According to The Wall Street Journal, three hedge funds that own Puerto Rico general obligation (GO) bonds have set up their own committee in an effort to get paid back the money they are owed. Court records indicate that GoldenTree Asset Management, Monarch Alternative Capital, and Whitebox Advisers, which collectively own about $800 million of GO debt, want to distinguish themselves from the other bondholders whose claims have recently come under question.
Their committee formation comes just weeks after Puerto Rico’s fiscal oversight board,known as the Financial Oversight and Management Board (the “Board”), raised questions about whether $6 billion in general obligations are valid. The bonds at issue were sold after March 2012, including $3.5 billion of high yield general obligations that the island sold in 2014. Monarch, Whitebox, and GoldenTree purchased their GO bonds prior to March 2012.
Puerto Rico Continues to Owe Over $70 billion in Debt.
In its filing, the Board, which is tasked with restructuring the island’s finances in the wake of the latter filing for bankruptcy-like protection in 2017, wants to nullify general obligation bonds that were issued and sold after 2012. The Board claims these bonds place more debt on the island than what its Constitution permits. The Board contends that getting rid of this debt would make it easier for the U.S. territory to restructure its finances.
However, the Board has its own troubles after the U.S. Court of Appeals for the First Circuit recently ruled that in order to be a valid entity, the Board’s members should have been confirmed by the U.S. Senate. Instead, under the Puerto Rico Oversight, Management and Economic Stability Act of 2016 (“PROMESA”), the members of the Board were appointed by U.S. President Obama without any of them undergoing a Senate vote. Now, the Appeals Court claims that the members were not constitutionally appointed and the Board is therefore invalid.
The Appeals Court gave U.S. President Trump and the U.S. Senate 90 days from its ruling to either appropriately confirm the existing Board or replace the Board with new members appointed in accordance with the U.S. Constitution. In the meantime, the Board says it will appeal the First Circuit’s ruling to the U.S. Supreme Court.
Puerto Rico Investor Fraud
While the island continues to struggle with recovering financially, there are thousands of investors who still have not been paid back the money they are owed more than five years after Puerto Rico bonds and closed-end bond funds plunged in value. The vast majority of those bonds and funds are not paying interest or dividends now that the Commonwealth is in its bankruptcy-like proceeding.
Throughout this time, Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) has been hard at work for many investors in helping them fight to recover the losses they sustained because a number of brokerage firms, including UBS-Puerto Rico (UBS-PR), Merrill Lynch, Santander Securities (SAN), Popular Securities, Oriental Securities, the GMS Group, and others, encouraged their brokers to sell these municipal bonds to investors, including small businesses, retirees, and retail investors.
UBS Puerto Rico, in particular, has been accused of not only concealing the risks involved with these securities from investors, while knowing the Puerto Rico bonds were in trouble, but also of recommending that investors take out loans to purchase more of these investments even when they could not afford to take on more. Some investors were never equipped to handle the risks involved to begin with.
Meantime, Santander, another Commonwealth brokerage firm, is accused of selling Puerto Rico bonds to its customers while unloading those same investments from Santander’s inventory at the same time. Investors Claims Against Santander in Puerto Rico are Increasing.
On the island and the U.S. mainland, our Puerto Rico investor fraud lawyers are committed to helping customers recover wrongful losses. Contact the SSEK Law Firm today for a free, no obligation consultation to explore your legal options. Already, the SSEK Law Firm has recovered tens-of-millions on behalf of Puerto Rico investors.