In January 2013, the U.S. Court of Appeals for the Second Circuit (Court of Appeals) heard oral arguments in a case involving whether the U.S. Foreign Sovereign Immunities Act (FSIA) bars hedge funds from enforcing their rights relating to notes purchased from a privately held foreign bank that was later nationalized by a foreign government.  The U.S. District Court for the Southern District of New York (Court) previously held in the same matter that no waiver of immunity or statutory exception applied to eliminate the bank’s sovereign immunity protection, notwithstanding the fact that the hedge funds purchased the notes while the bank, which had expressly consented to New York jurisdiction and law, was still private.  The Court’s decision appears to reflect a strong preference for preserving sovereign immunity even in instances when, prior to nationalization, the notes were purchased from a private entity that expressly consented to jurisdiction.  By contrast, see “Hedge Funds Win Battle to Enforce Argentina’s Defaulted Bonds as Second Circuit Upholds Ruling that Argentina Violated Pari Passu Clause by Paying on New Bonds While Refusing to Pay on Defaulted Bonds,” Hedge Fund Law Report, Vol. 5, No. 43 (Nov. 15, 2012).  If upheld by the Court of Appeals, the pending case may significantly increase the risk hedge funds face from investing in entities that could be nationalized by foreign governments.  This article summarizes the Court’s holding and analysis in this case, with a particular emphasis on the Court’s approach to application of the FSIA in this context.  See also “The Impact of Asymmetric Information, Trade Documentation, Form of Transfer and Additional Terms of Trade on Hedge Funds’ Trade Risk in European Secondary Loans (Part Two of Two),” Hedge Fund Law Report, Vol. 4, No. 38 (Oct. 27, 2011).