{"id":208182,"date":"2026-04-24T09:54:09","date_gmt":"2026-04-24T09:54:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-ny\/208182\/"},"modified":"2026-04-24T09:54:09","modified_gmt":"2026-04-24T09:54:09","slug":"can-new-york-lawmakers-stop-hedge-funds-from-pillaging-poor-nations","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-ny\/208182\/","title":{"rendered":"Can New York Lawmakers Stop Hedge Funds From Pillaging Poor Nations?"},"content":{"rendered":"

When a country appears poised to default on its national debt, a certain class of hedge funds spies opportunity. These so-called \u201cvulture funds<\/a>\u201d have relied on a tried-and-true playbook<\/a> to extract wealth from defaulting countries, the likes of which include Puerto Rico<\/a> and Argentina<\/a>.<\/p>\n

The basic strategy is intransigence. Despite only owning a slice of a defaulting country\u2019s debt, vulture funds can disrupt the entire restructuring process by refusing to negotiate alongside other creditors. Those non-vulture creditors typically have other interests that incentivize them to cut a deal for a debt restructuring, but vultures can and do<\/a> gum up the works and hold out for maximum possible repayment, which may end up requiring economically ruinous tax increases or cuts to other programs.<\/p>\n

More from James Baratta<\/a><\/p>\n

However, there\u2019s a legal wrinkle here: The reason why vultures like Elliott Management, Aurelius Capital Management, Contrarian Capital Management, and GMO Trust have been able hold all parties at the negotiating table hostage boils down to a loophole in New York state law, which itself is grounded in a centuries-old doctrine known as \u201cchamperty.\u201d<\/p>\n

Champerty traces its origins to the Anglo-French term champ\u00eatre, and the Latin phrase campi pars, meaning \u201cpart of the field.\u201d In a contemporary legal context, champerty essentially bars investors from buying debt for the primary purpose of bringing a lawsuit to recover it. In the past, defaulted nations could use this as protection against financiers buying up their debt for pennies on the dollar and using it as leverage to squeeze them dry.<\/p>\n

But a 2004 amendment to New York state law, which governs 52 percent<\/a> of sovereign debt contracts globally, defanged the champerty defense by shielding large-scale commercial debt acquisitions from being invalidated under it. That amendment has since served vulture funds well, as indebted countries in default can be sued in New York for claims exceeding $500,000.<\/p>\n

Vulture funds will disrupt the resolution process for their own maximum short-term interest.<\/p>\n

Naturally, commercial acquisitions of sovereign debt below $500,000 are few and far between, so the limit is largely pretextual. Even tiny countries always borrow much more than this. \u201cThat\u2019s the point,\u201d Assemblymember Jessica Gonz\u00e1lez-Rojas (D) told the Prospect. She said that for vulture funds, the goal was to \u201ccarve a loophole to be able to continue to exploit and extract as much wealth from struggling nations as possible.\u201d<\/p>\n

Gonz\u00e1lez-Rojas has set out to change that. She is once again the sponsor of the Assembly version<\/a> of a bill introduced<\/a> by New York state Sen. Liz Krueger (D) to close the loophole and once again make it illegal to buy any quantity of debt for the sole purpose of extracting repayment, seriously undermining the vulture fund business model. Although the Senate has passed Krueger\u2019s legislation twice before, the companion bill has never made it onto the Assembly floor. On Tuesday morning, Gonz\u00e1lez-Rojas delivered remarks<\/a> in Albany in support of the bill. She was joined by community members, fellow electeds, and members of the Debt Justice Alliance<\/a>.<\/p>\n

\u201cThis bill is critical for our communities and diaspora, who know that global economic instability impacts families here in New York and around the world,\u201d said Gonz\u00e1lez-Rojas. \u201cThe entire world is watching, and New York has an opportunity to lead in a way that truly matters.\u201d<\/p>\n

It remains unclear whether the companion bill will be considered on the Assembly floor during the current legislative session, in large part because the state budget is already over three weeks late<\/a>. Gonz\u00e1lez-Rojas is \u201ca little nervous about how long this will drag out,\u201d but remains hopeful that the legislation will pass this year, pointing to \u201cthe support and the engagement of the market itself, and the changes we made over the years.\u201d<\/p>\n

Institutional investors like pension funds tend to invest in sovereign debt indirectly through asset managers. Investing in the debt of developing countries can offer higher yields than that of developed nations, but the prospect of above-average returns does not come without a proportional level of risk.<\/p>\n

Pension funds have long-term investment horizons, so if they have bond exposure to a developing country that defaults on its debt, restructuring that debt is almost always the preferred outcome. Like domestic lenders, they tend to want the country back on its feet and growing as soon as possible. But that\u2019s not how vulture funds do things\u2014they will disrupt the resolution process for their own maximum short-term interest. It\u2019s toxic for everyone else including the other creditors. When vulture funds hold out, it becomes increasingly likely that good-faith creditors end up recovering less than they otherwise would at the conclusion of an orderly restructuring process. Meanwhile, the defaulting country is effectively shut out of capital markets until the restructuring is resolved.<\/p>\n

