Oversight Board sues 20+ banks, other parties to recover $1B in excess payments
The Financial Oversight and Management Board for Puerto Rico filed complaints to recover more than $1 billion from holders of bonds issued in excess of Puerto Rico’s constitutional debt limit, and from firms and advisors that helped with the issuance of those bonds.
The Oversight Board filed a claim against more than 20 banks, law firms and other parties to recover fees they earned when they helped issue nearly $9 billion of bonds by the Commonwealth of Puerto Rico and certain instrumentalities.
“These parties aided and abetted the Government Development Bank’s breach of its fiduciary duty to the people of Puerto Rico and, as a result, were unjustly enriched by receiving hundreds of millions of dollars in fees,” the Oversight Board said in a statement.
“The people of Puerto Rico have been damaged by these parties in an amount to be determined at trial and are therefore liable for damages caused as a result of the underlying breaches of fiduciary duty,” it added.
The Oversight Board’s action drew praise from the Citizen Front for the Debt Audit and the Citizen Commission for an Integral Credit Audit, which in a joint statement claimed “it’s time for the accomplices and principal creators of this fiscal crisis — these banks, investment firms, law firms and audit firms that generated millions in commissions from illegal emissions — to respond,” said Eva Rodríguez-Prados, spokeswoman for the Front for the Debt Audit.
“For those of us who have been calling for a comprehensive audit of the debt, today shows that we were right and we celebrate that the Oversight Board has finally heard the demands of the people and has taken an important step so that those truly responsible for this crisis respond,” she said.
The Oversight Board intends to proceed with the clawback litigation against large bondholders who own at least $2.5 million worth of the bonds that are being challenged in the U.S. District Court for the District of Puerto Rico.
“Holders of smaller amounts of bonds will not be affected — they will not have to pay back any principal or interest they received from their investment in the challenged bonds,” said David Skeel, a member of the Oversight Board’s Special Claims Committee.
Some bondholders may have relied on information provided by the issuers, underwriters, and other professionals and lenders when they invested in the bonds.
“The Oversight Board did not take the decision to claw back payments lightly,” Skeel said. “However, Puerto Rico’s taxpayers should not have to shoulder payments the government made to big investors that should never have been made in the first place.”
