Argentina urges court to end deposit freeze in US

* Argentina central bank’s funds had been frozen in 2006

* U.S. district judge said bank not independent

By Jonathan Stempel

NEW YORK, Aug 25 (BestGrowthStock) – Argentina urged a U.S. appeals
court on Wednesday to throw out a lower court judge’s freeze on
$100 million of central bank deposits to satisfy claims by two
U.S. investment funds arising from the country’s massive 2002
debt default.

“We can’t allow our emotions, or in this case the district
judge’s unhappiness about unpaid judgments, to change the law,”
said Jonathan Blackman, a lawyer representing Argentina, during
oral argument before the U.S. Second Circuit Court of Appeals
in New York.

In April, U.S. District Judge Thomas Griesa, who oversees
U.S. litigation over the $100 billion default, ruled that
Argentina and its central bank should be treated the same way,
as “alter egos,” in determining whether to seize assets.

That ruling was a victory for Argentine bondholders EM Ltd,
which is controlled by the investor Kenneth Dart, and NML
Capital Ltd, an affiliate of the investment firm Elliott
Management Corp.

The disputed funds are being held at the U.S. Federal
Reserve Bank in New York and have been frozen since 2006.

Argentina argued that its central bank funds could not be
used to satisfy judgments won by holders of its defaulted debt,
saying that the bank did not waive immunity and that Griesa
lacked jurisdiction over its reserves at the New York Fed.

Theodore Olson, the prominent litigator who represents NML
in the case, disputed that.

“Argentina has done everything in its power to prevent
enforcement of these judgments,” Olson, a partner at Gibson,
Dunn & Crutcher LLP, told the three-judge appeals panel.

He added the U.S. Congress did not intend for a defendant
to simply “hang a sign on the door” that says “central bank”
and use it to claim immunity.

David Rifkin, a partner at Debevoise & Plimpton LLP
representing EM, later said Argentina had the ability to pay
its creditors.

Argentina has faced years of litigation over its debt
default. The lawsuits have impeded the country’s ability to
return to world capital markets.

The Second Circuit panel did not say when it would rule, a
process that typically takes several weeks or months.

GIANT “EQUALS” SIGN

Much of Wednesday’s argument turned on the meaning of the
U.S. Foreign Sovereign Immunities Act of 1976.

One provision allows funds to be tied up when the use of
those funds constitutes commercial activity. The other shields
a foreign central bank’s funds “held for its own account”
unless the bank or a foreign government waives immunity.

“It is simply inconsistent with the scheme Congress
enacted” to allow the investment funds to claim an alter ego
theory, argued Joseph Neuhaus, a partner at Sullivan & Cromwell
LLP representing the central bank.

“The Republic of Argentina has no interest in that money?”
Circuit Judge Chester Straub asked him.

“That is correct,” Neuhaus responded.

Blackman, a partner at Cleary Gottlieb Steen & Hamilton
LLP, in contrast said “alter ego is not a giant ‘equals’ sign
… It doesn’t mean the properties merge.”

Argentina has also argued that bondholders who did not take
part in a big 2005 swap or a similar debt exchange this year do
not deserve the face value of their defaulted debt because it
would be unfair to bondholders who accepted less.

The New York Fed in a court filing said Griesa’s ruling
causes “unnecessary uncertainty in the law” as to foreign
central bank immunity, and could result in such banks
withdrawing dollar reserves held in New York.

“If central banks perceive the United States as having a
hostile legal environment in comparison to other nations,” it
said, “this would discourage foreign official deposits in the
United States.”

Citing this, Circuit Judge Jose Cabranes asked EM’s lawyer
Rifkin whether a ruling for bondholders would harm the United
States and New York City’s status as a financial center.

Rifkin said he did not see such policy concerns. “There
won’t be a flight to Switzerland,” he said.

The case is NML Capital v. Banco Central de la Republica
Argentina et al, U.S. Second Circuit Court of Appeals, No.
10-1487.
(Reporting by Jonathan Stempel, editing by Gerald E.
McCormick)

Argentina urges court to end deposit freeze in US