01DTEMLC ConferenceUNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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EM LTD., NML CAPITAL, LTD,
Plaintiffs,
v.
BANCO CENTRAL DE LA REPUBLICA
ARGENTINA, REPUBLIC OF
ARGENTINA,[1]
Defendants.
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New York, N.Y.
January 13, 2010
3:10 p.m.
Before:
HON. THOMAS P. GRIESA,
District Judge
APPEARANCES
DEBEVOISE & PLIMPTON, LLP
Attorneys for Plaintiff EM Ltd.
DAVID W. RIVKIN
SUZANNE GROSSO
DECHERT, LLP
Attorneys for Plaintiff NML Capital Ltd.
DENNIS H. HRANITZKY
DAVID BIGGE
ROBERT A. COHEN
SIMPSON, THACHER & BARTLETT
Attorneys for Plaintiffs Aurelius
LAURA D. MURPHY
SUSAN M. CORDARO
CLEARY, GOTTLIEB, STEEN & HAMILTON, LLP
Attorneys for Defendant Republic of Argentina
CARMINE BOCCUZZI
RAHUL MUKHI
SULLIVAN & CROMWELL, LLP
Attorneys for Defendant Central Bank of Argentina
JOSEPH E. NEUHAUS
LAURENT WIESEL
MICHAEL USHKOW
(In open court)
THE COURT: Who would like to lead off?
MR. NEUHAUS: I would, your Honor, Joe Neuhaus from Sullivan & Cromwell for the Central Bank of Argentina. We're here, your Honor, on a motion that we brought by order to show cause to vacate the writs of execution, restraining orders and attachment orders that your Honor entered ex parte on the 11th and 12th of January.
THE COURT: What I have been presented with is an order to show cause to be signed to set a hearing.
MR. NEUHAUS: Your Honor, we gave notice several hours in advance, but in view of the exigencies of the circumstance, we have all the counsel here, we do ask your Honor to sign the order to show cause and hear the motion at this time.
THE COURT: Immediately?
MR. NEUHAUS: Yes, your Honor. Your Honor, there's great urgency because of the effect these orders are having on the account at the fed.
THE COURT: Well, regardless of whether we can hear everything today, I gather from the papers, the central bank papers, the main point is that you want to preserve the status quo and you believe that these remedies are disturbing the satus quo established by a stipulation. Isn't that your point?
MR. NEUHAUS: That is the main point, your Honor.
THE COURT: OK. So I think we can discuss that right now. Why isn't that the case? In other words, there is a stipulation or maybe there are stipulations plural which preserve the restraint on $105 million while the Court has been involved over some length of time in a major motion about the central bank and the claim of an alter ego relationship and so forth. And is it not correct that the stipulation allowed other business to go on at the federal reserve? And I might say that that stipulation, to my knowledge, has been quite beneficial to all concerned, including beneficial to the plaintiffs because it allowed the plaintiffs to develop their alter ego case in a way that they say they couldn't do on the original application when you everything was very rushed.
So isn't the central bank correct in saying that we ought to keep preserve the status quo?
I'll be back to you in a minute I want to –
MR. RIVKIN: Your Honor, David Rivkin for EM Limited on behalf of plaintiffs, and Mr. Cohen for NML can add anything else.
A couple of points. First of all, the order to show cause that has been presented to you seeks to lift all of the orders of attachment, restraining orders and the omnibus order that you signed on Monday. Those orders went not just to the account at the fed but to 42 other -- 43 other banks here in New York where the central bank may or may not have funds. We haven't heard back from those banks yet.
THE COURT: Let's concentrate on the fed.
MR. RIVKIN: That's one important point, which is the orders they presented are far too broad. We should only be focusing on the fed account.
THE COURT: Let's focus on the fed in our discussion.
MR. RIVKIN: The second point is that, again, we only -- while Mr. Neuhaus says that we received notice of this, in fact we received their affidavit at 2:05 today. And there's no reason why this needs to be done on an emergency basis.
