Imagine that the Puerto Rico Commission for the Comprehensive Audit of the Public Credit is operating and that it calls for public hearings. They are held in a public square and are broadcast on the internet, radio and television.
The international financial press sends its correspondents. The purpose is to question people who can clarify the findings on bond issues that led the government of an island of three million people to have a debt of more than $70 billion.
Public hearings could be divided by bond issues, and the first would be on the issuance of $3.5 billion in General Obligation Bonds (GOs) in March 2014, on which the Commission submitted a preliminary report in 2016. They could extend for several days or weeks (who knows if months) and become one of Puerto Rican television’s most watched programs, as it happened with the hearings on the Cerro Maravilla murders.
The first witness on the issuance of the 2014 GOs would be David Chafey, past president of the Government Development Bank when the transaction was made. José R. Coleman-Tió — who served as executive vice president and general counsel for the GDB, and recently obtained a $37,000 contract as an advisor to the Oversight Board with his company RCT — would also able to provide testimony.
But the star witness would probably be José V. Pagán-Beauchamp, a former Citibank banker who credited himself in his Linkedin social network account, as having “successfully placed” the largest issuance of $3.5 billion in junk bonds in the market. The GDB confirmed that the issue was under federal investigation, and as early as 2014, the U.S. Securities and Exchange Commission fined 13 investment firms for that issue. History is forever documented by the photo of Beauchamp along with his colleagues of the Puerto Rico Treasury Department and the GDB, celebrating under a Morgan Stanley billboard in New York.
Pagán-Beauchamp served as senior advisor, president and executive vice president of finance at the GDB from 2013 to 2016, providing tax advice and oversight of “all funding for the Commonwealth, its agencies and corporations.” He was also responsible for reviewing the controversial “SWAP,” which had a high impact on interests and guarantees for private lending.
But most importantly, he was an audit consultant for several agencies, corporations and municipalities, and his auditing expertise — combined with his background as a banker at Citibank, where he helped reopen the bank’s broker/dealer business in Puerto Rico and worked with municipal funding and government obligations — could greatly help the Commission clarify how the government got its big debt.
Another star witness would be Melba Acosta, Treasury secretary when the issue was made in 2014 and later president of the GDB. former Justice Secretary César Miranda, should be present at the meeting. Acosta transferred responsibility for this issue when it was questioned by the Center for Investigative Journalism in June last year:
“Remember that these issues have opinions of the Justice Secretary and the Secretary would be called to express himself as to the Constitution and all that,” she said. Former Speaker of the House of Representatives, Jaime Perelló, and Senate President Eduardo Bhatia, authors of Law 34 of 2014, which authorized the issue, would also testify.
When both lawmakers were questioned by the Center for Investigative Journalism about that issue last year, they responded with evasives. Perelló said that his “input or approval on the conclusions of any kind of investigation of this type and magnitude would be carried out once the reports are final and the necessary expertise and technical analysis had been integrated into that analysis.”
Bhatia responded that “on the Commission’s preliminary findings, as the commissioners themselves state, there is still a lack of basic information to reach final conclusions, but the more information we can have on hand, the better positioned we will be when we sit down to renegotiate the debt.”
At the conclusion of the most recent meeting of the Audit Committee, Bhatia mentioned who would have to attend as witnesses to a public hearing on the 2014 issue. “You would have to bring in the president of the GDB, you have to bring Melba Acosta, you have to bring the people who worked on that issue to come and explain what the considerations were. Also, the law firms that worked on the issue, as well as bring the entities that put the offer (of the bonds), the underwriters,” said Bhatia.
On behalf of the private sector, representatives of the international law firm Greenberg Traurig, who were in charge of deciding if the bonds were valid and exempt from taxes in the municipal bond market would have to attend.
This firm currently has a contract as legal advisor to the Fiscal Agency and Financial Advisory Authority (AAFAF, for its Spanish acronym) for the negotiation of the Puerto Rico Electric Power Authority’s debt. The Commission would not have much trouble in getting a representative of this firm that is on the island and that can voluntarily attend the public hearing.
Traurig’s representatives would be accompanied by their colleagues from local law firms Pietrantoni, Méndez and Alvarez, who reviewed the government’s statements to see if they complied with applicable laws. Another witness would be a representative of the law firm O’Neill & Borges, current legal advisor to the Oversight Board, which served as an advisor to Barclays and the group of banks that was in charge of selling the 2014 bond issue.
Financial analyst Julio Cabral-Corrada, who worked for Morgan Stanley and collaborated with the government of Puerto Rico on the $3.5 billion bond issue, would also have to sit on the witness stand. He later joined the Stone Lion Capital team, a hedge fund that sought $100 million in bonds from that issue and got the underwriters to award them $30 million.
The experts conducting the hearings will have well-detailed technical questions to ask the witnesses. But one that I can think of for Cabral-Corrada (or any other representative of any vulture fund who bought part of that debt) would be, why would an investment firm with well-trained financial analysts want to buy $100 million in bonds of an issue classified as junk by credit rating agencies Moody’s, Standard and Poor’s and Fitch Ratings?
Now, the thing would become much more interesting when the Commission manages to audit the bond issues during ex-governor Luis Fortuño’s tenure, one of which is also investigated by the SEC.
In the public hearings on these issues, they would have to call to testify, among others, GDB representatives, Carlos García, current member of the Oversight Board, and Juan Carlos Batlle, current adviser to AAFAF through the firm Ankura.
Both could testify on their executions as GDB presidents and executives of Banco Santander, where they worked together with the Board’s trustee, José Ramón González. The latter would be a start witness for the auditing of bond issues during the era of Rafael Hernández-Colon, when he was president of the GDB.
After the interrogations, the press and the public would have the opportunity to ask questions of the witnesses. It is difficult to determine if the composition of the public would be the same as the meetings of the Oversight Board, where chairs are mainly occupied by lawyers, bankers, current and former government officials, including Miguel Ferrer, former UBS president, and Jorge Irizarry, former GDB president and current chairman of Bonistas del Patio, or whether they would avoid showing up for the debt audit hearings for fear of being called to testify.
Serving as witnesses, assuming responsibility and showing the island that human beings from the public and private sector created the debt would be these people’s best contributions. By the way, the Commission would be able to establish conclusively that the crisis is not everyone’s fault, but that there are people directly accountable, before more millions of public funds are disbursed for an unaudited debt.
This is a collective story under construction. Who else would you sit on the bench, and why?