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Fiscal board publishes Puerto Rico Debt Investigation Report

By on August 20, 2018

SAN JUAN – The Special Investigation Committee of the Financial Oversight and Management Board for Puerto Rico published Monday the “Debt Investigation Report” prepared by Kobre & Kim LLP, which was hired as the independent investigator.

The nearly 600-page report includes the results of its investigation into Puerto Rico’s debt and its connection to the current fiscal crisis. The board’s Special Investigation Committee also announced it will conduct a public hearing Tuesday, Sept. 18 in Puerto Rico, “to give interested parties an opportunity to hear and be heard regarding the results of the Report,” a release with a link to the report reads.

“As of May 3, 2017, Puerto Rico had approximately $74 billion of bond debt and $49 billion of unfunded pension liabilities. For an economy of Puerto Rico’s size, the burden of this debt has been catastrophic—it has been a financial, and ultimately a humanitarian, catastrophe. The toll it has taken on the people of Puerto Rico begs a pressing question: How did it happen?

“This Report, like the Independent Investigation upon which it is based, aims to answer that question based on the facts. On the same basis, it offers recommendations for the people of Puerto Rico, and the policymakers who represent them, to consider in making sure they never have to go through all this again,” the report’s executive summary reads.

The report comes after the board announced Aug. 2 that “pursuant to its authority under the bipartisan Puerto Rico Oversight, Management and Economic Stability Act” (Promesa) it would conduct an investigation “to review the fiscal crisis and its contributors, and examine Puerto Rico’s debt and its issuance, including disclosure and selling practices,” Monday’s release says.

FOMB Final Investigative Report Kobre & Kim 20180820 (Text)

It named a Special Investigation Committee, composed of board members Ana Matosantos, David Skeel and Arthur González, “and conducted a competitive process—including a request for proposals—to identify and select an independent firm of the highest caliber to conduct the investigation. The Special Investigation Committee engaged Kobre & Kim LLP as the Independent Investigator on September 1, 2017,” the board explained.

Kobre & Kim, the board added, “is a well-recognized, conflict-free firm focusing on disputes and investigations with highly-regarded expertise in the fields of asset tracking and recovery, investigations and monitorships and insolvency. Its selection was based, among other factors, on its professional qualifications, including its relevant experience in conducting investigations and monitorships, its ability to conduct a review of evidence in both English and Spanish, its knowledge and experience in securities law and the municipal bond market, its knowledge of government budgeting and fiscal management, its knowledge and experience in insolvency and asset tracking, and its independence as a conflict-free firm.”

“The 10-month investigation involved an extensive evaluation of evidence from many sources. We conducted over 100 witness interviews and reviewed voluminous productions of documents in both English and Spanish,” John Couriel, of Kobre & Kim, was quoted as saying in the board’s release.

“Confidentiality was a key component of the investigative process, including negotiations with witnesses and the Title III Committees regarding cooperation and sharing of materials, as well as the Title III Court’s approval and enforcement of procedures for the treatment going forward of materials collected as part of the investigation. It was an independent process overseen by the Special Investigation Committee of the Board,” added Farrington Yates, also of Kobre & Kim.

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