A Queens assemblywoman and a Brooklyn housing organizer are pushing New York to slam shut a legal opening that lets so-called vulture funds haul struggling countries into state court and squeeze them for years, in an op-ed published June 4 in the New York Daily News by Assemblywoman Gonzalez-Rojas and Solano, the executive director and co-founder of Churches United For Fair Housing.
The opening is called the champerty loophole. Vulture funds are hedge funds that buy up a distressed country’s national debt on the cheap after that country is already in economic trouble. Then they sue for full repayment plus interest, and they drag the fights out to run up the payout. Gonzalez-Rojas and Solano write that most creditors settle sovereign debt out of court and take a holistic look at the whole portfolio. Vulture funds do the opposite, buying in precisely because the debt is dirt cheap and holding up recovery to make more money while schools, hospitals and basic services in those countries go unfunded.
More than half of the world’s sovereign debt bonds are governed under New York state law, per the op-ed. When a vulture fund wants to sue a country in crisis, it does it here.
The bill the two are backing is the Fix the Champerty Loophole Bill, S1477 in the Senate and A643A in the Assembly. New York used to have a champerty law on the books that barred investors from buying debt solely to file lawsuits for profit. In 2004, the op-ed says, lawmakers carved out an exemption for claims over $500,000 after aggressive lobbying by vulture funds. The bill would restore those older protections. It does not erase debt or block legitimate creditors from recovering what they are owed, the authors write. It targets investors buying distressed debt mainly to sue and obstruct restructuring deals that the overwhelming majority of creditors already support.
It would also lower New York’s prejudgment interest rate, which the authors call outdated at 9 percent and say currently rewards vulture funds for dragging out litigation. The bill would drop it to the one-year U.S. treasury yield rate, around 3.7 percent.
The op-ed cites Argentina. After the country’s financial collapse in the early 2000s, most creditors agreed to restructure the debt. A small group of vulture funds refused and spent years suing Argentina in New York courts. Gonzalez-Rojas and Solano write that those firms eventually secured a $2.4 billion payout on debt whose initial portfolio value was roughly $500 million. Since then, they write, similar lawsuits have targeted Puerto Rico, Venezuela, Ecuador, Peru, Sri Lanka, Greece and other countries already facing economic hardship.
The two frame the fight as an immigration issue as much as a finance one. When countries are pushed deeper into crisis, people leave, they write, citing that more than 75 percent of recent asylum seekers come from countries facing serious debt crises and economic instability. Those countries spend more than $82 billion every year paying back debt while struggling to provide basic services, according to the op-ed. For immigrant communities in New York, the authors argue, the countries in question are their constituents’ homes.
The push has backing outside Albany. The authors write that the International Monetary Fund said the bill would support more orderly and predictable debt restructuring, and that the Vatican’s Jubilee Report, commissioned by Pope Francis, specifically called for reforms addressing both the champerty loophole in New York and the 9 percent interest rate.
