Is the board overseeing the territory’s bankruptcy unconstitutional?

“ARE YOU and your client here just to defend the integrity of the Constitution?” asked Samuel Alito, an associate justice of the America’s Supreme Court, on October 15th. “Or would one be excessively cynical to think that something else is involved here, involving money?” The court had heard arguments from Donald Verrilli, for the board overseeing Puerto Rico’s bankruptcy; Jeffrey Wall, for the federal government; and Theodore Olson, to whom the judge’s remarks were addressed. His client is Aurelius Capital Management, a hedge fund that invests in distressed debt. At stake are $125bn of creditor claims.

Aurelius was founded in 2006 by Mark Brodsky, formerly of Elliott Management. Both funds were involved in a fight with Argentina about its bonds in 2014, during which Cristina Fernández de Kirchner, then the president, dubbed them “vultures”. They were among six funds that held out for full repayment. In 2016 they settled favourably and were paid $9.3bn. Aurelius now aims to get the Supreme Court to declare the Puerto Rico oversight board unconstitutional, in the hope of improving on its offer to the territory’s creditors of 35-45 cents on the dollar.

In 2014 rating agencies downgraded Puerto Rico’s debt. It ended up defaulting. In 2016 Congress passed the Puerto Rico Oversight, Management and Economic Stability Act (...