Window Dressing for the Vulture Funds

August 14, 2014

Peter Hayakawa

The American Task Force Argentina (ATFA) is Elliott Management’s main public relations and lobbying arm supporting its long-running legal fight against Argentina in U.S. courts to collect on debt purchased in the aftermath of the country’s 2001 default. Although it markets itself as a coalition, ATFA has in the past had to remove several groups from its list of supporters after the Wall Street Journal found that they had never heard of the organization, much less supported it. Over the years, ATFA has gone to creative lengths both to lobby the hedge funds’ case and to generally defame Argentina, by alleging nefarious ties with Iran, for example.

One of ATFA’s main goals has been to divert attention away from the fact that the fight over Argentina’s debt fundamentally hinges on the heavy-handed tactics of large hedge fund owners, like Elliott’s Paul Singer, to collect a lot of money on distressed sovereign debt. These tactics are not pretty, and these hedge funds rightly earned the name “vulture funds” long before the Argentina case, as CEPR Co-Director Dean Baker has pointed out. So one of ATFA’s strategies has been to highlight how Argentina’s actions have supposedly hurt the “little guys” and how the vulture funds’ case somehow represents a fight for these underdogs.

ATFA has not been great at coalition building, however. To date, perhaps their most successful lobbying push was their attempt to portray Argentina as cheating retired educators. Before 2010’s bond restructuring, one of the holdout creditors was TIAA-CREF, which had a relatively small stake in the defaulted bonds. Jumping on this fact, ATFA alleged that Argentina seriously harmed the pensions of retired academics, hosting an event [PDF] on the default’s effect on teachers, coordinating [PDF] letters [PDF] to members of Congress, and launching an ad campaign  [PDF]. ATFA’s ad lists the members of the “American Task Force Argentina Educator Coalition” who support the vulture fund’s case: the Alabama, Georgia, and Colorado conferences of the American Association of University Professors (AAUP), the Nebraska Community College Association, and lastly, the Nebraska Retired Teacher Association. That’s it. There was no participation from the national AAUP or TIAA-CREF in this campaign; in the case of the Georgia conference of the AAUP, it’s unclear if the collaboration with ATFA involved the participation of anyone but the group’s then-executive secretary. When Congressman Eric Massa later pushed ATFA-backed legislation to punish Argentina over the debt issue, ATFA’s efforts may have helped the bill to garner some extra co-sponsors. But Massa’s ATFA legislation died, just like all of its later versions.

In 2010, TIAA-CREF exchanged their defaulted bonds for restructured bonds, and ATFA has since mostly dropped the campaign. ATFA did a poor job of building the impression that college educators share interests with vulture funds or that their case had any real support among the people they claimed were affected. Now that the vultures have won court decisions that have actually blocked Argentina’s payments to restructured bondholders, ATFA will have an even harder time maintaining the illusion that the vulture funds actually care about their fellow creditors’ rights or about the livelihoods of people affected by this case. 

This brings us to another of Elliott’s tactics to create the “underdog” image—the 13 Argentine bondholders that are co-plaintiffs on the NML case against Argentina. Often referred to as the “Grupo Varela,” the presence of these plaintiffs has been used throughout to challenge the characterization that the case is led by vulture funds who bought up distressed debt after Argentina’s 2001 default. In their own brief [PDF] to the Supreme Court, the “Varela respondents” urge the Supreme Court to oppose Argentina’s and the restructured bondholders’ requests to review the case, and they characterize Argentina as a rogue state. They bristle at the suggestion that holdouts are vultures, pointing out that they themselves are holders of the bonds from before 2001, in some cases dating back to 1998.

But despite the respondents’ claims, the concern that the case is run by the big hedge funds who bought the debt after the default is valid, because it’s true. In their brief, the Varela respondents describe themselves as 13 “middle class investors,” with bond holdings originally ranging between 25,000 USD and 90,000 USD each. If this is accurate, then you don’t need to doubt the conviction of these plaintiffs to understand why people would question their presence, as it means that more than 99.9 percent of the value of the bonds held by plaintiffs in this case isn’t theirs. The overwhelming majority of the defaulted bonds belong to the other plaintiffs—Elliott’s NML owned by Paul Singer, Bracebridge’s Olifant, and Aurelius, ACP Masters and Blue Angel, entities owned by Mark Brodsky, a former employee of Elliott. These hedge funds, and others that are not part of the case like FH International Asset Management and funds controlled by Kenneth Dart, bought the vast majority of the bonds they own after the 2001 default at drastically-reduced prices and are litigating until they can collect the full value plus exorbitant interest. It’s not really a point of controversy.

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