According to Puerto Rican local new site Noticel.com, the US Territory’s Financial Oversight and Management Board, which has chosen Brown Rudnick as its claims advisor, will pay the law firm $790 an hour—a figure that reportedly will rise 4% annually and does not include its team’s travel expenses that the island’s government will also pay for. Considering that the Fiscal Oversight Board was appointed to help Puerto Rico restructure its financing and deal with its over $70 billion of debt, there are significant questions as to whether this is the best allocation of the island’s limited financial resources.
Another local news source, Caribbean Business, reports that Brown Rudnick’s job will be to help the Board’s Special Claims Committee look into possible claims that may result from the findings in the debt probe recently conducted by Kobre & Kim. The disputes and investigative international law firm had put together a 600-page report on its investigation, which was published a few months ago.
News of Brown Rudnick’s appointment came almost immediately after the Official Committee of Unsecured Creditors asked for discovery to look into possible claims. According to Caribbean Business, the Committee wants to know if the Puerto Rican government has “claims toward third parties,” which the Committee feels that Kobre & Kim did not look into during its probe.
The Fiscal Oversight Board and Special Committee reportedly consider the retention of Brown Rudnick as key to determining whether parties that played a role in Puerto Rico’s economic woes took part in “actionable conduct.” Brown Rudnick is known for its bankruptcy and restructuring practices but not, necessarily, as a firm that sues financial firms.
The Board’s hiring practices and the individuals and entities it turns to for help in restructuring Puerto Rico’s debt have come under scrutiny. Recently, lawmakers in the U.S. House of Representatives brought forward a bill that would mandate that those contracted to assist with the territory’s debt restructuring – including accountants, lawyers, consultants, and others – disclose any ties or activities that could potentially be conflicts of interest.
The lawmakers saw the need for such legislation after it became public knowledge that McKinsey and Co., one of the Board’s advisers regarding debt restructuring, had previously purchased millions of dollars of Puerto Rico bonds at a reduced rate. The bill is calling for the same disclosure requirements that have to be met under bankruptcy proceedings typically brought under the U.S. Bankruptcy Code’s Chapter 11. Puerto Rico, however, could not file under that bankruptcy code because it is not a U.S. municipality.
Puerto Rico’s court-supervised restructuring process was instead brought under the Puerto Rico Oversight Management and Economic Stability Act ( commonly referred to as “PROMESA”). However, while this “bankruptcy-like” proceeding continues, the U.S. territory continues to struggle with over $70 billion in public debt and more than $49 billion in pension liabilities. Investors are suffering as well, given that the vast majority of Puerto Rico’s bonds are not paying any interest and have fallen significantly in value.
Puerto Rico Bond Fraud
While the bankruptcy continues to play out, thousands of investors are still fighting to recover losses they sustained from Puerto Rico bonds and closed-end bond funds when these investments plunged in value more than five years ago. Unfortunately, too many broker-dealers and their brokers recommended these Puerto Rico investments to customers even when they were not appropriate for the investors’ financial goals, the degree of risk they could handle, or the size of their portfolios.
As a result, many investors sustained catastrophic losses. Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) has been working with investors in Puerto Rico and on the mainland by helping them to bring their Puerto Rico securities fraud claims in Finra arbitration. If you were an investor who lost money because a broker from UBS-Puerto Rico (UBS-PR), Santander Securities (SAN), Banco Popular, Oriental Bank, GMS Securities, Merrill Lynch or another brokerage firm recommended that you invest in Puerto Rico bonds, contact SSEK Law Firm today.