MercoPress. South Atlantic News Agency

Soros group and others file lawsuit against BONY over payments in Euros

The plaintiffs in the latest lawsuit which includes Soros, hold more than €1.3 billion in Argentine debt.

A group of hedge funds, including George Soros’s Quantum Partners and J. Kyle Bass’s Hayman Capital, is seeking a 226 million Euro interest payment on Argentine bonds from Bank of New York Mellon, BONY, that was blocked by a United States judge last month.

 In a lawsuit filed in London against BONY, the trustee handling Argentina’s bond payments, the hedge funds contend that the bank’s London unit must release money that was deposited by Argentina for its Euro-denominated bondholders.

The money was part of a 539 million dollars interest payment that Judge Thomas P. Griesa of the Federal District Court in Manhattan prevented the trustee from paying last month.

The latest lawsuit, filed last Thursday, poses a challenge to the scope of Judge Griesa’s ruling and will further complicate what has been a long and drawn out battle between the government of Argentina and a group of New York hedge funds that have waged a court battle that has lasted years.

This group of hedge funds, led by a unit of Paul E. Singer’s Elliott Capital, are seeking more than 1.5 billion in payments and interest on bonds that defaulted in 2001. Argentina offered investors in the defaulted bonds new, discounted bonds through two restructurings in 2005 and 2010, but the group owns bonds that were never part of the exchange.

Argentina ignored these “holdout” bondholders’ claims for years, making interest payments only on its discounted exchange bonds.

But when Judge Griesa recently ruled that Argentina could no longer pay its exchange bondholders without also paying the holdouts, Argentina was faced with a difficult decision. Last month, in defiance of the Judge Griesa’s court order, Argentina made its latest interest payment.

But concerned that it would be in violation of Judge Griesa’s orders, BONY refused to pass the money on to investors and on July 30 Argentina defaulted for the second time in 13 years.

The plaintiffs in the latest lawsuit hold more than €1.3 billion in Argentine debt. The group, which also includes RGY Investments and Knighthead Capital Management, argue that the interest payment they are due is governed by British law and therefore are not subject to the United States injunction.

The bondholders have called on the British courts to clarify their position on Judge Griesa’s ruling.

“Whilst on its face the New York Injunction appears to have a broad reach, it was granted in the context of litigation in relation to the New York-law governed original bonds, and the New York Court (at the Second Circuit) has expressly made provision for parties to seek further clarification about its scope when it is necessary to do so,” the group said in a 19-page document filed with the Chancery Division of the High Court of Justice in London.

Argentina, meanwhile, denies it defaulted, pointing to the payment it made to BONY. It has called Judge Griesa’s ruling “erroneous” and filed a suit against the United States in the International Court of Justice, contending the ruling violates its sovereignty.

The Argentine government last week started the process to remove BONY as its trustee, replacing it with the state-run Banco de la Nacion, by pushing new legislation through its Congress.

In a hearing on Friday, Judge Griesa ruled the move “illegal” but stopped short of holding Argentina in contempt of court. This could happen at the end of September when the two months since July 30.