(Adds analysis on impact of possible contempt order)
By Joseph Ax and Andrew Chung
NEW YORK/BUENOS AIRES Aug 8 The U.S. judge in
Argentina's long-running debt battle with hedge funds threatened
a contempt-of-court order on Friday if the nation did not stop
issuing false statements about having made a required debt
payment on restructured sovereign bonds.
U.S. District Judge Thomas Griesa in Manhattan railed at
Argentina's lawyers from Cleary Gottlieb Steen & Hamilton
following the publication of another so-called legal notice
insisting the government has met its payment requirements and
was therefore not in default.
Griesa said these notices were "regularly" and
"systematically" omitting the vital obligations of the Republic.
Holding a newspaper copy of the notice, which appeared
Thursday, Griesa said if the false statements did not stop, a
contempt of court order will become necessary.
Griesa said he was not going to go further than a warning
for now, but that could change. He repeated that the two sides
must continue negotiating with the aide of mediator Daniel
"We will continue to work tirelessly to defend the rights of
Argentina," Economy Minister Axel Kicillof said on public
television in Argentina, adding that at the hearing in New York
on Friday, "Judge Griesa did not resolve anything.
"He created this confusing and extraordinary situation,"
said Kicillof, who also played down concerns the case would
cripple investment in Argentina.
Griesa did not specify whether he would seek to sanction
Argentina or its lawyers, though he said he was "glad" to hear
Jonathan Blackman, Argentina's lead lawyer, say his firm, Cleary
Gottlieb, did not aid in preparing the government's latest legal
In rare circumstances, U.S. judges have held foreign
governments in contempt and imposed monetary penalties. But such
sanctions can be difficult to enforce, and federal appeals
courts have split on whether foreign governments can be held in
contempt at all.
Federal law largely protects the assets of foreign
governments held in the United States, said Michael Ramsey, a
professor of international law at the University of San Diego.
"You can't put Argentina in jail, so I'm not sure what he'd
have in mind besides monetary sanctions," Ramsey said.
"Argentina has refused to pay a valid judgment and I don't see
why it wouldn't also refuse to pay a valid contempt order."
Blackman also complained of being attacked and lampooned by
the lobby group American Task Force Argentina, which is partly
funded by holdout investors.
Argentina missed a coupon payment after a grace period ended
on July 30, pushing it into default on restructured debt from a
previous default in 2002 on roughly $100 billion in sovereign
The government settled with nearly 93 percent of its
bondholders in two restructurings but two deep-pocketed
distressed debt investors held out and did not participate in
the exchanges in 2005 and 2010. They are by far not the only
holdouts, but have been the most prominent in their fight for
full repayment on debt they bought at pennies on the dollar in a
case that essentially comes down to a contract dispute.
Griesa, in 2012, awarded these holdout investors led by NML
Capital Ltd, an affiliate of the $24.8 billion hedge fund
Elliott Management Corp, and Aurelius Capital Management, who
won a $1.33 billion judgement.
Argentina insists it is not in default because it deposited
a $539 million coupon payment on exchanged bonds before a June
30 deadline. Griesa has called the deposit with trustee Bank of
New York Mellon illegal and reiterated on Friday that, "there
has been no payment."
Payments to exchange bondholders have not been made because
of Greisa's order, which stipulated the nation must concurrently
pay the holdouts their award plus accrued interest.
NOTICES AND CONTEMPT
Argentina has published legal notices in recent weeks
disparaging Griesa and Pollack, who succeeded in getting the two
sides to meet face-to-face for the first time in nearly 13 years
but could not get them to an agreement by a July 30 deadline.
Pollack issued a statement after the hearing saying it was
his intention to "convene and conduct further negotiations until
a solution is reached, however long that may take."
The government accused the veteran judge of overstepping his
purview and interfering in the affairs of a sovereign nation.
Argentina insists it cannot meet the demands of the court
order, nor make a deal with the holdouts that is better than the
terms offered in its two restructurings based upon a clause in
its agreement known as the Rights Upon Future Offers (RUFO).
The RUFO clause expires on Dec. 31, 2014.
Reuters IFR has reported that private banks are trying to
reach an agreement with the holdouts that would pay them 80
cents on the dollar for their Argentine bonds in hopes of
getting the frozen coupon payment sitting at BNY Mellon released
as soon as possible.
(Additional reporting by Andrew Longstreth and IFR's Joan Magee
and Davide Scigliuzzo in New York, Richard Lough and Hugh
Bronstein in Buenos Aires. Writing by Daniel Bases; Editing by W
Simon, Andrew Hay and Andre Grenon)