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Marco Rubio’s Billionaire Backer Likes to Sue Poor Countries and Put Profits in Tax Havens

Paul Singer is one of the best-known "vulture fund" honchos. Rubio's support for causes dear to him, while lucrative, may cost him voters in Florida.

by Samuel Oakford
Nov 4 2015, 8:15pm

Paul Singer speaks at an award dinner in New York in 2014. AP Photo / John Minchillo

Paul Singer has a good track record as a money manager. In 1995, he bought $20 million worth of Peruvian debt at a discounted price of $11.4 million, then forced Peru's government, through lawsuits, to eventually pay nearly five times his initial investment — some $58 million. In 2002 and 2003, Singer made a killing when he did the same to the Republic of the Congo, turning a $20 million investment in the country's debt into a court-ordered payout of roughly $90 million from the country's impoverished government, at least $39 million of which has already been handed over.

Singer is a so-called "vulture" baron, seeking out distressed sovereign debt and betting on his ability to sue countries to extract returns. For more than a decade, he has helped keep Argentina's debt-restructuring process in limbo through courts in New York. Profits earned by his hedge fund, Elliott Management, and its subsidiaries, are often then squirreled away in tax shelters.

But Singer isn't just the boss of a hedge fund that's grown to $27 billion in assets under management, and a man with a net worth estimated at more than $2 billion.

He is also one of the Republican Party's top donors, and his stamp of approval — and the cash that comes with it — is widely sought by conservative politicians. Last Friday, Singer announced in a letter to friends, many of them also top party donors, that he would throw his weight behind presidential candidate Marco Rubio -- a move that helped establish the Florida senator as a credible choice for the 2016 nomination.

"Singer is one of the top money men in the Republican Party," said Richard Skinner, a policy analyst at the Sunlight Foundation, a non-profit organization that examines campaign finance in the United States. "He's in the position of not only being able to contribute a lot of his own money, but has a personal network that can bundle a lot of money" for candidates.

During the 2012 Republican primaries and general election, Singer raised more than $3 million for Mitt Romney. Skinner says similar amounts, if not more, could go Rubio's way should he become the eventual nominee.

"I would expect that a lot of the business-oriented Republicans that had previously been more partial to Jeb Bush might follow Singer's lead," he said.

While Singer has spread cash among a variety of causes, including the push for marriage equality (his son is gay), most of the $17 million he has doled out in the past decade has gone to Republican causes. Among the candidates he or his firm and employees have donated to, many, including Rubio, have taken public stances that would stand to benefit Singer's investments.

According to the watchdog group Open Secrets, individuals associated with Elliott Management gave $117,620 to Rubio's campaigns between 2009 and 2014, second only to the ultra-conservative Club For Growth. Last year, at a Senate confirmation hearing for the White House's ambassador to Argentina, Rubio criticized the country as one "that doesn't pay bondholders."

Among those bondholders is Singer, who has refused to take a "haircut" — reducing the principal amount of money owed by a debtor — and otherwise restructure payments on bonds bought in the aftermath of Argentina's financial crisis of the early 2000s. Between 2005 and 2010, the Argentinian government was able to restructure roughly 92 percent of the more than $100 billion worth of debt that it defaulted on in 2001. However, a lawsuit in New York led by Singer's firm has held up those payments, and the judge overseeing the case has ruled that holdout investors, many of whom bought the debt well below its face value, must be paid in full at the same time as those who agreed to take discounts.

"This is basically a litigation strategy, not an investment strategy. The idea is to buy distressed debt only as a means to litigate full value," said Jake Johnston, a research associate at the Center For Economic and Policy Research.

In addition to his public chiding of Argentina for not paying up, Rubio sponsored a 2015 bill that called for an investigation into the death of Buenos Aires prosecutor Alberto Nisman, who was found dead, earlier this year, of an apparent suicide while investigating the 1994 terrorist attack on the Argentine Israelite Mutual Association. Singer has funded groups, including the Foundation for the Defense of Democracies, that claim the government of President Cristina Kirchner has concealed Iran's role in the attack. In the Senate bill, Rubio accused her administration of doing precisely that — attempting to "cover up Iranian involvement" in the deadliest terrorist attack on Argentine soil. The Argentine government and critics of the vulture funds suing its government accuse Singer and others of attempting to demonize Kirchner's administration — rightly or wrongly — as part of a larger public relations battle associated with the debt litigation.

