Subduing the Vultures: Assessing Government Caps on Recovery in Sovereign Debt Litigation

Abstract

This paper explores recent proposals to cap the amount of recovery available through litigation over sovereign debt purchased on the secondary market. Over the past two years, sovereign debt has captured international attention as questions of sustainability and default plague both developed and developing countries. As these concerns escalate, vulture funds have faced increasing criticism for a strategy of purchasing discounted sovereign debt on the secondary market in order to pursue litigation for the full face value of the newly acquired claims. The desire to prevent such profiteering at the expense of the world’s poorest countries has prompted responses from creditor governments such as the United States and the United Kingdom. This note analyzes the merits of these recent proposals.