Vultures of Profit
by Joshua Hammer 
July 2008 Issue
July 2008 IssueSome low-profile investors are making ungodly amounts of money buying third-world debt on the cheap, then suing for the balance. Can they be stopped? More important, should they be?
The Vultures' Playground
See a breakdown of some heavily indebted countries that are hoping to escape the vultures' grasp by working with the International Monetary Fund and World Bank to reduce their debt loads. See All Video &
Singer's main claim to notoriety is Elliott Associates, a $10 billion New York-based hedge fund he founded in 1977. It is Elliott's affiliation with Kensington International, a so-called vulture fund (which represents about 1 percent of the hedge fund's total business), that has led many to claim that Singer has bright red skin, a very long tongue, and a forked tail. He's part of a new generation of investors—the vultures—who buy up the defaulted debt of developing countries on the cheap, then sue to recover 10 or 15 times what they paid for the notes. It's a very good business, if you don't mind being attacked by Congress, mauled in the press, and treated as a pariah by the do-gooders leading the global antipoverty movement. (View a pop-up graphic showing how some poor countries are trying to beat their debt.)
Today, thanks in large part to dogged campaigning by Bono and economist Jeffrey Sachs, debt relief is the cause célèbre for celebs worldwide. In 2000, creditors including the International Monetary Fund, the World Bank, and the 19 nations known as the Paris Club slashed $45.3 billion from the debt of 23 countries in Africa and Latin America. Five years later, at the G-8 summit in Gleneagles, Scotland, an additional $41.8 billion was wiped out. Many banks and commercial creditors have followed suit, negotiating debts down to 5 or 10 cents on the dollar.
Not everyone is so eager to forgive, however. Vultures are currently tearing into several destitute countries in the British High Court, the U.S. District Court in Manhattan, the French Supreme Court, and other halls of justice. They buy up the bad debt of a country for pennies on the dollar, then sue for payment in full. So far, creditors have won judgments totaling $996 million from 11 countries, including Cameroon, Guyana, Sierra Leone, Nicaragua, and Uganda.
The do-gooders are livid about the success of vultures all over the world and are looking to file down their talons whenever they can. In April, the U.S. House of Representatives passed the Jubilee Act for Responsible Lending and Expanded Debt Cancellation, which would compel the U.S. to erase more debt of impoverished nations and push the Treasury Department to ensure that creditors don't take advantage of them. (It doesn't say how, exactly, Treasury would do that.) The bill is now being considered by the Senate. Meanwhile, the vultures continue to feast.
One of the pioneer vultures was Kenneth Dart, heir to a foam-cup fortune; in the late 1980s, he began purchasing the debt of struggling countries on the cheap. Singer got into the game in 1996, when he bought $20.7 million of Peru's debt for $11.4 million, then sued in U.S. District Court in New York for full repayment, plus interest. In 1998, a federal judge threw out the case, ruling that Singer had purchased the debt "with the intent and for the purpose" of suing—a violation of New York State law. However, Singer won on appeal and was awarded $58 million. Then he persuaded a judge to declare him a preferred creditor, which forced Peru to repay him before meeting any of its other debt obligations.
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