A judge, calling civil contempt a rarity, ruled that Argentina was in contempt of court on Monday for its open defiance of his orders requiring that U.S. hedge funds holding Argentine bonds be paid the roughly $1.5 billion they are owed if the majority of the South American nation's bondholders are paid interest on their bonds.
U.S. District Judge Thomas P. Griesa made the announcement after a lawyer for U.S. hedge funds led by billionaire hedge fund investor Paul Singer's NML Capital Ltd. argued that Argentina has openly defied Griesa's court orders for more than a year. The judge reserved decision on sanctions pending further proceedings.
"What we are talking about is proposals and changes and actions that come from the executive branch of the Republic of Argentina," the judge said.
He said repeated efforts to avoid paying U.S. bondholders after their bonds — unlike more than 90 percent of outstanding Argentina bonds — were not traded for lesser-valued bonds in 2005 and 2010 was illegal conduct that could no longer be ignored.
"The republic in various ways has sought to avoid, to not attend to, almost to ignore this basic part of its financial obligations," the judge said.
He said Argentina had recently taken steps to attempt to remove a New York bank as the custodian for bonds held by many of its bondholders and transfer the financial obligations to a new trustee based in Argentina.
New York-based lawyer Carmine Boccuzzi, representing Argentina, had argued that a contempt finding was premature, saying Argentina bondholders who accepted swaps for lesser-valued bonds after the country defaulted on $100 billion of debt in 2001 had not been paid interest, just as the judge intended.
Boccuzzi said the U.S. bondholders "want to punish Argentina. But that's not appropriate."
"The republic did act responsibly," he said.
But he said paying the U.S. bondholders would require Argentina to pay about $20 billion to other bondholders who were not part of the litigation.
"We're hamstrung," he said.
As he left the courtroom, he declined to comment.
A lawyer for the U.S. bondholders, Robert Cohen, urged the judge to make the contempt finding and impose a $50,000 daily penalty on Argentina. He said penalties should be stiff enough that Argentina realizes it needs to change its behavior.
"It's hard to imagine how it could get worse," he said.
Before the hearing, lawyers for Argentina forwarded to the judge a letter sent to U.S. Secretary of State John Kerry saying the request for a contempt-of-court finding was "completely absurd." Argentina said such an order would be unlawful by international standards.
The Argentine Foreign Ministry said the judge's decision has no practical effect "besides providing new elements to the defamatory political and media campaign being carried out against Argentina by the vulture funds." Argentine officials regularly refer to the U.S. hedge funds that didn't swap their Argentine bonds at a discount as vultures.
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