\u201cThere are many good actors that are operating in good faith, and actually they find that the vulture funds \u2026 cause chaos in any restructuring negotiation,\u201d Gonz\u00e1lez-Rojas told the Prospect. \u201cWe\u2019re really targeting those bad actors that are specifically seeking to purchase the sovereign debt for the sole purpose of litigation and profiteering off these vulnerable nations.\u201d<\/p>\n

According to Rob Solano, executive director and co-founder of Churches United for Fair Housing (CUFFH), a founding member of the Debt Justice Alliance, the ball is largely in Assembly Speaker Carl Heastie\u2019s court.<\/p>\n

\u201cI think Carl has really seen more than ever the need to push this forward after the budget is passed,\u201d Solano said in an interview. \u201cWe look forward to standing side by side with our Speaker.\u201d<\/p>\n

\"\"New York state Assemblymember Jessica Gonz\u00e1lez-Rojas delivered remarks in Albany in support of a bill that would protect sovereign debtors from vulture fund investors, April 21, 2026. Credit: New York Communities for Change<\/p>\n

THE DEBT JUSTICE ALLIANCE was born out of disaster relief recovery efforts following Hurricane Maria in 2017. At the time, CUFFH, New York Communities for Change (NYCC), and the Center for Popular Democracy \u201cstarted to peel back this onion of why \u2026 [our communities] are coming to America,\u201d Solano told the Prospect. \u201cThat\u2019s what really sparked it.\u201d<\/p>\n

And so began a yearslong campaign to restore champerty to its former glory under New York state law. Advocates within and adjacent to the coalition deployed a host of tactics to sound the alarm on vulture funds, including direct pressure<\/a>, education, and engagement with state lawmakers.<\/p>\n

\u201cWhen we help destroy other countries\u2019 economies, preventing them from providing education, infrastructure, clean water, electricity, and healthcare to their people, not only do the people of that country suffer, but we suffer the ripple effects of that destabilization,\u201d Krueger said in a statement. \u201cI\u2019m hopeful New York will be able to catch the rising tide and move this bill this year.\u201d<\/p>\n

For Gonz\u00e1lez-Rojas, the scourge of vulture funds is an issue that hits close to home.<\/p>\n

\u201cMy mom\u2019s Puerto Rican,\u201d she said. \u201cA lot of this was inspired [by] what happened and continues to happen in Puerto Rico.\u201d<\/p>\n

Puerto Rico has been ravaged by vulture funds<\/a>, which advocates contend are to blame for the island nation\u2019s illegal, odious debt<\/a>. This debt has since been reduced through a federally administered restructuring process, but austerity measures have left Puerto Rico\u2019s social safety net and broader economy in tatters.<\/p>\n

Given the impact vulture funds continue to have on developing countries around the world, the coalition and its legislative allies believe that now, more than ever, is the time to restore champerty under New York state law.<\/p>\n

\u201cThere\u2019s a sense of urgency because of the [state of] the economy in the world in general,\u201d Jos\u00e9 Gonz\u00e1lez, senior director at NYCC, told the Prospect. \u201cCountries that are in debt will feel those shocks more acutely.\u201d<\/p>\n

Both the coalition and state lawmakers seem to have made inroads with the investor community. That could be a tailwind for the legislation. Moreover, the International Monetary Fund has been supportive of bringing order to sovereign debt restructurings for years<\/a>.<\/p>\n

\u201cAll of these ingredients were not necessarily present in the past,\u201d Gonz\u00e1lez said.<\/p>\n

\t\t\t\t\tRead more<\/p>\n

\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t\t\t\"Aftermath:\t\t\t\t\t\t\t\t\t\t\t\t<\/a><\/p>\n

\t\t\t\t\t\tAftermath: Wall Street Is Lying to Itself<\/a>\t\t\t\t\t\t<\/p>\n

Financial futures indicate little damage from the Iran war. Reality begs to differ.<\/p>\n

\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t\t\t\"The\t\t\t\t\t\t\t\t\t\t\t\t<\/a><\/p>\n

\t\t\t\t\t\tThe Faltering War Economy<\/a>\t\t\t\t\t\t<\/p>\n

Trump\u2019s war craters the economy in multiple ways, even if it somehow ends soon.<\/p>\n

\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t\t\t\"The\t\t\t\t\t\t\t\t\t\t\t\t<\/a><\/p>\n

\t\t\t\t\t\tThe Private Credit Cartels<\/a>\t\t\t\t\t\t<\/p>\n

Wall Street wants you to believe AI is to blame for the incipient credit crisis. But the crappy software loans spooking investors are the products of old-economy greed and brazen collusion.<\/p>\n","protected":false},"excerpt":{"rendered":"When a country appears poised to default on its national debt, a certain class of hedge funds spies…\n","protected":false},"author":2,"featured_media":208183,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[28355,4736,82539,17938,61703,9,11,10,10114,19090,35417,82540],"class_list":{"0":"post-208182","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-new-york","8":"tag-america-and-the-world","9":"tag-economic-policy","10":"tag-financial-industry","11":"tag-hedge-funds","12":"tag-law-justice","13":"tag-new-york","14":"tag-new-york-headlines","15":"tag-new-york-news","16":"tag-poverty-wealth","17":"tag-puerto-rico","18":"tag-state-legislatures","19":"tag-vulture-funds"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/208182","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/comments?post=208182"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/208182\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media\/208183"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media?parent=208182"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/categories?post=208182"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/tags?post=208182"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}