What's up guys and welcome back to wall street millennial in today's society, those at the very top dominate the system and engage in activities that would seem ludicrous to normal people. Money, fame and politics are things that all come and go fast for these circles in the financial industry. These groups are largely made up of the biggest hedge funds in the world. Carl icahn ray dalio, jim simons and many others have made a name for themselves.

Over decades of superstar investment performance with their funds, they have made billions of dollars for their investors, who are largely made up of other rich individuals or big institutions. They enjoy the respect and envy of countless young professionals in the banking and finance industries landing a job at one of the top performing hedge funds is viewed by many to be a dream, come true and the fast track to a good life. But not everyone perceives the hedge fund industry. In this light, millions of people have been directly negatively impacted by the activities of hedge fund heavyweights and thousands have been severely negatively impacted in this case being severely negatively.

Impacted means the level of losing your job. As a result of actions taken by hedge funds, all in the name of making a quick buck, some may remember the hedge fund, legend george soros when he famously broke the bank of england in a trade that both made him billions of dollars and incurred a cost To the british people estimated to be equivalent to 20 for every single citizen, others might remember carl icahn's earlier days in activist investing when he once fired 12 floors of people from a company that he bought just to flip the company shortly thereafter for a profit stories. Like these are commonplace, especially among activist hedge funds and so-called vulture funds, today, we're going to talk about one of the most insane examples of an activist hedge fund flexing its financial muscles. This is the saga where one of the premier activist hedge funds, in the world, run by paul singer brought argentina to its knees.

Even the mighty argentine navy could not escape the grip of paul singer's hedge fund. In the end, argentina paid a whopping 4.6 billion dollars to elliot and several other hedge funds to settle all their debt claims. Paul singer's portion was 2.4 billion dollars, but before we get into the settlement first some background from 1998 through 2002 argentina endured a severe recession. It has even been called the argentine great depression because of the severity it started after the russian and brazilian financial crisis earlier in the 90s, which had ripple effects throughout argentina and other countries.

The russian financial crisis during the 90s was severe enough to trigger the epic unraveling of us-based long-term capital management. The famous hedge fund run by nobel prize winning economists. These crises in brazil and russia were followed by widespread economic hardship in argentina, which saw a huge rise in unemployment riots and political turmoil. By the end of 2001, argentina was forced to default on nearly 100 billion us dollars worth of sovereign debt, most of which was debt taken out during the recession.

Argentina then experienced the flight of foreign capital and investment in the country inflation of up to 40 and double-digit annual declines in gdp. Argentina was eventually able to recover from the recession. In the later half of the decade, they were able to restructure about 75 of their debt in 2005, which was largely held by individuals from both within the country and other countries, including the us, germany, japan and many others. A second restructuring in 2010 was accepted by the majority of the creditors, who had rejected the first restructuring, but a few private bondholders holding about seven percent of the original debt refused this second restructuring program and sought to collect the full face value of the debt.

One of those bondholders was elliot management, one of the biggest activist hedge funds in the world run by legendary investor paul singer. Elliott has developed a reputation over the years for fighting rough with their investment targets and being able to force change in their favor. One of elliot's units nml capital, purchased about 49 million dollars worth of argentina's debt in 2008. The face value of the debt was nearly five times that amount and elliot wanted to collect on it eventually elliot built up a position in the bonds worth more than two billion dollars.

Nominally in 2012, elliott took argentina to court in the u.s to attempt to force argentina to honor its debt. The u.s court ended up ruling in favor of elliot and ruled that argentina must repay elliot. The full amount of the debt that elliot held argentina still refused to pay saying that the court ruling was illegal. Elia also won court cases in the uk, but argentina still refused to pay at this point, elliot decided to take things into their own hands as part of the court rulings against argentina.

Assets could be seized from the argentine government to repay the debts. Elliot started closely. Monitoring argentine assets outside of argentina's jurisdiction, including navy vessels, the presidential jet and even assets held in the federal reserve bank of new york in the second half of 2012 elliott, realized that a large argentine navy vessel, the ara libertad, was docked in a harbor in ghana. The libertad was a three-masted ship used by the navy for training new recruits.

It was on a training mission with approximately 200 people on board, including navy personnel and students. Elliot was able to convince a court in ghana to detain the ship not allowing it to return to argentina until a portion of its debt was repaid to eliot. This was a major step up from traditional activist investor actions to collect on debt. The majority of bondholders had agreed to one of the two restructuring plans.

Argentina organized and of the remaining holdouts only elliot had the political and financial firepower to essentially seize a navy ship. Ghana is a comparatively advanced west african country, in many respects, with a strong reputation for its rule of law, ranking above many other countries, including spain, portugal and brazil. The fact that eliot was able to convince the courts in ghana that they were right to detain the argentine vessel is a testament to the resources that elliot has at its disposal. The libertad was eventually released from ghana later that year.

The u.n tribunal for the law of the sea ordered that, because the ship was a military vessel, it was immune from seizure. Eliot did not receive the 20 million dollars that had demanded in exchange for the ship. Despite this failure, the episode with the ship sent home a strong message to argentina that eliot would not stop until her debt was settled with any other hedge fund. This would not have been an issue for a country as big as argentina, but being able to detain a navy vessel proved the point that the elliott issue was something that argentina would have to resolve in 2015.

Argentina had a change of leadership with the new president. Mauricio macri taking office a key point in his campaign, was to resolve the long-standing conflict with elliot once and for all. The recession and resulting debt crisis from 2001 was still lingering in argentina for nearly 15 years because of the issue and the country was eager to. Finally, put the issue behind it.

President mccree was inaugurated on december 10 2015 and only two and a half months later, in february 2016, it was announced that a settlement had been reached with elliott. The special master appointed to preside over negotiations between argentina and its hold out bondholders announced quote the agreement in principle. If consummated will pay the funds managed by elliott management, aurelius capital, davidson, kempner and bracebridge capital 75 of their full judgments, including principal and interest, plus, a payment to settle claims outside the southern district of new york and certain legal fees and expenses incurred by them. Over a 15-year period, this was a major win by elliott, although it took 15 years and they only got 75 of their full judgment.

The amount that they originally paid for the bonds was just a small fraction of the amount awarded, although the full amount that they paid for all their bond holdings is unknown. It is estimated to be in the range of about one to two hundred million dollars. They purchased most of their holdings in 2008, eight years before the eventual payout in total elliot's share of the settlement was an eye-watering 2.4 billion dollars comfortably more than 10 times what they likely paid for their stake in the bonds. That's a 33 return on a nine-figure investment, but then that is what elliott is known for outside returns as a result of their activism.

At the time that argentina defaulted on its debts in 2001 and again during the restructurings of 2005 and 2010, nobody thought they would ever repay their bonds in full, despite the recovery of their economy in the decade following the argentine great depression, more than 90 percent of The bondholders agreed to receive just 30 percent of the nominal values of their bonds in the restructurings after the 2010 restructuring. Argentina nearly put the credit default from 2001 behind them once and for all little did they know at the time what lengths elliott would go to to collect on the bombs. The story of elliot's involvement with argentine sovereign debt is hardly unique, even within elliot's own history. There are many other examples of the fund taking on national governments as well as state-run enterprises, while the majority of activism campaigns end without making headlines every so often, a story like this one makes the headlines elliot has a long list of companies and countries that has Been involved with including blue chip, american mega corporations like twitter, as well as countries like peru, vietnam and the republic of the congo for more content, like this make sure you're subscribed to the channel.

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