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Puerto Rico legislator condemns alleged fraud scheme at government bank

By on August 2, 2017

SAN JUAN – After the Fiscal Agency and Financial Advisory Authority (Fafaa) presented this week in federal court a motion in opposition to a request for an investigation into the Puerto Rican government’s public debt, Popular Democratic Party (PDP) Rep. Manuel Natal alleged Wenesday that the move was a scheme by Gov. Ricardo Rosselló‘s administration to hide a multimillion-dollar fraud scheme at the Government Development Bank (GDB).

With his denouncement, the minority party legislator also referenced House Bill 1164, which he called an attempt to legalize the “multimillion-dollar theft” the GDB will allegedly perpetrate against municipalities, in addition to legitimizing hundreds of millions of dollars in debt he said was illegally contracted.

“The governor of Puerto Rico began denying the people of Puerto Rico the transparency he promised by eliminating the Debt Audit Commission. He then said that audit would be done in court. However, now, as the public debt’s restructuring process takes place in court, Rosselló opposes the request made by a creditor group to conduct an investigation into the debt issued by the GDB and some private banks in Puerto Rico. What is the governor afraid of?” Natal questioned in reference to the objection presented Monday by Fafaa before federal Judge Laura Taylor Swain.

A committee that represents unsecured creditors in Puerto Rico’s bankruptcy cases under Title III of the federal Promesa law asked the court on July 21 to authorize a discovery process to investigate the role of Banco Popular, Banco Santander and the GDB in the commonwealth’s debt issuances and transactions.

Fiscal board to investigate Puerto Rico debt

Natal reiterated his complaints regarding the illegality of a considerable portion of the island’s debt and emphasized the language included in H.B. 1164, which he assured is in intended to legitimize illegal debt.

“Our allegations about the illegality of the public debt have been confirmed. Not only because of the governor’s refusal to audit the debt, but also because of the provision included in the GDB bill to legalize any crime committed when contracting the debt,” he said.

Article 701 of H.B. 1164 establishes that “[a]ll bonds and notes issued by any Government Entity to GDB and all loans made by GDB to a Government Entity prior to the effective date of this Act, all procedures followed for the authorization, issuance and/or sale of said bonds, notes and loans, and for the execution, sale and/or delivery of said bonds, notes and loans, are hereby confirmed, notwithstanding any lack of authority of the Government Entity, its chief executive or mayor, board of directors or municipal assembly or of any other Person or body to authorize and issuance, or to execute, sell, exchange and/or deliver said bonds, notes and loans, and notwithstanding any defect or deficiency of form or substance in the procedure for the authorization, issue, sale, exchange and/or delivery of said bonds, notes and loans and the same shall continue to be valid and binding obligations of the applicable Government Entity in accordance with their terms.”

Natal warned that the alleged scheme aims to protect individuals and institutions, both public and private, that have run the island’s public finances during several administrations.

Rep. Manuel Natal Albelo (Juan J. Rodríguez/CB)

“Carlos García, current member of the fiscal control board, and Jorge Irizarry, spokesman for the group Bonistas del Patio Inc., starred in a 2008 multimillion-bond issuance plagued by conflicts of interest, and would be at least two of the beneficiaries of this scheme,” he said.

Natal broke down what he believes are developments that reveal a scheme to defraud government coffers. The representative recalled that, five days before being elected in 2008, former Gov. Luis Fortuño held a meeting with García to offer him the position of GDB president. On Dec. 23, 2008, while the recommendations of the Advisory Council for Economic and Fiscal Reconstruction (Caref by its Spanish acronym)—a group of business people commissioned for an analysis of the government’s fiscal situation—had not yet been publicly clarified, a GDB negotiation resulted in the issuance of $1.23 billion in new debt that would be used at the discretion of García, the GDB’s president at the time.

The representative pointed out that one of the red flags of that negotiation was that, on the one hand, there was the outgoing GDB president at the time, Jorge Irizarry—who is now a spokesman for Bonistas del Patio local creditor group—and on the other hand was the incoming president of the GDB, Carlos García, serving as president of Banco Santander.

“The most curious thing is that when Carlos García leaves the GDB, after having authorized the issuance of over $19 billion, after the underwriters, the banks of Puerto Rico that helped in those issuances, received about $235 million in net profit, Carlos García went on to become the chief of staff of the president of Banco Santander. The GDB vice president under Carlos García became the president of Santander, and the one in the top management of that bank, Juan Carlos Batlle, Fernando Batlle’s brother, became the president of the GDB. These conflicts are what’s sought to be investigated in federal court and are what the Rosselló administration has denied making way for,” he assured.

“But there is another angle, the executive director of Fafaa, which was the government institution that opposed a legal recourse before federal court, Gerardo Portela, the position he occupied before being Fafaa’s executive director, was vice president of Santander Securities,” Natal said.

Last week, Judge Swain delegated the creditor committee’s inquiry to Magistrate Judge Judith Dein. The matter will be heard in San Juan Aug. 9 as part of the omnibus hearing on Title III cases.

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