Five years after the Puerto Rico bond market collapsed, ruining the retirement and life savings of thousands of retail investors, investigators are likely to place much of the blame on the big banks who underwrote and sold the bonds to Mom and Pop clients.
According to recent news reports, an independent investigator has been hired by Puerto Rico’s Financial Oversight and Management Board to investigate policies that contributed to the island’s debt crisis.
The investigators have not only interviewed witnesses but have also issued subpoenas to three banks—UBS, Banco Santander and Banco Popular.
The independent investigation of Puerto Rico’s $74 billion debt crisis will be a comprehensive look at the borrowing that pushed the island into its record-setting bankruptcy, according to the executive director of the FOMB.
“It’s going to be as broad as can be,” Natalie Jaresko, the board’s executive director, said in an interview last year with Bloomberg News. “There’s no desire to limit it in any way. Once you’ve started down this road the only way to get credible conclusions from it is to be broad, open and inclusive.”
Puerto Rico filed for bankruptcy in May 2017 after years of borrowing to cover budget deficits. A U.S. emergency rescue law enacted in 2016 gave the oversight board broad authority over the territory’s finances, including the power to investigate the causes of its crisis.
The report will contain an assessment of the implications of an alleged “revolving door” among the Government Development Bank, UBS, Banco Popular and Banco Santander.
It will also expose the retail selling practices of the banks, the board said in a court document.
It is the first time the FOMB will provide a glimpse into its investigation of the island’s debt. The investigator allegedly has interviewed hundreds of witnesses and examined numerous documents.
While investors have filed over a thousand investment fraud arbitrations seeking compensation for their losses, to date there has been no overall accounting for Wall Street misdeeds which certainly contributed to the bond crash.
Wall Street banks have pointed the finger at the Puerto Rico government for issuing so much debt that it tipped the island’s finances towards bankruptcy. The investigative report will likely pin the lion’s share of the blame on the greedy banks whose bond underwriting enabled the government to continue borrowing until there was no longer any ability to pay interest on the massive debt.
Watch out Wall Street, you are facing your own Mueller investigation. It’s time to pay the piper.
Zamansky LLC is a New York law firm which represents investors in court and arbitration cases against securities brokerage firms and issuers. The firm may represent investors in cases against companies mentioned in this blog. Zamansky LLC also represents investors in arbitration cases against UBS and other brokerage firms regarding Puerto Rico bonds and UBS closed end bond funds and other investments. https://www.puertoricobondfundsattorney.com/en/