Thursday, June 21, 2018

Puerto Rico fiscal board publishes protocol for investigations

By on July 14, 2017

SAN JUAN – Forty-nine days after its adoption, the fiscal control board published Friday the protocol that governs all investigations carried out by the panel according to the powers conferred to it by the federal Promesa law.

The seven board members discussed and adopted the document during an executive meeting held May 26 at the offices of their attorneys, Proskauer Rose, in New York. Executive meetings are not open to the public.

In short, the board and its “agents” will be able to carry out two types of investigative processes: informal and formal. The initiation, nature and developments of any investigation will be confidential. At its sole discretion, the board reserves the right to decide if, when or how much of the content of an ongoing investigation it makes public, if it so chooses.

The fiscal control board adopted the protocol for conducting investigations during an executive meeting on May 26. (Juan J. Rodríguez / CB)

Only if at the end of a formal investigation the board finds misconduct or improper activity—along with the actions it would take, if any—a resolution would be published, at the “appropriate” time, on the body’s website.

It is not known whether there are any board investigations underway.

All documentation on record of any investigation is confidential, “notwithstanding the Board’s general intent to publicly disclose relevant Board materials on a timely basis,” according to the protocol.

The board will publish material from its investigative record only if requested by a court, Congress or Promesa; if already published by another source; or if it determines that disclosure is in the “public interest” or necessary to comply with its obligations under federal law.

Broad reach

Promesa empowers the entity with ample faculties to obtain information, testimony, documents and “materials of any nature” in relation to any matter under investigation by the board and in accordance with the scope of the law. The board can exercise these powers with officials and government entities, at the local and federal levels.

The law also confers subpoena powers to the board, in order to enforce, if necessary, any request for information or testimony made by the panel.

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Regarding the investigations that can be conducted, the protocol established two types of activities: all those subject to the investigative power of the board pursuant to Promesa; and those that fall under Section 104 (o) of the federal law.

The latter empowers the board to investigate “the disclosure and selling practices in connection with the purchase of bonds issued” by the government, ” including any underrepresentation of risk for such investors and any relationships or conflicts of interest maintained by such broker, dealer, or investment adviser as provided in applicable laws and regulations….”

According to Promesa, the board must publish findings under Section 104 (o). The protocol adds that if the entity finds misconduct has occurred as part of an investigation into the sale of Puerto Rico bonds, the board must take the steps it deems appropriate, including the possibility of referring the matter to regulatory agencies.

Those implicated have opportunity to defend themselves

If an investigation preliminarily points to misconduct, the board’s attorneys may notify the people or entities involved of the nature of the investigation and the intent to recommend improper conduct. It must also provide them the opportunity to submit a written statement with their position regarding the investigation.

If after receiving input from the people or entities involved in the investigation, the board’s attorneys understand that the findings of misconduct or undue activity persist, they would provide the panel with their recommendations along with a summary of the evidence and legal analysis of the investigation.

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Once the board receives this information, it will convene an executive meeting to discuss the findings of the investigation and the plan of action suggested by its lawyers. It is then that the members decide what action to take, if any, on the matter, for which they do not have to abide by their counsel’s recommendations.

During an investigation, the board’s attorneys may also “discuss with involved individuals or entities resolution of such matter.” If the board’s counsel determines a proposed solution should be pursued, it would let the board know for it to decide whether to adopt the proposed solution, pursuant to its “duties and responsibilities under Promesa.”

Currently, Jaime El Koury, the board’s legal adviser, is in charge of conducting and overseeing board investigations. As for informal ones, in which the power of subpoena cannot be used, El Koury may initiate them at his discretion, but must notify the board as soon a possible.

In the case of formal investigations, these may only be initiated if the board authorizes them. They may arise from evidence and available information, including findings from informal investigations, that support the initiation of a formal investigation.


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