Fact Check: Argentina

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SINCE RUFO EXPIRED

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Did Cleary Draft Today’s Argentina Advertisements?

Today’s Washington Post, New York Times and Wall Street Journal contain legal notice advertisements from the Argentine government.

Did Cleary draft today’s advertisements?  As the architects of Argentina’s decision to default, and given its record of counsel to Argentina on evading court orders, there is reason for close scrutiny of whether Cleary had any role in the creation of these advertisements.

A close examination of the content certainly reflects the potential hand of Cleary.  Let’s take a look.

First, the advertisement opens by citing “incorrect, misleading and contradictory press reports” about the status of Argentina’s payment of its obligations to the exchange bondholders.

According to Argentina, these reports are “incorrect” because they acknowledge what is fact and what everyone already knows: Argentina is now in default on its exchange bonds.

The advertisement acknowledges that the sources for these “incorrect” press reports are “the District Court for the Southern District of New York;” “the Special Master … Mr. Daniel Pollack;” and “the legal notice published by the Bank of New York Mellon.” Those sound like fairly authoritative sources. The advertisement could have also added the ratings agency S&P and just about any other unbiased market observer.

But, according to Argentina, all these sources have gotten it wrong! Citing a deposit of funds with BONY that was made prior to the deadline for payment of exchange bonds, Argentina claims that no default has occurred.  Here’s an excerpt from the advertisement:

“The Argentine Republic has paid in due time and manner the amounts of interest due on the New Securities issued within the framework of the 2005 – 2010 Exchanges (the “Exchange Bonds”). Consequently, no Event of Default has arisen under the Trust Indenture or the Exchange Bonds.”

 Sadly, Argentina’s leaders are living in an alternate reality.  They are, in fact, in default.  And default was President Kirchner’s choice.  But in choosing to default, she had an eager partner – her law firm Cleary Gottlieb and partner Jonathan Blackman.

Default was Cleary’s advice to Argentina all along and others have reported that Cleary would have much to gain by leading Argentina into default.

Cleary doesn’t want the blame for Argentina’s decision to default, and so it has called for the removal of the court-appointed Special Master Dan Pollack. In so doing, it seems to have encouraged its client to engage in wild, self-destructive attacks on the U.S. judiciary.

Besides Cleary’s call for Pollack’s removal, the firm has called for the removal of other judges it doesn’t like.  And let’s not forget Cleary partner Jonathan Blackman’s infamous declaration in open court to a federal judge that he had no plans to obey her order.  Watch the video.  You’ll be in disbelief just like we were.

That actually brings us back to today’s advertisement and to a second clue that might point to Cleary’s involvement:  More attacks on Judge Griesa and Dan Pollack.  The ad says that the court has “no jurisdiction” over the 2005 and 2010 exchange bonds (somehow missing that the bonds at issue are New York law bonds!).  It also attacks Dan Pollack personally:

“The Special Master’s comments lack any authority whatsoever.” 

 Cleary’s counsel to Argentina to disrespect the U.S. judiciary isn’t just counterproductive – it’s severely damaging to Argentina’s reputation.  While Argentina’s leaders bear the ultimate responsibility for their actions – and nobody can match Axel Kicillof’s capacity for disrespecting U.S. institutions – Cleary’s treatment of Dan Pollack sets a bad example for its client.

Third, the advertisement lays out a path and even calls for the action of exchange bondholders to subvert the court’s ruling by removing the trustee (BONY) and appointing another trustee to facilitate the payment (which Judge Griesa has declared would be illegal).  Here’s a relevant excerpt:

“Finally,may we remind the Bondholders that there are numerous rights and remedies available to them under the Trust Indenture in the event the Trustee breaches its obligations, in particular its obligation to transfer the payments made by the Republic of Argentina to the Bondholders. By way of example, Section 5.9.c of the Trust Indenture provides that the Holders of a Majority in aggregate principal amount Outstanding of the Debt Securities of any Series may at any time remove the Trustee and appoint a successor trustee. Section 7.1 provides for the modifications the Agreement may be subject to.”

