After New York setback, mystery surrounding Burford’s hidden YPF litigation partners grows

Litigation fund Burford Capital picked up around US$221 million from the trial into the manner in which Argentina’s state oil firm YPF was renationalised in 2012. That was the difference between the US$15 million invested into buying up the case at the Tribunal Número 3 en la Justicia Civil y Comercial court in Madrid, where they went to acquire via tender the necessary papers to litigate, and the sale in three separate stages of 35 percent of the case for some US$236 million to different investors interested in collecting money at the end of the trial in a situation which everybody presumed to be more than favourable for the plaintiffs.

Then, it was a case closed in their favour with a single risk: that Argentina, at the end of the day and with the final ruling of United States courts inevitably in their favour, would not pay up, preferring to enter into default ahead of remitting the US$16 billion ruled by US District Judge Loretta Preska in the first instance. That was the only risk at the time of selling those stakes, otherwise it was just a question of awaiting a done deal – “easy money,” as they say in Wall Street. But something happened on the way to paradise – last month the New York Court of Appeals ruled two-to-one in favour of Argentina, demolishing business perhaps forever.

For Burford , the consequence of losing a profit of almost US$10 billion, after an original investment of US$15 million, was to see their shares on the New York Stock Exchange plunge by 50 percent. Definitely, an “opportunity cost” or an “unrealised gain” or a “loss of profit” in accountancy terms or, as they say on Wall Street floors, “money left on the table” after not having cashed in at the right time. It must be said that last August and September Burford Capital’s lobbyists tried, seeking by every possible means (and there were many) to contact President Javier Milei or his Economy Minister Luis ‘Toto’ Caputo and then-finance secretary Pablo Quirno, in an attempt to bring Argentina to the negotiating table to investigate payment alternatives under the umbrella of an out-of-court settlement fixed and safeguarded by Judge Preska. But no dice.

The President and his officials on the fifth floor of the Economy Ministry  dynamited all bridges, declaring that everything would be sorted out by the US courts and that they could only talk at the end of this road, following an intervention of the US Supreme Court with an adverse ruling – and not beforehand. At the end of the picture, this stonewalling by the La Libertad Avanza government proved to be the right call. Burford could then only count as profit (at least until now) those US$221 million of difference between what was paid in Madrid and the 35 percent sold off. Definitely casualties of war. Nothing which a highly speculative fund does not have on its list of possibilities.

The problem then is the absolute loss of the investors who took that 35 percent, those buying up part of the lawsuit from Burford as an almost sure bet but eventually losing out. Those are the members of the now-famous  “Preska’s list.” The judge for the Southern District of New York who ruled against Argentina has in her hands one of the biggest mysteries of the democracy regained in 1983. The great mystery of this mega-trial is who the partners of Burford Capital are – those individuals, companies or investment funds buying up part of the case from the plaintiff, money presumably used to pay for the legal expenses and perhaps to curry various favours. 

The main operation of this kind was on June 16, 2017, when after the official presentation and publication of the lawsuit with the New York judge, 15 percent of the litigation was sold off to a group of investors for some US$66 million – three years after the total case had been acquired for some US$15 million in 2014 at the Tribunal N° 3 en la Justicia Civil y Comercial court of Madrid, the venue of the original judicial spat of Petersen Energía and Petersen Inversora, the legalistic name of the fantasy underlying the whole YPF conflict.

In that first operation, the British capital fund specialising in acquiring worldwide semi-cold cases, in order to inject them with capital and criminal and corporate law arguments and bring them back to life, acting in consequence, had appraised the totality of the case for the renationalisation of YPF at some US$440 million, while putting in a general claim with Preska for over US$3 billion. With the US$66 million from the original sale of 15 percent of the lawsuit to the mysterious stakeholders, Burford Capital could meet all costs, both their acquisition in Madrid and the judicial action in the Southern District of New York under Preska. 

The bet was enormous and enthusiastic. If Preska’s sentence had held up, the final profit margin would have topped 45,000 percent, exceeding even the profit of over 1,000 percent by the “vulture funds” against Argentina in the case beginning in 2006 and ending in 2016. But it was not to be – at least for the “investors” into the trial entering a virtually done deal.

The great mystery which continues latent in this trial is to know the names and surnames of those partners. Some speculation speaks of the strong (and very serious) local political links of the stakeholders claiming their rights to that money. Professionally, it is impossible for Burford or any US court to give the names of those partners of the litigating fund since US jurisprudence maintains absolute safeguards to keep the stakeholders secret. Only if Preska herself is willing to consider this as necessary information or at the express request of some local judge or a US colleague, could there be access to delivering such information. 

This might also possibly be claimed by Congress via approving a hypothetical law to authorise the government to liquidate the debt in some form. It should definitely be an Argentine right to know to whom such a fortune would have been paid. The favourable ruling paradoxically works against this information appearing. It will not be possible to request the list from this country.

The fund’s original claim is for the damages resulting for the other shareholders of the Argentine oil company after the payment made to Spain’s Repsol for renationalisting 51 percent of YPF in 2012. Burford had purchased from two Spanish companies – Petersen Energía SAU and Petersen Inversora SAU – the privilege of presenting a case against the Argentine Republic and YPF after the expropriation of Repsol shares in 2012. Finally, on July 11 that year, Burford announced that they had purchased from the US fund Eton Park Capital a 70-percent share in a similar case presented against the sovereign owners and YPF in 2016. Petersen Energía and Petersen Inversora were the companies who had called in the receivers in May 2012, only weeks after the renationalisation and when the board of directors of the renationalised oil company had prohibited the distribution of dividends. This had been the means of payment whereby Petersen’s creditors had advanced the dollars to acquire approximately 26 percent of the oil company’s shares during the Néstor Kirchner Presidency against the earnings from dividends. Without dividends it was impossible to pay. The solution was to declare bankruptcy in Madrid. Then the comptrollers of the commercial court launched the tender of the case, to which five candidates presented themselves. The winner was Burford Capital, who paid the original US$15 million. The rest is history.

It now remains to be seen if Preska is willing to elucidate the great remaining mystery from this case. Who are the owners of that 35 percent of the trial against Argentina, nowadays the great losers of this case? They could be anybody – businessmen, politicians, investment funds, various interests; anybody. And should their names become known, it could provoke a legal, political, economic and financial tidal wave in the country. It depends on Preska, who cannot be in the best of moods these days – at least not with Argentina.