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Prepa Board Orders Probe into Sen. Hatch’s Claims of Irregularities

By on July 14, 2016

SAN JUAN—The Puerto Rico Electric Power Authority (Prepa) board asked its advising firm Cleary Gottlieb Steen & Hamilton LLP to investigate U.S. Sen. Orrin Hatch’s claim of a “confidential agreement” between Prepa and the U.S. Treasury Department that may have benefitted certain bondholders.


U.S. Sen. Orrin Hatch

Carlos Gallisá, Prepa’s consumer representative at the board, said that at a meeting on Wednesday he inquired about a letter written by Hatch on June 23. In the letter, Hatch petitioned the Securities and Exchange Commission to investigate confidential agreements between the U.S. Treasury Department and government instrumentalities, including Prepa, in its probe into possible illegal actions by advisers, underwriters and brokers that led to Puerto Rico’s economic difficulties.

Gallisá said Prepa’s governing board chair, Harry Rodríguez, told him that that the board did not know anything about such an agreement. Another source said that Prepa’s chief restructuring officer, Lisa Donahue, also claimed to have no knowledge of a confidential agreement.

In the letter, however, Hatch quoted directly from Prepa’s agreement made in 2015 to back up his claim that Treasury officials may have superior knowledge of the true state of the island’s finances that is different from what has been made public.

Hatch said there appears to be “information asymmetries” between investor groups and government officials, including local and U.S. Treasury officials.

The board asked Cleary Gottlieb to investigate the existence of the agreement.

“I suspect this is something that was negotiated by the Government Development Bank behind the Prepa board’s back,” Gallisá said.

Hatch claims in the letter that James Millstein, a former Treasury official who heads a advisory firm that assists the government on its debt restructuring, and Antonio Weiss, a current U.S. Treasury official, discouraged local government officials from meeting with creditors to prevent debt resolution negotiations.

Such alleged actions were carried out in a bid to force Congress to enact legislation to create a federal oversight board that would have the power to restructure the debt.

Gallisá noted that Weiss and Millstein in the past have worked for Lazard, a financial advisory and asset management firm. “I suspect that they wanted to benefit certain bondholders,” he said.

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