 Reading this except reminds us of that leaked Cleary memo again and Cleary’s counsel that Argentina should default to escape the jurisdiction of U.S. courts.  Remember this?:

“… We believe that, if the Supreme Court does not decide to review the lower court ruling, the best option for the Republic is to allow the Supreme Court to force a default and then immediately restructure all its external bonds in such a way that the payment mechanism and other related aspects remain outside the reach of the US courts…”

 “Outside the reach of U.S. courts.”  That’s got to be right up there with Blackman’s other infamous phrase when speaking to a judge “We would not voluntarily obey.” (Perhaps we’ll do a “Blackman’s greatest hits” blog post down the road).

Yesterday, we speculated that Cleary might be sanctioned for coaching Argentina on how to evade the injunction, as Blackman seemed to be doing in the memo.

Today we just want to know the answer to this question: Did Blackman do it again by having involvement in the creation of these advertisements, which also call for subverting the injunction?

Maybe Judge Griesa will ask them.

Should the Court Sanction Cleary?

This week we’ve been reporting on Cleary’s role in advising Argentina’s leaders to default.  Remember that default was Cleary’s advice to Argentina in a leaked memo that surfaced back in March and it has counseled Argentina’s leaders against settling with creditors by inventing and then scaring them with RUFO. Cleary used the same tactics back in 2005 when it advised the Republic of Congo not to settle based on the threat of future claims. These threats were baseless; Congo settled with its creditors and did not face additional problems for settling.

Yesterday, we also pointed out that Cleary called for the removal of a judge in the Congo case, just as Jonathan Blackman of Cleary Gottlieb has called for the removal of Daniel Pollack, the court-appointed Special Master in the Argentina case.

It seems that Cleary has a playbook for representing deadbeat sovereigns:  First, argue against any settlement with creditors by scaring your client into believing in the threat of follow-on claims;  second, call for the removal of court officials who try to hold you and your client accountable.

But in the case of Argentina, did Cleary’s playbook violate the rules of Judge Griesa’s injunction?  Let’s go back to that leaked memo in which Cleary advised Argentina to default.  Here’s the relevant excerpt:

“… We believe that, if the Supreme Court does not decide to review the lower court ruling, the best option for the Republic is to allow the Supreme Court to force a default and then immediately restructure all its external bonds in such a way that the payment mechanism and other related aspects remain outside the reach of the US courts…”

“Outside the reach of US courts.”  What was Blackman thinking about when he wrote this?  Was he advising Argentina to evade the injunction?  The judge has been clear about what would happen to third parties if they try to do so – they’ll be held in contempt.  But what about Cleary advising its client on how to evade the injunction, as they seem to be doing in this memo?  Shouldn’t Cleary also be sanctioned for violating the judge’s order?

Reading further in the memo, Cleary’s contempt for the court’s authority is on full display:

“The Courts have placed it [ARGENTINA] in a terrible position.  In a position that, unless it is reviewed by the Supreme Court, would seem to be obligating it to a default.” 

Here in this memo, Blackman is blaming the courts for Argentina’s position.  Just as Argentina is now blaming Judge Griesa and Dan Pollack in the press for its own decision to default.  Sound like a pattern to you?  Ironically, it’s Cleary who has put its own client in a horrible position – by concocting RUFO and using it to scare the country’s leaders into refusing to negotiate, and then by coaching Argentina’s leaders to believe that the courts have somehow conspired to put them in this position.

If the court does decide to sanction Cleary for its behavior, it wouldn’t be the first time.  In 2007, a federal judge sanctioned the firm for witness intimidation.  Here’s what the judge wrote about Cleary in her opinion:

“[Cleary] has shown a willingness to operate in the murky area between zealous advocacy and improper conduct, and here it crossed the line.” 

