Updated, 7:35 p.m. | A federal judge on Friday delivered a stern warning to Argentina after the country deposited $539 million with the Bank of New York Mellon for the purpose of paying its main class of bondholders.
The judge, Thomas P. Griesa of the Federal District Court in Manhattan, said he would enter an order to nullify the “purported payment.”
“This payment is illegal and will not be made,” he said. “Anybody who attempts to make it will be in contempt of court.”
The deposit is the latest twist in a legal battle between the country and a group of holdout bondholders, who refused to agree to restructure their bonds after Argentina defaulted more than a decade ago. Judge Griesa has ruled that Argentina cannot pay the main class of bondholders — those who agreed to accept restructured bonds — without simultaneously paying the holdouts. The holdouts’ legal effort has been led by Elliott Management, the hedge fund founded by Paul E. Singer.
Argentina faces a Monday deadline to make a payment to the main bondholders. The $539 million deposit with the Bank of New York Mellon, the trustee handling the payments, was in some ways a puzzling move because Argentina almost certainly understood that the bank would not pass on the money to the main bondholders.
Judge Griesa did not disguise his annoyance over the deposit. It was an “explosive action,” he said on Friday to a courtroom that was filled to capacity.
A lawyer for the Bank of New York Mellon said the bank had not distributed or transferred the money. And Judge Griesa said the bank “didn’t do anything wrong” in receiving the payment.
But the judge urged the bank to return the money to Argentina. “Simple as that,” he said.
Carmine D. Boccuzzi Jr., a lawyer for Argentina, said the country “still hopes to be able to engage in discussions with the plaintiffs and all the holdout creditors.”
“We need time,” Mr. Boccuzzi said.
Argentina has a 30-day grace period to try to reach a deal with the holdouts. If it cannot, it will be in default by the end of July.
The two sides remain far apart. On Tuesday, in an effort to begin settlement talks, lawyers from both sides met with an independent lawyer who had been appointed by the court to oversee the negotiations, according to a person briefed on the matter. But the talks quickly fell apart.
Robert A. Cohen, a lawyer for NML Capital, a unit of Elliott Management, said in court on Friday that Argentina “defiantly and contemptuously violated” the court’s orders by making the deposit.
Judge Griesa said that Argentina “was in violation” of court orders, but he stopped short of saying the country was in contempt. Most important are the settlement negotiations, he said.