(Bloomberg) -- Peru asked an arbitration tribunal to dismiss a claim from Gramercy Funds Management and said the company violated a trade agreement between the U.S. and Peru when it started proceedings last month.
The Greenwich, Connecticut-based hedge fund filed a claim for $1.6 billion under the U.S.-Peru Free Trade Agreement on June 2 for unpaid land bonds. In a formal response to the claim published Wednesday, Peru denied it violated the treaty and accused Gramercy of flouting the rules by simultaneously pursuing local litigation for the payment of the decades-old debt.
Gramercy is seeking payment for bonds it owns that were issued under Peru's military dictatorship in the 1960s and 1970s as compensation to farmers whose lands were seized as part of an agrarian reform. Gramercy said it began purchasing defaulted land bonds in 2006. Peru's trade agreement with the U.S. wasn't in force at the time and Gramercy bought the notes at “deeply discounted” prices, according to Peru's statement. The company opted not to participate in a process Peru set up to pay bondholders, the filing said.
“The treaty does not provide for such speculative expropriation claims or demand for preferential, not equal, treatment” the statement said. “Nor does it provide for damages that are grossly misaligned with any reasonable expectations.”
Gramercy mounted a smear campaign against Peru, which is “impermissible” under arbitration rules, the filing said.
Gramercy's outside spokesman didn't immediately respond to an e-mailed request for comment.
Gramercy's chief investment officer, Robert Koenigsberger, said in a June 2 statement that the Peruvian government had snubbed efforts to negotiate a payout, leaving the company with no choice but to start arbitration.
To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Sebastian Boyd
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