The judge ordered a formal reprimand be circulated to all of Cleary’s 950 lawyers and the firm was also assessed the attorneys’ fees for the sanctions motion.

The particulars of this case are worth noting, as the witness Medard Mbemba, a French-Congolese businessman, testified that he felt threatened by the warnings not to testify coming from Cleary partner Jean-Pierre Vignaud.  Mbemba testified that Vignaud was well-known in Congolese political circles and he was concerned that a decision to testify would be passed along to Congo’s leaders, including President Sassou-Nguesso.

“When somebody tells you that something is bad for your country and that I feel obliged to warn you, it sounds like a threat,” Mbemba testified.

And when Vignaud sent an email to Mbemba urging him not to testify, who did Vignaud tell Mbemba to call?:

“In any event, I suggest you urgently contact … Jonathan Blackman with our New York office or myself.”

Cleary’s – and specifically Jonathan Blackman’s – proximity to power in Congo enabled Vignaud to threaten Mbemba just as Blackman’s influence over Argentina’s leaders has enabled him convince them that a painful and destructive default, a series of shameful attacks on U.S. court officials, and an attempt to evade U.S. courts somehow added up to the country’s “best option.”

It’s ironic that Blackman would accuse the holdouts of greed when they are simply trying to enforce legitimate court orders, while his firm leads the people of Argentina into a damaging default advantageous to his firm.

Make no mistake: although the decision to default must ultimately reside with Argentina’s leaders, their law firm Cleary has led them to this position.  It is, of course, up to the courts to decide whether or not to sanction Cleary for coaching its client on how to evade the injunction.  Regardless, as we said yesterday, it might be time for Argentina to begin shopping for a new lawyer.

The Cleary Playbook?

Firm Also Sought Removal of Judge in Congo Case

Yesterday, we reported on the strange coincidence of Cleary Gottlieb giving the same advice to Argentina as it had previously given to the Republic of Congo in another case.

Just as we’ve seen Cleary, and specifically their lead lawyer Jonathan Blackman, counsel Argentina against settling with creditors because of RUFO (recall that we’ve discussed how RUFO can be mitigated), court documents show that Cleary also advised Congo against settling with creditors based on the threat of future claims.  Again, here’s a link to the court’s decision and the relevant excerpt pp. 14-15.

These warnings about future claims were baseless then, just as they are baseless now: Congo settled with its creditors and did not face any meaningful problems with claims by other creditors.

But the similarities of Cleary’s actions in both cases don’t stop there.  Back in the Congo case, Cleary argued for the removal of the presiding judge (Judge Preska) from the case, citing the judge’s “hostility toward the Congo.”  Here’s an excerpt from the decision (p. 16):

“The Congo requests that we reassign this matter to a different judge on remand because of Judge Preska’s ‘hostility toward the Congo.’”

 In its decision, the court went on to reject Cleary/Congo’s frivolous request, calling it “meritless.”  Here’s a link to the decision in its entirety.

These court documents provide insight into the Cleary playbook when representing deadbeat sovereigns.  We see a pattern emerging:  First, argue against any settlement with creditors by scaring your client into believing in the threat of follow-on claims.  Second, call for the removal of court officials who try to hold you and your client accountable.  In this context, Jonathan Blackman’s pathetic request in court last Friday to remove Dan Pollack as Special Master (which Judge Griesa formally rejected yesterday) is another bridge to Cleary’s pattern of behavior in the Congo case.

Argentina’s leaders have also been brutal in their criticisms of Pollack and Judge Griesa.  Cabinet Chief Jorge Capitanich has gone so far as to call Pollack a “spokesman for the vulture funds” and Judge Griesa “incompetent.”  Judge Griesa has asked Cleary to control its client, and that’s obviously not happening here.  In fact, Argentina’s heated rhetoric has only gotten hotter.

