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Oversight Board sues PREPA fuel suppliers, laboratories over fraudulent payments

The Special Claims Committee of the Financial Oversight and Management Board for Puerto Rico today filed a complaint against several fuel suppliers and laboratories seeking to recover potentially billions of dollars in fraudulent payments made by the Puerto Rico Electric Power Authority.

The Oversight Board’s complaint alleges that between 2002 and 2015 certain fuel suppliers received massive overpayments and other improper compensation from PREPA, which is required by contract and environmental regulations to purchase only high-grade fuel oil, which is more expensive and cleaner than low-grade oil, the Oversight Board said in a statement.

Fuel oil purchases are PREPA’s single largest expense.

Fuel companies Trafigura and Vitol allegedly supplied PREPA with oil that did not meet the applicable contractual or regulatory specifications, but nonetheless received payment from PREPA at the price of the higher quality fuel oil.

The complaint also alleges that suppliers were aided by the laboratories Carlos R. Mendez & Associates, Inspectorate America Corp., and Altol, who received payments for falsifying test results concerning the fuel oil suppled to PREPA.

These payments contributed to PREPA’s insolvency by increasing the cost of its operations and causing PREPA to slide deeper into debt. The Special Claims Committee is asking the U.S. District Court for the District of Puerto Rico for authority to recover those fraudulent payments for the benefit of PREPA’s stakeholders.

“The Oversight Board has a responsibility to recover payments that were made illegally,” said David Skeel, a member of the Oversight Board’s Special Claims Committee. “Based on the facts known, PREPA’s customers and creditors were harmed and we intend to pursue those claims vigorously.”

A group of PREPA customers already filed a lawsuit against the fuel suppliers and laboratories, as well as PREPA insiders and the public corporation itself.

That class action litigation is subject to the stay the U.S. District Court put in place under the Puerto Rico Oversight, Management, and Economic Stability Act of 2016 (PROMESA.)

The Special Claims Committee adopted the factual allegations of the Class Complaint in support of the claims of overpayments.

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This story was written by our staff based on a press release.

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