New claims committee has little time to decide if Puerto Rico debt should be rejected
SAN JUAN – A Special Claims Committee created by the Financial Oversight and Management Board will evaluate the findings of an investigation into the causes of the island’s conducted by the firm Kobre & Kim to determine potential claims that can benefit the debtors.
“The first phase of this investigation was diagnostic. Are there causes of actions in various ways and what can we do to ensure this does not happen again,” noted David Skeel, a member of the fiscal oversight board, during a hearing Tuesday. Along with Skeel, board members Ana Matosantos, Arthur Gonzalez and Andrew Briggs make up the Claims Committee.
Throughout the hearing, the firm Kobre & Kim emphasized that the goal of the probe was to determine what contributed to Puerto Rico’s $72 billion debt and not to put the blame on specific individuals.
“The goal of the report has little to do with culpability but more with the facts…. The goal was to identify for the public the relevant facts of the fiscal crisis and to leave for the public and the politicians the goal of liability,” John Couriel of Kobre & Kim said.
Time is of the essence, however, because May is the deadline for debtors in proceedings brought under Title III’s debt adjustment of the Puerto Rico Oversight, and Economic Stability Act (Promesa) to exercise avoidance powers to recover certain transfers of property such as preferences or fraudulent transfers or to void liens. “The focus is going to be whether there are causes of action that could bring money,” Skeel said.
The documentation gathered by the investigator is slated to be made public according to an exit plan presented to Judge Laura Taylor Swain that also contains procedures for establishing confidentiality disputes, according to court documents. None of the documents have been made public.
The Unsecured Creditors Committee has complained in court about the Government Development Bank’s restructuring agreement, arguing it would release the entity from liability for actions as the fiscal agent of the commonwealth, preventing Title III debtors from pursuing assets. Skeel noted that there was confusion about the scope of the releases that will be allowed as part of the GDB’s restructuring.
“The scope is quite narrow. The releases do not release former executives of GDB. They do not release any of the professionals, any of the banks…. It also applies to current employees of GDB. They should be protected in the current restructuring process…. It is something that we have looked at very carefully,” he said.
On Tuesday, Judge Swain denied the committee’s request to enforce the automatic stay on the GDB restructuring. There is still another adversarial suit pending.
Before the fiscal board’s press conference, a panel of officials from the private sector made several recommendations, including the appointment of a claims trustee. Asked about the proposal, Skeel said, “We don’t know. The new committee was just formed. What we will do is look at this report, look for potential causes of action and act on them…. We will bring litigation where it is appropriate.”
Matosantos said the special committee will not only file claims, but will also make referrals to the Justice Department and make suggestions for changes to government operations.
“A lot of the issues that were raised are already part of the Title III case,” Matosantos said. Some of these issues include the legality of the 2014 bond issue and whether Puerto Rico violated its constitutional debt limits.
Asked if the board would support parallel probes into the debt, such as the one proposed by the Citizens Committee for an Audit of the Debt, Couriel said the report speaks for itself. “As far as I am concerned, we were able to identify what kind of decisions could have been taken,” he said.
Asked if the firm reported any misconduct to the board, Couriel said, “The report is the answer…. The report speaks for itself as to the degree of misconduct that we found….”
Alvin Velázquez, associate general counsel of the Service Employees International Union (SEIU), told Caribbean Business that the board needed to go after the banks and firms that advised the government on bond issuances instead of going after people because that is not where the money is.
During the hearing, there was a silent protest by a group of individuals who held a sign that read, “The board is lying.”