Seven members of Congress urge Puerto Rico board to delay debt negotiations

Bonds

Seven members of the U.S. House of Representatives have sent a letter to the Puerto Rico Oversight Board asking it to postpone debt negotiations until an investigation of insider trading can be completed.

The seven Democratic members of the House sent the letter Wednesday to board Executive Director Natalie Jaresko.

U.S. Rep. Raúl Grijalva and six other members of Congress has sent a letter to the Puerto Rico Oversight Board seeking an investigation into alleged insider trading of Puerto Rico bonds.

Bloomberg News

The Representatives signing the letter were: Raúl Grijalva, D-Ariz.; Jesús García, D-Ill.; Alexandria Ocasio Cortez, D-N.Y.; Adriano Espaillat, D-N.Y.; José Serrano, D-N.Y.; Darren Soto, D-Fla.; and Nydia Velázquez, D-N.Y.

Grijalva is chairman of the House Natural Resources Committee, which oversees Puerto Rico and the other U.S. territories. García, Soto, and Velázquez are also members of the committee.

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“We are writing to respectfully request that you ensure a thorough, independent investigation into the serious insider trading allegations levied against hedge fund creditors in the context of the restructuring of Puerto Rico’s central government debt is completed before continuing to negotiate a restructuring agreement,” the lawmakers wrote.

“These insider trading allegations put the integrity of the restructuring proceedings into question, placing a cloud of illegitimacy over a process the result of which could bind the residents of Puerto Rico and all the creditors for decades.”

According to the lawmakers, “hedge funds may have unlawfully used the restructuring proceedings to make significant profits.”

On Oct. 6 National Public Finance Guarantee filed a motion asking the Puerto Rico bankruptcy court, the U.S. District Court for Puerto Rico, to have the United States Trustee conduct a 60-day investigation into the alleged trading. Since then the investment funds have filed replies with the court saying they did nothing wrong.

The Bond Buyer solicited a response to the letter from one of the fund groups, the Lawful Constitutional Debt Coalition, but the group didn’t immediately respond.

In response to National’s motion, earlier this month the board told the court that the motion has no merit because “there is no provision in Title III [of the Puerto Rico Oversight, Management, and Economic Stability Act] for the appointment of an examiner or trustee.” Instead, National could conduct “confirmation discovery” under the control of U.S. Magistrate Judge Judith Dein at its own expense.

On Thursday afternoon the board said it was crafting a response to the Congressional letter.

Since the National filing the hedge fund groups have made additional disclosures, which the lawmakers dismissed as “not a substitute for the thorough investigation that is needed to ensure the integrity of the restructuring process.”

The Committee on Natural Resources has oversight over the Puerto Rico Oversight Board but doesn’t directly control it. House and Senate leaders are expected to name six of its seven members in the next few months. Pres. Trump named Justin Peterson to the board in early October.

The Democrats currently can name three of the six remaining seats, as long as Trump approves the nominations. House Speaker Nancy Pelosi, D-Calif., is able to name two and Senate Minority Leader Charles Schumer, D-N.Y., is able to name one.

If the November 3 election gives the Democrats control of the Senate and if Senate Majority Leader Mitch McConnell and Trump don’t act during the “lame duck” period, the Democrats could end up naming four of the remaining six members after the new Congress is sworn in on Jan. 3.

According to Puerto Rico commentator Cate Long, House Minority Leader Kevin McCarthy, R-Calif., may name John Nixon as one of his three or more suggested candidates to the board. If that happens, normally Trump would then select Nixon or one of the other two candidates.

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