes prior to an imminent ruling on the case by judges in the 2nd Circuit Court.

May 23, 2013 - The IMF weighed in on the Argentina v. NML Capital case saying that the result would have major implications for how future sovereign debt is restructured.  Read the IMF's statement here.

April 19, 2013 - NML Capital rejected Argentina's payment plan.  Ruling imminent.   

April 2, 2013 - Judges in the 2nd US Circuit Court of Appeals ordered vulture hedge fund, NML Capital to respond to Argentina's payment plan by April 22, 2013.  "Argentina's payment plan protects the integrity of deals made with other debt holders, but most importantly it ensures that these holdout hedge funds can't take further advantage of the poor in developing countries," said Jubilee's Director, Eric LeCompte.  Read more in our press statement.

March 1, 2013 - Judges in the 2nd Circuit Court ordered Argentina to submit a payment proposal by March 31, 2013 that outlines the precise terms of any alternative payment formula and schedule to which it is prepared to commit to holdout creditors.

February 27, 2013 - The 2nd U.S. Circuit Court of Appeals in New York heard new arguments on the case.  After the hearing, the judges said they would issue a ruling in a few weeks.  Learn more here.

November 28, 2012 - The 2nd U.S. Circuit Court of Appeals in New York stayed a November 23rd order that would have required Argentina to make a $1.3 billion payment to NML Capital and other vulture funds. The court set a February 27 date for oral arguments on the case.

November 23, 2012 - Argentina was ordered to pay $1.3 billion to a group of plaintiffs, led by the fund NML Capital, that hold defaulted bonds. The payment, based on an "equal footing" clause, is due by December 15, the same day Argentina is due to make a payment to bondholders who exchanged their defaulted debt during restructuring in 2005 and 2010. This decision leaves Argentina with the option to either pay no one or pay everyone in just a few short weeks.

October 2012 - Guernsey has begun the States of Deliberation process to consider the proposed legislation that would prevent vulture funds using Guernsey courts to chase the debts of heavily indebted poor countries.

October 2012 - The Argentine naval ship ARA Libertad was detained in Ghana and prevented from leaving the port city of Tema by a court ordered injunction. This injunction was won by NML Capital, a subsidiary of US billionaire Paul Singer's hedge fund Elliott Capital Management, which has been aggressively attacking Argentina and Argentine companies to recover illegitimate debts the vulture fund bought for pennies on the dollar during Argentina's 2001 economic meltdown. Argentina has refused to pay the $20 million ransom and filed a motion contesting the ship's detainment, pointing to the vulture fund stunt as well as immunity for the military vessel. In ruling on that motion, the Ghanaian court upheld the decision to detain the ship, stating that Argentina waived immunity as part of the original loan deal.

October 1, 2012 - Legislation has been proposed in Jersey to stop vulture funds from pursuing payments on illegitimate debts in Jersey courts. The Draft Debt Relief (Developing Countries) (Jersey) Law 201 was lodged on October 1, 2012, and illustrates Jersey's commitment to international debt relief measures. To date, the UK is the only country to enact such legislation. Enactment of this law in Jersey would be a huge step in the right direction, as Jersey courts have been used in the past by vulture funds. Like in an unexpected decision this summer, Jersey courts ruled in favor of the Democratic Republic of the Congo when vulture fund FG Hemisphere attempted to sue a DRC-owned mining company for $100 million on an originally $3 million debt.

July 18, 2012 - In a surprise decision in the Jersey Isles, the UK's Privy Council overturned a prior ruling, siding with the Democratic Republic of Congo against vulture fund FG Hemisphere. FG Hemisphere was seeking $100 million from the DRC for a debt the vulture fund bought for just $3 million. While having initially lost the case, the DRC has won on final appeal. While the UK passed a law in 2010 limiting the amount a vulture fund could claim from impoverished countries, it did not apply to crown protectorates, like Jersey, where vultures funds could still pursue cases. This decision was pleasantly unexpected and a cause for celebration.   

