New York explores ‘champerty fix’ to stop hedge funds from profiting from PR’s debt crisis

U.S. Rep. Nydia Velázquez (D-N.Y.) (Wikipedia)

By THE STAR STAFF

The state of New York is evaluating legislation to close a legal loophole that has long enabled hedge funds to profit from financially distressed governments, including Puerto Rico’s.

The bill -- sponsored by Assembly member Jessica González‑Rojas and State Senator Liz Krueger -- would restore the state’s champerty doctrine, making it illegal to purchase debt solely to sue for repayment.

U.S. Rep. Nydia Velázquez (D-N.Y.) endorsed the measure this week, framing the issue as deeply personal for Puerto Rican communities in New York and on the island.

“For Puerto Ricans, this issue is not theoretical. New York’s legal system has been used by hedge funds seeking outsized profits from Puerto Rico’s debt crisis for years,” she said, noting that the island’s bankruptcy remains incomplete and that the Puerto Rico Electric Power Authority (PREPA) restructuring has been mired in years of litigation. The island government has paid an estimated $2 billion in Title III legal and advisory fees under the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA.  

Velázquez argued that New York has a responsibility to ensure that its courts are not weaponized against diaspora communities.

“Passing the Champerty Fix Bill would send a clear message that New York stands with working families and diaspora communities, not predatory actors exploiting financial distress for private gain,” she said.

Media outlets have recently highlighted how New York’s legal framework has shaped Puerto Rico’s debt saga: The Brooklyn Eagle reported that the Champerty Fix Bill aims to close a loophole that allows “predatory companies to profit from nations and territories in financial distress,” noting that much of Puerto Rico’s debt litigation has been driven by entities that bought bonds specifically to sue. The outlet emphasized that the bill could ease PREPA’s costly restructuring battles.

The American Prospect noted that most of the world’s sovereign debt is governed by New York law, giving Albany outsized influence over how hedge funds pursue distressed-debt strategies. The publication described the champerty fix as a “small change” with potentially global implications for curbing predatory lending.

The reports illustrate how New York’s legal environment has become a central battleground for hedge funds seeking leverage over struggling governments -- and why Puerto Rican advocates have pushed for reform.

Velázquez echoed long-standing criticism of “vulture fund” tactics: buying deeply discounted debt, aggressively suing in New York courts, and extracting high returns through judgments or settlements. Puerto Rico’s experience -- across general obligation bonds, the Puerto Rico Sales Tax Financing Corporation, and PREPA -- has become a case study in how litigation strategies can prolong economic instability.