Puerto Rico Bond Cases: 1st Circuit Revives Pension Fund Lawsuit & FINRA Arbitration Panel Orders Oriental Financial Services and Santander Securities to Pay Over $808K

The U.S. Court of Appeals for the First Circuit has revived a Puerto Rico bond fraud lawsuit brought by Puerto Rico Employee Retirement System bondholders. The pension fund is the largest on the island and the plaintiffs are suing the territory’s government.  The bondholders brought their case after former Puerto Rico Governor Alejandro García Padilla put into effect a fiscal emergency law that blocked the repayment of the debt owed to the Employee Retirement System, diverting the funds that were promised to the Employee Retirement System as collateral. Invoking the fiscal emergency law has allowed the island to keep up its public services. The pension bondholders, however, are arguing that diverting the money is hurting them because there may not be enough money left to repay the bondholders what they are owed.

Also, under PROMESA (the Puerto Rico Oversight, Management and Economic Stability Act) which is the federal rescue law that was passed last year, lawsuits brought against the island over debt payments have been temporarily frozen to give the territory time to restructure the deals it would need so it can try to pay back its $70 billion of debt the Commonwealth owes. However, this has not stopped creditors from suing Puerto Rico for their money. Many bondholders are contending that the fiscal emergency law is not constitutional and that the litigation stay should not affect them.

Although the First Circuit did not rule on whether the funds owed to the bondholders should continue to be repaid, it ordered a lower court to decide whether the case could go forward. The appeals court, however, blocked a similar lawsuit brought by holders of the bonds issued by Puerto Rico Highways and Transportation Authority (PRHTA). Those same bondholders also believe that their collateral was confiscated. The First Circuit said that these plaintiffs did not succeed in demonstrating that they were harmed.

Meantime, in Puerto Rico, a judge is currently deliberating over whether to halt another bond fraud lawsuit by invoking the litigation stay. This case involves general obligation bondholders who are owed $13 billion. The plaintiffs claim that they are the ones who should get the sales tax revenue that was promised to another group of creditors.

Puerto Rico Bond Fraud Cases 
For more than three years, our Puerto Rico bond fraud lawyers have worked with investors in trying to recoup their investment losses that were sparked by the drop in value of Puerto Rico bonds and closed-end bond funds in 2013. Many investors were not apprised of the risks and should never have gotten involved in these municipal bonds.

Unfortunately, there are brokers and firms that placed their financial interests over that of investors. If you believe your Puerto Rico bond fraud losses are a result of broker fraud or some other form of negligence and your financial representative worked for UBS Puerto Rico (UBS-PR), Merrill Lynch, Morgan Stanley (MS), Banco Santander (SAN), Banco Popular, or Oriental Financial Services, contact Shepherd Smith Edwards and Kantas, LLP.

In a recent Puerto Rico bond fraud case, a Financial Industry Regulatory Authority Panel has ordered Oriental Financial Services to pay a claimant $808,000. The brokerage will also have to pay 3% in interest, almost $42,000 in costs and $133,000 in legal fees. A confidential settlement was arrived at between the claimant and co-respondent Santander Securities.

Puerto Rico Bondholder Lawsuit Revived on Appeal, The Wall Street Journal, January 12, 2017

Puerto Rico Oversight, Management, and Economic Stability Act


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