According to lawyers involved in the case, EM Ltd. and NML Capital Ltd. obtained an attachment on $105 million in reserves held by the Argentine Central Bank in New York on Dec. 30.

Then, in a ruling Jan. 12, the investment funds' right to that attachment was denied by Judge Thomas Griesa of the New York Southern District Court.

According to Jonathan Blackman of Cleary Gottlieb, the government's lawyer, the judge agreed with Argentina's argument that the frozen funds were "the property of the Central Bank to be used for central bank purposes and therefore immune from attachment and execution under the U.S. Foreign Sovereign Immunities Act."

However, the attachment was stayed pending appeal, leaving the money frozen until the Appeals Court of the Second Circuit hears an appeal from the two investment funds.

It's a similar situation to that which existed in March 2005, though on a much smaller scale and with less at stake.

At that time, the same two bondholders - EM Ltd. is owned by reclusive Styrofoam cup millionaire Kenneth Dart and NML Capital is associated with emerging markets hedge fund Elliott Associates - obtained a freeze on $7 billion in old defaulted Argentine bonds submitted in the massive global debt exchange that occurred in January and February.

Judge Griesa also ruled against the attachment in that case but kept it in place until the appeals court could rule on it. The appeals judges ultimately upheld his decision, but until then the bonds remained frozen, which meant settlement of the debt exchange was suspended for two months.

Holdout bondholders - those who chose not to participate in the record-breaking debt restructuring - hold some $20 billion in defaulted Argentine debt between them. Argentina has ignored their claims and made no indication it intends to clear these debts. Most such bondholders are now resorting to legal tactics.

But although many have received summary judgments in New York and other courts recognizing their right to payment, it has proven very difficult to attach assets to enforce those claims.

That's mostly because of special immunity laws and international treaties that protect various classes of offshore sovereign assets from such legal actions. Under U.S. law, protected assets included Central Bank reserves used for normal central banking activity.

In this case, the $105 million, placed in accounts at either the Federal Reserve Bank of New York or correspondence accounts at commercial banks, formed part of a global gathering of reserves that Argentina undertook earlier this month before paying down all its $9.5 billion debt to the International Monetary Fund.

According to a transcript of a conversation Judge Griesa held with the different parties' lawyers on Jan. 6, one that was partially published in Argentine daily Ambito Financiero Thursday, NML's lawyer, Robert Cohen, argued that the context of the one-off IMF payment meant the money effectively converted from central bank assets into sovereign assets.

He argued this was so because the IMF paydown was facilitated by a presidential decree that consigned a special new category of "freely available" reserves to a purpose well outside the normal activity of a central bank. That indicated that the reserves were being controlled by the sovereign government, not the central bank.

And once they had become sovereign assets, he said, they were used for a commercial, not uniquely sovereign purpose - the repayment of debts - and were thus ineligible for immunity protection.

A spokesman for NML Capital declined to comment.

In the same transcript, the Central Bank's lawyer, Joseph Neuhaus, is quoted refuting that argument. He said repaying multilateral organizations is a "historical function of the Central Bank," a "classic" Central Bank activity.

The government's and the Central Bank's lawyers also rebutted the plaintiffs' arguments that the presidential decree proved the conversion of the central bank assets into sovereign assets. The transcript quotes Neuhaus as saying the decree "does not change the property rights" attached to the reserves, which remain the property of the Central Bank.