This brings us back to a key question that Argentina should be asking:  What’s in it for Cleary to counsel its client to default, and to refuse any settlement?  Others have raised questions about Cleary’s possible motives for wanting to prolong the process as long as possible.

Calling for the removal of Pollack in this case (or Judge Preska in the Congo case) is similar to RUFO in that it’s just another smokescreen invented by Cleary to thwart efforts at a settlement.

Cleary and Argentina’s leaders don’t want to be held accountable for their decision to default, so they’re blaming Pollack and Griesa.  It this context, it’s worth going back to the Congo court decision to listen to what the Second Circuit panel of judges (which included future Supreme Court Justice Sotomayor) had to say about Cleary’s playbook pp. 16-17:

“We hasten to add that, should the Congo persist in its pattern of obstruction and recalcitrance, it may find that more and more judges seem hostile.”

 It’s not too late for Argentina to settle with its creditors.  Maybe it’s time for them to start shopping for new lawyers.

 

Cleary’s Default

In a court hearing last Friday morning, Argentina’s lawyer, Jonathan Blackman of Cleary Gottlieb, called for the removal of the court-appointed Special Master Dan Pollack.  Blackman, who you’ll recall infamously told another judge that Argentina would never obey the court’s order said in the hearing that his client Argentina “no longer had confidence in the process as currently constituted under the Special Master,” citing a press release put out last week which reported the failure of the parties to reach an agreement.

So why would it make Argentina’s leaders mad that Pollack simply stated that a default would be a horrible thing, and something that could be avoided?  Incredibly, Argentina’s leaders still maintain that they have not defaulted, citing the deposit of funds made with BONY, even though those funds have not been paid because a U.S. court has declared the payment to be “illegal.” Think about that for a minute.  Using Argentina’s logic, one could avoid making a mortgage payment and not be in default on a home loan simply by putting the money for the payment in a bank account and declaring that it’s there for the lender to take.  This logic would be funny if it weren’t so sad.  It was Argentina’s choice to default, and its government has done so.

Default will be terrible for Argentina’s people, and so its leaders, who have chosen this path, need to blame someone; that someone (for the moment) is Dan Pollack, who was singled out for criticism by Blackman in court last Friday.

Which brings us back to Argentina’s lawyer, Jonathan Blackman of Cleary Gottlieb, who called for Pollack’s ouster.  Recall that a leaked May 2nd memo Argentina from Blackman and two other colleagues at Cleary Gottlieb advised Argentina to default.  The memo offers perspective into Cleary’s attitude toward the court:

“ … we believe that, if the Supreme Court does not decide to review the lower court ruling, the best option for the Republic is to allow the Supreme Court to force a default and then immediately restructure all its external bonds in such a way that the payment mechanism and other related aspects remain outside the reach of the US courts. …

 “The Courts have placed it [ARGENTINA] in a terrible position.  In a position that, unless it is reviewed by the Supreme Court, would seem to be obligating it to a default.” 

 Default was Cleary’s advice to Argentina all along.  While Argentina’s leaders should take responsibility for their choice to default, it’s clear from this memo they were being actively advised to take this path by Cleary.

But there’s another striking piece to all of this which points directly to Cleary.  The most often cited reason for Argentina’s refusal, or to put it in their terms, inability, to settle with creditors is the RUFO clause.  In court last Friday, Blackman had a lot to say about RUFO when he wasn’t disparaging Dan Pollack.  We’ve reported that RUFO is a smokescreen likely concocted by Blackman and his colleagues at Cleary Gottlieb as an excuse to keep Argentina from setting with creditors.

Let’s go back to the leaked Cleary memo.  Right after it blames the Courts for putting Argentina in a position that “obligates it” to default, it gives Argentina the reason for doing so:

“None of the intermediate options resolve the dilemma created by the courts when they gave each one of the holdouts the right to interrupt payment to the rest.” 

 So here we have Cleary counseling its client Argentina to default, even though default would be a disaster for Argentina, and citing potential follow-on suits by other creditors as the reason.