Prior to his battle with the Buenos Aires government, Singer was already heavily criticized for targeting both Peru and the Republic of the Congo, both considerably poorer than Argentina. Debt-forgiveness advocates say that impoverished countries and their citizens shouldn't be on the hook for bonds issued by corrupt or autocratic governments of previous decades. Institutional investors then largely turned a blind eye to the human rights records of their borrowers, critics say, and large portions of loans were often stolen by well-connected people in developing countries, leaving future generations to foot the bill.

Similarly, much of the debt that Singer bought in Peru dated to the country's military dictatorship.

"We're concerned by a business model that profits from financial crisis and austerity," said Eric LeCompte, head of the Jubilee USA Network, an umbrella organization of religious groups pushing for debt relief. The UN, the IMF and even the US Treasury, he noted, have "all expressed concern about this kind of predatory hedge fund behavior."

Singer also has a long history of using tax shelters, a common (and legal) practice by US-based corporations and financial entities. NML Capital, the subsidiary of Elliott Management that brought suit against Argentina, is based in the Cayman Islands. Kensington Capital, another subsidiary of Elliott, and which successfully sued the Republic of the Congo, is also based in the Cayman Islands, a notorious offshore haven.

Renaud Fossard, a researcher at the Latin American Network on Debt, spent months investigating a complicated web of entities tied to Singer and spread across several countries. Fossard concluded, based in part on SEC filings, that while several of Singer's companies bearing the Elliot title were ostensibly based in New York, in fact they "were all kind of empty," while businesses were based in countries like the Cayman Islands and Bermuda.

"Paul Singer made his reputation bringing developing countries back on the right path of market and law, making them duly pay their debt and sins while growing his own fortune," said Fossard. "But he actually uses all available doubtful financial mechanisms to hide activities and fortunes in tax havens and behind trusts, far away from the IRS," the US tax authority.

Singer isn't the first billionaire to back Rubio. For years, the senator's political ascendance was funded with cash from Florida auto dealer Norman Braman, who first hired Rubio and continues to employ his wife. In the 2016 election cycle, Braman has already donated at least $5 million to Conservative Solutions, a pro-Rubio super PAC. But Rubio's dalliance with Singer could open up a new front for critics, one that could hit home with his own constituents in Florida.

Rubio has been critical of the Puerto Rican government, which is currently facing a similar debt crisis to Argentina's. The government of the US territory, with fewer than four million people, says it is unable to pay in full the $73 billion in debt it accrued over several decades. Though the White House has reportedly pushed to allow Puerto Rico to access American bankruptcy courts to restructure its debt — which, under current US law, Puerto Rico cannot do — powerful Republican politicians, including Rubio, have opposed that move.

The economic woes of the US territory have led to a huge wave of emigration in recent years, most of it to Florida, where more than one million Puerto Ricans now reside. While Singer does not hold Puerto Rican debt, vulture funds similar to his have swooped in over the past several years, worsening a standoff between a government and its bondholders similar in many ways to the one faced by the countries that Singer has sued. The Puerto Rican population in Florida is widely considered one of the most important voting blocs in perhaps the most influential of swing states.

Rubio's public opposition to allowing Puerto Rico to restructure its debt in American courts risks alienating Puerto Rican voters in his home state, said Casey Klofstad, professor of political science at the University of Miami. Klofstad called Rubio's policies on Puerto Rico "hardline" and predicted they "would be perceived negatively" among Puerto Ricans in the Sunshine State.

Edwin Meléndez, director of the Center for Puerto Rican Studies at Hunter College, said the Puerto Rican debt crunch will only grow in importance as the presidential campaign heats up. He said the financial crisis featured prominently during a recent forum held in Orlando with Puerto Ricans, which he attended.

"We are talking about a million Puerto Ricans in the state alone, and newcomers from the island will have a stake in what happens in Puerto Rico," said Meléndez. "They have the clout now to demand that candidates reveal their position on the island's current situation." (While Puerto Rico is not a state, Puerto Ricans vote in presidential primaries; if they reside in a US state, they also can vote in federal elections.)

This year, as other candidates including Hillary Clinton and Jeb Bush lent their support for Puerto Rico to access Chapter 9 bankruptcy, Rubio wavered. Despite being a senator representing one of the largest Puerto Rican constituencies on the US mainland, he announced his stance only in September.

In a post on Medium, Rubio said that allowing the territory to access Chapter 9 "would not solve Puerto Rico's problems and should only be a measure of last resort considered if Puerto Rico takes significant steps to fix its budget and economic mess." He then went on to tie Puerto Rico's policies to the "Obama agenda that Hillary Clinton would expand."

Rubio's press office has not replied to questions about Singer's investment practices that target developing countries, or if the senator was concerned that Singer has long made use of tax havens.