Over the weekend the New York Times profiled conservative hedge fund tycoon Paul Singer, who's generously bankrolled the GOP and is sometimes referred to as a Republican George Soros. The article spotlighted the $500,000 Singer contributed in April to the Republican Governors Association and his attempts to thwart meaningful regulation of Wall Street. Left unmentioned in the article was how Singer amassed his fortune, in part by capitalizing on the subprime housing crisis and exploiting the debt of impoverished African nations. During the presidential campaign, as part of a feature article on the "dirty money" behind Rudy Giuliani's campaign, I wrote a separate article about Singer's controversial involvement with so-called "vulture funds." Since Singer's in the news again, I'm reposting the relevant sections below. It's not surprising that someone like him is so committed to bankrolling today's GOP.
In the 1990s Singer's hedge fund pioneered a shadowy, lucrative and often ruthless form of investing whose practitioners earned the not-so-generous moniker "vulture funds." Vulture funds—or "sovereign debt investors," as they prefer to call themselves—buy old defaulted debts, usually from the poorest countries in the world, and then drag the debtors into court, seeking a settlement far above what the funds originally paid for the debt. These are debts that are usually forgiven when the countries are granted relief by wealthy nations like the United States and multilateral institutions like the World Bank. An official at the Bank likens vulture fund activities to giving up your seat on a bus for an old lady, only to see a young college jock swipe it.
Large hedge funds like Singer's Elliott Associates often operate in secret, through shell companies in tax shelters like the Cayman Islands. Since the end of 2005, more than a third of the countries receiving debt relief have been targeted by at least thirty-eight hedge funds, which have gotten judgments in excess of $1 billion. This reverse Robin Hood scheme has drawn criticism around the globe, including from Nelson Mandela and British Prime Minister Gordon Brown.
It all started in 1996, when Elliott paid $11 million for $20 million of debt, dating back to 1983, theoretically owed by the government of Peru. In 1989, then-US Treasury Secretary Nicholas Brady had urged rich countries to forgive the debts of poor ones in order to spur economic growth and global development. Instead of settling with Peru, as its 180 other creditors did, Elliott took the government to court. "Pay us in full or be sued," Singer threatened.
A federal district court in New York initially ruled against Elliott, finding that the fund had purchased the debt "with the intent and purpose to sue" and "rejected each and every opportunity to participate in Peru's restructuring." Elliott appealed and won. Then the fund began working the political system in New York. With the help of a lobbying firm in Albany, Elliott, through a subsidiary, persuaded the New York legislature to change an obscure law governing compound interest, increasing Elliott's payout by $16 million, for a total, including interest, of $58 million. It was done so quietly that Peru's lawyers didn't find out until after the fact. A few years later the New York State Assembly eliminated another law that Peru had used to defend itself. Three months after the bill became law, Singer gave the lead sponsor, State Assembly Member Susan John, a $2,500 campaign donation.
Elliott's most recent target is the oil-rich but desperately poor West African nation of Congo, home to three civil wars since 1993, with 70 percent of the population below the poverty line. In the late 1990s Elliott, through a variety of shadowy subsidiaries, bought $100 million of defaulted Congolese debt for roughly 7 to 10 cents on the dollar, according to a legal brief filed by the Congolese government. A Cayman Islands-based entity called Kensington International went to court in London and received favorable judgments, ordering repayment of the debt plus interest. Then Kensington returned to court in London and sought to prevent Congo from repaying any other creditors until Kensington was paid. This time the judge balked, saying he didn't even know what Kensington International was and how much it had paid for the debts.
Only when Kensington sued Congo in New York under a RICO statute (which would triple a final judgment to $375 million), was it revealed that Kensington was a subsidiary of Singer's fund. Since then, Elliott/Kensington has pulled out all the stops. The fund retained as counsel Ted Olson, George W. Bush's initial choice to replace Alberto Gonzales as Attorney General. Kensington has filed at least fifteen separate lawsuits against Congo and its business partners, in places ranging from the British Virgin Islands to Hong Kong to the United States.
After members of the Congolese government amassed large hotel bills at a UN summit in New York, Kensington lobbied the World Bank to block scheduled debt relief for the country, according to two sources close to the Congolese government. The fund placed op-eds in influential newspapers, produced letters of support from members of Congress and even filed a lawsuit in Brussels against the Belgian government to confiscate a 10 million euro foreign aid payment from Belgium to Congo. (In a separate case against Argentina, Elliott has enlisted former top Clinton Administration officials to persuade the country to pay debts that the firm acquired for as little as 15 cents on the dollar.) "They're completely amoral," says David Skeel, a professor of corporate law at the University of Pennsylvania. "It's almost a matter of pride to them."