June 21, 2012 - Elliott Management supported legislation in New York State Senate (S3767) and Assembly (A7967) which would have allowed the fund to pursue post-court judgment.  Jubilee USA Network, along with partners at American Jewish World Service, came out against the legislation and mobilized 4,000 supporters in New York State to write their state Members of Congress and met with Members about the legislation.  The New York State Bar Association issued a Memorandum in opposition stating that these laws are promoted by special interests wishing to interfere with specific ongoing cases and are not in the public interest. The legislation did not make it to a vote when the New York State Senate and Assembly ended their session.

See our action here.

Grassroots Resources

June 8, 2011 - The Hong Kong Court of Final Appeal ruled that the DRC could not be sued in Hong Kong because of China's policy of absolute immunity for sovereign states. FG Hemisphere brought the case against a DRC-owned mining company - the same company FG Hemisphere unsuccessfully sued in Jersey courts. The ruling clarifies the principles regarding enforcement of State debts against state-owned entities, making it more difficult for creditors to seek to enforce against the assets of state-owned companies.

April 8, 2010 - Vulture Fund activity became illegal in the UK today with the passage of the Debt Relief (Developing Countries) Bill in the House of Lords.  The first law to protect poor countries from Vulture Funds profiteering off of debt relief resources, the law is likely to prevent two Vulture Funds from collecting $20 million from a November, 2009 case against Liberia. 

Read more about the UK bill at the Jubilee Debt Campaign's website. 

December 1, 2009 - This past week a British court ruled against Liberia and awarded two Vulture Funds $20 million from a debt that dates back to 1978.  Liberia sits in the bottom 15 for worst living standards in the world; the $20 million siphoned off by the Vulture Funds is equal to 105% of the country's education budget and 155% of its health budget in 2008.  

The Liberian government, currently headed by Ellen Johnson-Sirleaf, has shown itself as a model of responsible borrowing since the end of the war.  Despite the illegitimacy of Liberia's loans, taken out by dictatorial governments and used to fuel and finance the 14 years of civil war, the new democratic government has done all it can to start fresh by clearing its past debts.  In 2007, Liberia paid off its arrears to the World Bank and African Development Bank, and in April of this year successfully negotiated a $1.2 billion buy-back of its commercial debt - at 3 cents on every dollar it 'owed'.    

These successes should be cause for celebration, but in late November, Liberia received a deafening blow to its recovery from the civil war when two Vulture Funds, Wall Capital Ltd. and Hamsah Investments, sued in British courts and were awarded $20 million.  These Vulture Funds held the rights to a $6 million debt from 1978, which has been passed through many hands and has an unclear record of spending and repayment - the money may have even financed and fuelled the civil war.  Unfortunately, because debt cancellation and buy-back mechanisms are voluntary, these Vultures refused to participate in the commercial debt buy-back. Instead, Wall Capital and Hamsah Investments held on to their loan and then swooped in to profiteer off of Liberia's poor and all the other creditors who participated in Liberia's debt restructuring.

READ Jubilee USA's press release on Liberia

June 18, 2009 - Representative Maxine Waters, Representative Spencer Bachus and Representative Judy Biggert introduced the Stop VULTURE Funds Act (H.R. 2932), a bill in the House of Representatives that would prevent vulture funds from making this excessive profit at the expense of poor countries. (Click here to see the list of cosponsors).

The Stop VULTURE Funds Act (H.R. 6796) was also introduced in 2008.

Policy Resources 

April 24, 2007 - The UK Royal Court of Justice in London ruled that Zambia must pay $15.4 million plus a share of legal costs to Donegal International, the vulture fund that had sued Zambia for more than $50 million.

While the fact that Donegal was not awarded the full amount it sought is a small victory, the injustice of the result could not be clearer.  Donegal, led by American investor Michael Sheehan, purchased the debt for $4 million.  Donegal thus stands to make a major profit out of one of the world's most impoverished nations.

In 2007, Zambia expected to save about $40 million thanks to debt relief fought for by Jubilee campaigners and enacted by the IMF, World Bank and US government. Donegal swooped in and took nearly half of that amount. This money could have been used to build schools and clinics.


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