This can be done on a basis where the record is developed.
THE COURT: It may be that this is not so complicated, and I ask you right now to address the question whether the central bank is not correct in saying that the status quo ought to be preserved, that is, to have a continued restraint on the $105 million and to allow other business to go on at the fed. That's your position, is it not, Mr. Neuhaus?
MR. NEUHAUS: Essentially, yes, your Honor.
MR. RIVKIN: Your Honor, a couple of points on that. First of all, the stipulation -- it's the central bank which in fact has sought to upset the status quo, not us. We acted on Monday because of an order entered by the governor of the central bank on Friday that funds would be removed from the central bank from the fed in New York and that they would no longer use the fed to clear transactions here.
There was an emergency decree entered, an order entered by Miguel Pesce on Friday that banks should execute transactions, the foreign exchange transactions at the bank for international settlements and no longer at the fed. So for them -- and they entered that order very specifically as the headline from La Nacion says, in order to avoid the seizing of accounts, and very specifically because they knew that the new orders that the government had entered made even more clear the alter ego status of the central bank.
So it's the central bank that in fact has sought to change the status quo. If they were continuing to use these accounts in the ordinary course, we would have access and the ability to attach funds at those accounts once your Honor entered into what we hope the decision you will make in favor of our alter ego motion. But when they upset the status quo on Friday by saying they would not use the fed any longer in New York but instead they were going to move all the assets they could and undertake the transactions in Switzerland rather than here, that changed the fundamental basis of the stipulation and that's why we were entitled to make the motion on Monday.
So it ill behooves Mr. Neuhaus to be arguing we're the ones upsetting the status quo when in fact it was his client's actions that did so. So that, in short, is our answer, your Honor. There are a number of assertions underlying Mr. Neuhaus's motion which I think should be tested which are contrary to the orders that were apparently entered by the central bank last Friday.
We do know that if you lifted the attachment at the fed today, that money would be gone and we would have no ability to get it back while we tested those assumptions. So we ask your Honor keep the order in place with respect to the fed, and course with respect to the other matters where they have made absolutely no basis to lift them, to allow us to file proper papers in response to their papers that we received an hour ago, to take very limited but appropriate discovery to test Mr. Basco's declaration so you have a proper record to decide the very question that you put to us. That can all be done very quickly. Our motion to confirm is due Tuesday. If hey want to work on it over the weekend, we can certainly serve it on Friday and move things along very quickly. But there's no reason why any relief has to be entered today.
Indeed, Mr. Basco's declaration and the order entered on Friday makes very clear they can proceed at least on a short term basis by using the BIS account. So there is absolutely no harm in continuing for a short period of time while we develop a proper evidentiary record to make the decision you're going to make.
THE COURT: Let me just ask Mr. Neuhaus, to say the least I haven't kept up with what business has been done outside the stipulation, you know what I'm talking about –
MR. NEUHAUS: Yes.
THE COURT: -- at the federal reserve. Can you describe that? Can you just give me an idea of what has gone on?
MR. NEUHAUS: Sure. The stipulation froze the $105 million that stayed frozen as -- stayed frozen all along. The fed -- the BCRA has long said that it tries to reduce the amount of transactions going through New York and has said so in 2001 and 2002, in affidavits to your Honor in 2005, and the volume of business has fluctuated over time.
THE COURT: But since the time of the stipulation, I take it that some business is done by BCRA with the fed –
MR. NEUHAUS: That is correct.
THE COURT: -- at the fed.
MR. NEUHAUS: Correct.
THE COURT: Can you just somehow give me an idea of the level of business and the type of business?
MR. NEUHAUS: Your Honor, my understanding is it's the same kind of business as was being done on December 30th, 2005 about which the parties have done a lot of discovery, that is, the foreign exchange transactions. When BCRA has to intervene in the market to buy or sell dollars, that has to clear through the fed in the ordinary course. And sometimes it clears elsewhere, but generally it clears through the fed. And/or when the Argentine commercial banks have to deposit reserves, because they're required by banking regulations to deposit reserves for every dollar that is deposited in the commercial bank, they have to deposit reserves at the central bank, that it typically through the fed but not necessarily.
