FILE PHOTO – The flags of the U.S. and Puerto Rico fly outside the Capitol building in San Juan, Puerto Rico May 4, 2017. REUTERS/ Alvin Baez
SAN JUAN (Reuters) – A group of public labor unions and other creditors on Wednesday asked a judge to grant it power to pursue probes into individuals who contributed to Puerto Rico’s fiscal crisis because the U.S. commonwealth’s federally created financial oversight board has failed to do so.
The Official Committee of Unsecured Creditors, which includes Service Employees International Union, American Federation of Teachers, as well as suppliers and contractors to the Puerto Rican government, said the board recently informed the committee it will not pursue claims against advisers, underwriters and public officials involved in debt sales by the island prior to its May 2017 bankruptcy filing.
“The oversight board has alternated between slow-walking a proper investigation into potential causes of action relating to Puerto Rico’s debt issuances, actively obstructing the committee’s own efforts to investigate the debtors’ prior conduct and indebtedness, and simply allowing causes of action to lapse by failing to anticipate and meet statutory deadlines,” the motion stated.
The committee asked the judge overseeing the island’s bankruptcy to appoint it as a trustee with the power to investigate past debt issuances, as well as pursue fraud, negligence, and breach of fiduciary duty claims against individuals.
The board, which is attempting to restructure about $120 billion of the island’s debt and pension obligations through a form of bankruptcy, said on Twitter that while it rejected “actions based on fraud and other speculative theories,” it has not ruled out suing to recoup fees paid to underwriters and others.
The committee’s motion zeroed in on $3.5 billion of general obligation (GO) bonds Puerto Rico issued in March 2014 just months before its government enacted a bankruptcy statute that was subsequently voided in court and a declaration by its then-governor that the island’s debt was “unpayable.”
The oversight board in January asked the court to invalidate the 2014 bonds, as well as GO bonds sold in 2012 for violating a debt limit in the Puerto Rico Constitution. While U.S. District Court Judge Laura Taylor Swain has yet to rule on that and other motions seeking to void bonds, the statute of limitations for the board to file lawsuits related to the debt runs out next month.
Swain is scheduled to take up the board’s request for a deadline extension related to its effort to pursue claims against bondholders at an April 24 hearing.
Reporting by Luis Valentin Ortiz in San Juan and Karen Pierog in Chicago; Editing by Matthew Lewis