Rep. Raul Grijalva (D-AZ), Chairman of the Natural Resources Committee of the U.S. House of Representatives, has written a letter to Natalie Jaresko, Executive Director of the Puerto Rico Financial Oversight and Management Board (FOMB), asking for an investigation into alleged insider trading among creditors.
Chairman Girjalva was joined by fellow Members of Congress José Serrano (D-NY), Nydia Velázquez (D-NY), Alexandria Ocasio Cortez (D-NY), Darren Soto (D-FL), Adriano Espaillat (D-NY), and Jesús “Chuy” García (D-IL).
New York Congressional Representatives José Serrano, Nydia Velázquez, Alexandria Ocasio Cortez, Carolyn Maloney, and Adriano Espaillat also wrote to the New York state attorney general this summer asking for an investigation of possible insider trading on the part of firms in New York. “Wall Street continues to pillage and profit off of Puerto Rico’s $129 billion debt crisis,” they wrote.
Unsatisfied with the actions taken, Grijalva asks the FOMB to “ensure a thorough, independent investigation into the serious insider trading allegations levied against hedge fund creditors in the context of the restructuring of Puerto Rico’s central government debt.”
Creditors have asked the bankruptcy court to complete restructuring of Puerto Rico’s debt quickly. In light of that request, Grijalva wants to be sure that an investigation of possible insider trading is completed before the restructuring.
“These insider trading allegations put the integrity of the restructuring proceedings into question, placing a cloud of illegitimacy over a process the result of which could bind the residents of Puerto Rico and all creditors for decades,” wrote Grijalva.
On February 25, 2020, a motion filed by the Committee of Unsecured Creditors expressed concern that some hedge funds were not being transparent about their financial activities as required by the Federal Rule of Bankruptcy Procedure 2019. “These include the possibility that hedge funds traded on non-public information while using the PROMESA restructuring proceedings to artificially manipulate bond markets,” says the Grijalva letter.
The letter details allegations made by bondholders and by a journalist who described “apparent massive insider trading.”
Judge Laura Taylor Swain ordered several hedge funds to provide additional information, and analysis of this information raised red flags. It was at this point that the New York lawmakers asked for an investigation into the hedge funds located in their state. The National Public Finance Guarantee Corporation then filed a motion requesting an investigation.
“Various parties in the restructuring proceedings, public interest organizations, and Members of Congress have expressed concerns that some hedge funds may have engaged in unlawful behavior,” the Grijalva letter continues.
“However, on October 6, 2020, hedge fund groups filed a motion asking the judge to impose strict deadlines to finalize a restructuring agreement that failed to mention the motion filed just the day before requesting an investigation into their behavior. They attempt to make the case that a quick finalization of a restructuring agreement is in the best interest of Puerto Rico. Nevertheless, a restructuring agreement tainted by suspicion of unlawful activity and unjust enrichment should not be an acceptable path forward.”
Apparently, the repeated requests for investigations have not borne fruit.
“A lot is at stake; a final restructuring agreement could bind all creditors and the residents of Puerto Rico for decades,” Grijalva points out in his letter. “While the residents of Puerto Rico, including some creditors, have faced a lengthy economic crisis, austerity measures, hurricanes, earthquakes, and the COVID-19 pandemic, hedge funds may have unlawfully used the restructuring proceedings to make significant profits. We urge you to support a thorough, independent investigation into potential wrongdoing on the part of hedge funds to ensure the integrity and public confidence in a final restructuring agreement, and to not proceed with restructuring negotiations without one.”
The letter concluded with a request for a timely response.