THE COURT: Let me just interrupt you. What I was given last May was a very detailed and very helpful analysis of what went on, the kind of thing you're describing. My memory is -- and I should have brought maybe more material with me --my memory is -- this may not be the right lingo, but my memory is what was going on was a running balance of a few hundred thousand dollars in the low seven figures as of late December '05. And is that more or less what has kept on now?
MR. NEUHAUS: My understanding is, yes, the overnight balances are quite low.
THE COURT: Now look, I'm going to go back in addressing everybody. The stipulation has been very beneficial and has involved no small degree of cooperation by the central bank in being willing to have the $105 million tied up while the Court and the parties have taken a pretty long time on this motion. The motion is a complex motion, it's an important motion. The issues are highly controverted in the district court, they will be highly controverted in the Court of Appeals whatever I do, and I think everybody is trying and certainly I am trying to end up with a decision that covers the bases as well as I can.
And that affects $105 million. I am not sure that it is a violation of the stipulation if BCRA decided not to do the few hundred thousand dollars a day or the million dollars a day business at the fed, but the stipulation allows it to be done without having the Court march in and seize the money being related to that business. But I'm repeating myself. I don't know that there was ever any intention to require the BCRA to do that business and I am really not sure that there is a violation of the stipulation if the BCRA decides to pull that relatively small amount of money out and stop doing business.
I think it is in the interest of all concerned that we preserve that stipulation because if the $105 million left the country that would be a much bigger problem than having a million dollars or a million four or a million seven leave the country. And I've got a little more work to do on my decision and undoubtedly whatever I do will be followed by an appeal.
So I want the parties to consider that, and I'm really saying the plaintiffs should consider that. I have to say to Mr. Neuhaus that I don't think there's any way that I can decide this issue this afternoon. I really don't. I think that what the plaintiffs have raised saying that there is a change in the status quo because of the recent developments in Argentina, there surely may be validity to that, but I'm not prepared to -- having received your papers about an hour ago, I'm not prepared to try to rule this afternoon.
MR. NEUHAUS: I understand, your Honor. Our primary concern is enabling the bank to continue to transact business as it has under the stipulations above the $105 million.
THE COURT: Here's the thing, what I meant to ask you is this, I don't think that -- it isn't a matter of speculation. Obviously from the plaintiffs' side they have no objection if the fed continues to be used for the doing of that level of business. What they're objecting to is what they say, and I think they're probably factually correct, that there's an intention now to make a change and to simply remove all that money, period, so that the running balance is zero, the business is zero.
MR. NEUHAUS: Your Honor, if I might, that change was intended to be a very short-term change during the period in which there are Argentine court proceedings about this decree which the bank perceived to raise the level of risk that their ordinary course transactions could be stopped, and in fact, that would have been the case.
THE COURT: Say that again. I don't quite get what you're saying.
MR. NEUHAUS: The change -- and it wasn't an order, it was a very informal routing of transactions through Europe instead of New York -- was intended to be very short term because the bank can't live for long with doing it in Europe. The reason that they can't live for long is even today, no matter what, if they ask people to do it in Europe there are afternoon transactions that need to go through the fed because of the closing time, the need to settle transactions the same day. So the banks in Europe are closed, people ask for money for dollars, they do an exchange in dollars late in the day in Argentina, that can only be closed, done in New York. And that is the primary impingement.
And that they can do now, they sort of route the morning transactions to Europe. And only for a temporary period. They don't have any long-term arrangements to be able to do this. So they perceived a risk during this period of turmoil in Argentina where there is a lot of court litigation over this recent other decree. That is going to end. They will end up having to continue to use the New York account unless this order is left in place.
THE COURT: I think what you're saying is very germane, but you have to -- let me try to ask the questions that I -- I am not sure these are the right questions, but what is actually going on in Argentina now that you're talking about?
