U.S. pols urge Puerto Rico fiscal board to also go after banks, advisers in ‘illegal’ debt

Rep. Nydia Velázquez, D-N.Y., speaks during the House Natural Resources Committee hearing on Puerto Rico’s Electric Power Authority on July 26, 2018. (Screen capture of www.naturalresources.house.gov)

Base request on report that nearly $300 million in fees were paid out

SAN JUAN – Members of the U.S. Congress urged Puerto Rico’s Financial Oversight and Management Board to go after the banks and legal advisers that counseled island officials in relation to $6 billion in “illegal” debt.

The fiscal oversight board and the Unsecured Creditors Committee recently sued in court to annul some $6 billion owed from three bond issuances after 2012, arguing these violated constitutional debt limits.

The letter was led by Rep. Nydia Velázquez and signed by, among other lawmakers, Sens. Bernie Sanders, Charles Schumer, Elizabeth Warren, Edward Markley, Richard Blumenthal and Kristen Gillibrand.

The lawmakers said the three issuances earned banks and advisers hundreds of millions of dollars in the process, with some even managing to “double dip on these deals,” they said.

A report from the Public Accountability Initiative, a local government watchdog group, said underwriting and swap termination fees paid out for the three offerings totaled $293.8 million.

“While the initial step to invalidate a portion of the debt is a positive one, without any legal action against the banks and advisors that counseled the Puerto Rico government to create and market the underlying bonds, we feel Puerto Rico will not be made whole,” they said.

The letter noted that the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) gave the fiscal board power to initiate claims that seek to return fraudulently transferred assets to Puerto Rico’s coffers.

Read the full text of the report by the Public Accountability Initiative here.

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