A group of hedge funds sued the governor of Puerto Rico yesterday saying that he had started violating the island’s hard-won new debt-restructuring law before the ink from President Obama’s pen was even dry, the New York Times reported today. The law, which the president signed on June 30, puts Puerto Rico under the watch of a federal oversight board to police its spending and promote fiscal reform. But the law has a built-in lag of at least two months before the federal board will be in place. In the meantime, the hedge funds said that Gov. Alejandro García Padilla was exploiting the lag by grabbing hundreds of millions of public dollars and spending them on “purposes that apparently enjoy political favor.” They said the outlays would have been challenged if the oversight board had already been in place, and that holders of Puerto Rico’s general obligation bonds had first rights to the money. They asked the court to declare the payments invalid and freeze the money until the oversight board was operational and able to confirm the payments’ propriety. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