MR. NEUHAUS: I apologize, your Honor. The plaintiffs have cited a decree that would set up a fund at the central reserve, at the central bank, that would be backed by a note from the government whereby some portion of the reserves would be put in a fund to pay debts of the republic. That has not been –
THE COURT: Let me ask you to pause.
MR. NEUHAUS: Sure.
THE COURT: Not trying to get into issues of fact, but as you put it, they say that there is this decree to set up this fund, and it would be money out of the funds of the central bank.
MR. NEUHAUS: Right.
THE COURT: Now go ahead.
MR. NEUHAUS: Monies out of the central bank backed by a note from the government.
THE COURT: Go ahead.
MR. NEUHAUS: And that decree has been challenged by a variety of people, including congressmen. And the courts in Argentina have stayed that decree right now. And the Argentine congress is also -- there's a committee that is meeting apparently today to consider that decree. So during this period -- and the plaintiffs have in the past alleged that that decree is evidence of alter ego. We don't think so, that's what central banks do, they do that a lot, and that's what our papers say.
But in any case, during that period of this court litigation and concern about the possibility of their operations in New York being at unusual risk, notwithstanding that we have this stipulation that we have been operating under for four years now, and notwithstanding that your Honor has just recently asked us for further submissions, they were concerned that there might be -- that their operations in New York might be stopped, which is quite disruptive if someone comes in, as it was on December 30th and stops all the money flows, there's a lot to be sorted out. So they did temporarily redirect some of these flows, but they can't do it for very long. There's no bank in Europe with which they have an arrangement that permits transactions.
THE COURT: But let me ask, isn't there something, that the plaintiffs claim -- and I guess there's some backing that there is some edict or decree or order of the Argentine government that in order to carry out what I'll call the new policy, if you will, that the business done heretofore in New York no longer be done in New York?
MR. NEUHAUS: No.
THE COURT: But they claim there is such a thing.
MR. NEUHAUS: They are citing newspaper articles that are reporting this rather informal -- there was no order, informal central bank entirely arrangement to route some of these transactions in the last few days during this period when all the Court proceedings are pending in Argentina through Europe. And so instead -- and that's it. There's no --nothing in the decree—
THE COURT: But wasn't there something to have things routed through Europe?
MR. NEUHAUS: Not something, but an informal arrangement with counter parties to route the transactions that would be closing normally in the fed or sometimes in the fed to be closing in Europe during this period.
THE COURT: Why?
MR. NEUHAUS: Because the central bank was concerned that if there was a heightened risk that somebody might swoop in and argue to your Honor that this other decree, the decree about creating this fund that was being challenged as improper or illegitimate in the Argentine courts, that would be an argument to lay a new attachment in New York. So they were concerned that that would stop their operations. But they can't do this routing for very long. THE COURT: Here's the thing. I have to say that there may not be the most complete trust in the Argentine government from our friends on the plaintiff's side, but I would say this, that if the stoppage of the routine business with the fed really, really and truly results from a fear that this Court is going to somehow add an attachment, that fear is misplaced.
As I said several times this afternoon, this Court would want to keep that stipulation in place, including all phases of it, including the stay on the 105 million and including allowing this level of business to be done. And conceivably, after all the litigation -- after the litigation about the alter ego problem is finished and the stipulation is over with, then we'll be under a new regime, but that is not now.
MR. NEUHAUS: That's sometime off after appeals.
THE COURT: And so if the parties could work with what I am saying now and what is really a repetition, if the regime under the stipulation can be restored, I think that's what you say would be something quite necessary to the central bank, and I believe that that should be restored if that is really the intention of the central bank to do that.
MR. NEUHAUS: That is the intention.
THE COURT: And also I would say that as far as this Court is concerned, and I don't know any other court that is getting into the game, I would have no intention – unless there was some completely unforeseen problem arising, I would have no intention under the circumstances that I foresee in the future of this litigation, I would have no intention of authorizing any attachment involved in this business.
