Last night, the U.S. Senate passed a bill to end the exemption of investment firms in Puerto Rico and other U.S. territories that do exclusive business in those islands from the Investment Company Act of 1940, giving the SEC greater jurisdiction over their activities.
Senator Robert Menendez (D-NJ) sponsored the bill with Sens. Orrin Hatch (R-UT), Marco Rubio (R-FL) and Catherine Cortez Masto (D-NV). Menendez, Hatch, and Rubio served on the last Congress’ Task Force on Economic Growth in Puerto Rico, which endorsed the bill, and have long been active on Puerto Rico issues.
A companion bill passed the House of Representatives earlier this year, and the same measure also passed the House during the last Congress. Representative Nydia Velazquez (D-NY) originally proposed it. Co-sponsors in this Congress include Reps. Sean Duffy (R-WI), Jose Serrano (D-NY), Thomas MacArthur (R-NJ), Raul Grijalva (D-AZ), and Luke Messer (R-IN), Puerto Rico Resident Commissioner Jenniffer Gonzalez-Colon (R/NPP), and U.S. Virgin Islands Delegate Stacey Plaskett (D). Velazquez, Duffy, and MacArthur served on the Task Force on Economic Growth in Puerto Rico. Velazquez and Serrano also were born in the territory. Velazquez, Duffy, Serrano, MacArthur, and Grijalva, additionally, played key roles in the enactment of PROMESA.
The legislation responded to losses by Puerto Ricans of about $2 billion in insular bond funds and allegations of conflicts of interest and excessive leverage regarding the funds. One fund firm advised the Government Employees Retirement System and helped it structure a bond offer and, then, bought the bonds and sold the debt to local investors through a Puerto Rico fund.