NEW YORK – A group of bondholders today filed a proposed class-action suit against the Argentine government, bringing the fight over the country' default of $88 billion in bonds to the U.S. courts. Once approved by the court, the proposed class would cover more than five hundred thousand investors primarily from Italy, Germany, France and the United States who purchased the government-issued bonds.

This move will almost certainly raise the stakes in the standoff between Buenos Aires and the bondholders. If successful, the case would allow bondholders to seize Argentine government assets in the United States and use those assets to repay bondholders.

Filed in U.S. District Court in New York, the complaint states that the moratorium on foreign debt declared by Argentina on December 23, 2001 and its subsequent lack of payment on bonds constitutes a default of the bond agreement made between the government and its bondholders.

This is the first major suit seeking a global settlement for all purchasers of Argentine bonds. The complaint seeks compensation for damages sustained by bondholders and payment of the cost of suit fees incurred by bondholders.

"The majority of these investors were individuals investing their retirement funds, not savvy institutional investors seeking a quick profit," said Steve Berman, lead attorney representing the bondholders. "But just because they're small, doesn't mean that they are powerless. This suit proves that, and we intend to use the power of the class-action mechanism to turn these investors into a nation state that can stand up to Argentina."

During the late 1990s thousands of individual investors helped revive and stabilize Argentina' struggling economy by purchasing government-issued bonds, with the promise that the Argentine government would make payments on the debt securities in U.S. dollars in New York. However, when the government declared a moratorium, it reneged on its agreement to pay the full principal and interest as detailed in various bond agreements, according to the suit.

"The Argentine government made a clear and binding agreement with bondholders to pay principal and interest at due times," said Berman. "The government' moratorium and unwillingness to negotiate with bondholders on the issue made it evident that it did not intend to honor its contract, and that we in turn would have to use litigation to get their attention."

If the court finds that the Argentine government illegally defaulted on the bonds, its commercial assets in the United States, including bank accounts and state-owned companies, could be seized and used to compensate class members.

The proposed class includes all investors who purchased and held Argentine bonds prior to December 23, 2001.

The Argentine government' default is the largest in history, with the aforesaid bond debt alone totaling $99.4 billion including interest. Argentina' default has had a widespread effect on the personal finances of investors around the world, and many bondholders have suffered extreme financial loss due to their trust that the Argentine government would uphold its agreement, the suit claims.

Since defaulting on its foreign debt in 2001, Argentina has sought to negotiate with various creditors. However, according to Berman, the government has been unwilling to participate in good faith negotiations, despite an agreement with the International Monetary Fund (IMF) to do so. Recently, Argentina offered new securities that would leave investors with a loss of 75 cents per $1 of defaulted debt.

Economic analyst for Austrian-based Raiffeisen Research, Gintaras Shlizhyus, says that without pressure from investors and the IMF the Argentine government is unlikely to improve its offer. According to Shlizhyus, Argentina has showed a resolute "unwillingness to pay" bondholders and may not do so "unless forced to a table with a gun to its head."

According to Berman, the outcome of the case will not only send a message to the Argentine government of what the international economic community expects of its current and future agreements, it will also communicate a precedent of acceptable economic practices for other indebted countries.

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About Hagens Berman
Hagens Berman Sobol Shapiro LLP is a consumer-rights class-action law firm with offices in 10 cities. The firm has been named to the National Law Journal’s Plaintiffs’ Hot List eight times. More about the law firm and its successes can be found at www.hbsslaw.com. Follow the firm for updates and news at @ClassActionLaw.

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