MR. NEUHAUS: That's why we're here, your Honor, was that we needed that direction and reassurance.
THE COURT: So what I would think, if that is the case, then I would say quite quickly that I would not continue any attachments or restraints which I have signed if they have the effect of preventing the continuation of the business that I'm talking about.
Now if there's something else going on other than what I am talking about, if there's some hidden agenda or whatever, then that would be a problem, but I think that what I have said just now is what I would intend and I would think that the parties could really work out a stipulation. But I have no intention of stopping business of the kind that's going on.
MR. NEUHAUS: Your Honor, if I might, one vehicle for doing that would be an order that vacates as to the fed and leaves all the remaining parts of the restraints for the motion to confirm which plaintiffs are going to bring shortly.
THE COURT: Say that again.
MR. NEUHAUS: That you grant the motion to vacate the restraints and the attachments as to the fed but leaves in place for pending the motion to confirm all the restraints as to all the other garnishees.
THE COURT: Well, I want to stick with the fed now.
MR. NEUHAUS: That's what I'm doing.
MR. RIVKIN: Your Honor, we have heard you, and I think what will make sense would be for us to consider what you have said, to speak to Mr. Neuhaus, see if we can work out an appropriate stipulation.
I do think it's important for your Honor to understand, because you have referred several times to the relatively low balances of what Argentina and the central bank runs through the fed, we want to make sure that you understand that in fact money in the tens of millions of dollars runs through the fed on a daily basis, so far as we understand. We understand that the central bank sweeps out those funds to the BIS several times a day to try to keep the balances low.
THE COURT: But see, that's –
MR. RIVKIN: But a lot of money does flow through which eventually could be money that the plaintiffs are entitled to. But we hear what you're saying.
THE COURT: In going over the information about what went on in late 2005, in the first place, one of the questions I asked recently was why was there this reduction in the level of balances that occurred beginning December 15. But for the sake of our discussion this afternoon, I think I would assume that the central bank wanted to have those running balances and those transactions in New York at the fed as small as possible.
I have got to assume that they were concerned about attachment.
OK. But they also –
MR. NEUHAUS: We're working on that, your Honor.
THE COURT: -- wanted to keep doing and probably needed to keep doing some business with the fed in New York.
That's the way it appears to me subject to maybe some other information. And if that level of business is kept on through '06 and '07 and '08 and '09, that's a pretty good indication that there is a need to use the fed as you have said. And it was true even in that last couple of weeks in '05 that money would come in from BIS in the bonds you're talking about and by the end of the day it would be out. So the overnight amounts or investment overnight instead of being in the tens of millions were sometimes zero, sometimes a million, sometime a few hundred thousand dollars. That's what went on in the last two weeks of '05 and I assume has gone on since then, right?
MR. NEUHAUS: On the last two weeks of '05, if you could -- we will be filing a submission that attempts to explain what the reasoning was there, but the volume, my understanding is yes, that that policy has stayed in place.
THE COURT: Now look -- anyway, I was responding to your comment. I would dearly hope that the two sides could -- the parties could get together and stipulate so that that business can resume.
MR. NEUHAUS: Thank you, your Honor.
THE COURT: So that the stipulation that was entered into is still in effect.
Now this all depends upon what Mr. Neuhaus has said to the Court, I think I heard him right, that BCRA desires to continue that business and needs to continue that business.
That's what you've told me, right?
MR. NEUHAUS: Yes, on a long-term basis, your Honor.
THE COURT: Now if that is really the case and there isn't some hidden agenda to get the process vacated and immediately sweep everything out of the bed, and I certainly trust Mr. Neuhaus, I'm not sure I completely trust everybody behind him, but anyway, if that is really the case, it ought to be done. So why don't you work on that.
MR. NEUHAUS: We'll do so, your Honor.
MR. RIVKIN: Thank you, your Honor.
03 CV 8845 (TPG)
06 CV 7792 (TPG)
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