Argentina’s holdout creditors have stated throughout this whole process that RUFO and other claims could be mitigated, and that they would actively work with Argentina on a solution in exchange for good-faith efforts at coming to an agreement.  There have even been press reports that exchange bondholders would waive RUFO in exchange for a settlement that would prevent a default.

So why do Cleary in general and Blackman specifically hold on so tightly to these arguments?  Recall that we’ve speculated that the RUFO excuse was invented by Cleary, and with good reason—Cleary has advised its other deadbeat clients exactly the same way.

A 2005 decision from the 2nd Circuit Court of Appeals in a case involving the Republic of Congo against its creditors shows that Cleary had given its client – the government of Congo in this case – the exact same advice:  Argue against payment based on the threat of future claims.  Here’s a link to the court’s decision and here’s the relevant excerpt pp. 14-15.

“In other words, Congo claims that it is unwilling to pay its debts in the name of restructuring its entire debt portfolio, and thus ‘paying Kensington or other similarly situated individual creditors would have the perverse effect of encouraging the Congo’s other creditors to litigate their claims in hopes of securing a windfall, rather than participate in an equitable restructuring process.’ While it may be in Congo’s interest to seek a global settlement, Judge Preska was quite right to conclude – and the Congo does not dispute – that the Congo has sufficient funds to pay here. This is not a bankruptcy proceeding.”

 Is it purely a coincidence that Cleary’s advice to Congo and its advice to Argentina are precisely the same?  Why would it advise Argentina to default when there are multiple and widely reported paths to resolving the RUFO issue?  Cleary has represented Argentina for 13 years, and as others have reported a settlement between Argentina and its creditors is “all downside for Cleary.”

The Congo case ultimately settled, despite attempts by Cleary to intimidate key witnesses. It’s in Argentina’s interest to settle with its creditors as well, and there is still time to do so.  Maybe it’s time for Argentina’s leaders to quit attacking Dan Pollack’s motives and start asking Cleary about theirs.

 

Paying the Paris Club Early Won’t Help Argentina in a Default

Argentina is one day away from default, but its leaders refused to even sit down with its creditors and the court-appointed Special Master this week.

Why?  Argentina’s lawyers and its “negotiating team” led by Economy Minister Axel Kicillof still maintain that RUFO would preclude any sort of settlement.  We’ve explained how RUFO is just a smokescreen likely concocted by Cleary Gottlieb as a convenient excuse for no negotiations by its client.

Argentina’s creditors have been unequivocal about their willingness to negotiate to give Argentina more time in exchange for a good faith attempt at negotiations.  That means that even with one day left until default, Argentina could have bought itself some time had it simply shown up and began to talk with creditors.  But Kicillof, who has seemingly favored a default from the beginning, is instead in Venezuela with his boss Cristina Kirchner this week, continuing their road show of bashing U.S. courts and creditors.

Interestingly, Kicillof is also boasting today of Argentina’s early payment to the Paris Club as proof of the country’s willingness to pay its debts.  Argentina has frequently and brazenly maintained that it pays its debts, and therefore cannot default.  Just this morning Cabinet Chief Jorge Capitanich reminded the local press that Argentina has deposited its bond payment to Bank of New York Mellon, and so it could not default, and any default should be blamed on Judge Griesa.

Of course default is 100% President Kirchner’s choice (or maybe Axel’s if she has delegated all of these critical decisions to him).  Argentina CAN make its bond payment on time tomorrow IF it sits down with creditors and BEGINS good faith negotiations.  President Kirchner and her deputies can’t blame default on anybody but themselves.

And the terrible irony for Argentina’s people of paying Paris Club debts early is that a default by Argentina will strip away any benefit from this action!  Argentina will pay its debts to the Paris Club, but it still won’t get any access to financing, and its worsening economic situation will only grow darker.

It’s one day away from default.  What will Argentina do?

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