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Puerto Rico bondholder asks court to disqualify 2 fiscal board members

By on June 14, 2017

SAN JUAN – A local bondholder has asked Judge Laura Taylor Swain to disqualify two Financial Oversight and Management Board members, alleging they contributed to the island’s fiscal crisis and have conflicts of interest in the outcome of Puerto Rico bankruptcy cases.

Ángel Ruiz, a bondholder from Bayamón, claims that José González and Carlos García presided over the Government Development Bank (GDB) and are defendants in a complaint he filed in local courts in October 2015.

It was one of the latest petitions filed in the commonwealth bankruptcy process, which also included motions by the fiscal board seeking to transfer a suit filed by the Center for Investigative Journalism to bankruptcy court from district court.

Also, Judge Swain transferred back to local courts an action filed by Senate Minority Leader Eduardo Bhatia against Gov. Ricardo Rosselló to obtain commonwealth budget documents.

Bondholder Ruiz said that even if the local courts rule against his claim, his motion asking that González and García be disqualified should be evaluated because they contributed to Puerto Rico’s fiscal problems.

“They both…know or should have known, that the Constitution expressly, explicitly and specifically prohibited the issuance of debt in excess of 15% of the average collections or revenues,” he said, adding that the board members have conflicts of interest and should be disqualified from making decisions for the board. In that regard, he included articles by Hedge Clippers, a group that works to find illegality in certain hedge-fund practices, saying González and García allegedly benefitted from bond issuances.

Judge Swain returned Sen. Bhatia’s suit, which seeks the publication of the commonwealth’s budget, to local courts because the controversy deals with a right involving local laws.

Meanwhile, the fiscal board filed a motion to transfer to bankruptcy court a suit filed by the Center for Investigative Journalism that seeks information from the oversight board. The case is currently assigned to Judge Jay A. García-Gregory.  

The fiscal board said the transfer is needed because, among other things, it would avoid the risk of inconsistent rulings on the scope of discovery permitted from the board and whether a stay of the proceeding is appropriate in light of the pending Title III cases.  

Judge Swain set a briefing and discovery schedule for the Aug. 8 hearing on a petition filed by Peaje Investments to have the island’s Highways & Transportation Authority (HTA) stop the retention, or clawback, of toll revenues that back the public corporation’s debt obligations. Among the things the judge mentioned in the schedule is that the list of witnesses for the hearing has to be submitted by June 23 and all related documents by July 14.

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