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Five members of U.S. Congress from New York said on Wednesday that several investment firms involved in Puerto Rico’s ongoing bankruptcy may have engaged in insider trading and urged the state attorney general to investigate, Reuters reported. In a letter to New York Attorney General Letitia James, the lawmakers cited allegations arising from the island’s bankruptcy litigation “that some hedge fund groups may have been engaging in insider trading and using the PROMESA restructuring process to artificially manipulate bond markets.” Using the 2016 PROMESA Act, Puerto Rico’s federally created financial oversight board filed a form of municipal bankruptcy for the U.S. commonwealth in 2017 in an effort to restructure about $120 billion of debt and obligations. “Not only is this another example of deep pocketed interests profiteering off Puerto Ricans’ suffering, but these hedge funds may have also violated securities law,” U.S. Representative Nydia Velázquez (D-N.Y.) said in a statement. The letter, which was also signed by Congress members Alexandria Ocasio-Cortez, Carolyn Maloney, José Serrano, and Adriano Espaillat, pointed out that the federal judge overseeing the bankruptcy ordered detailed disclosures from the Lawful Constitutional Debt Coalition (LCDC), whose members include Aristeia Capital LLC, Whitebox Advisors LLC, Taconic Capital Advisors LP, and GoldenTree Asset Management. Those disclosures revealed that LCDC members “significantly increased their holdings of bonds they argued in court were of no value while engaging in confidential mediation talks about their restructuring,” according to the letter.

As the coronavirus pandemic sweeps the globe, shutting businesses, killing the vulnerable and crippling economies, Puerto Rico has taken one of the country’s hardest economic hits, the New York Times reported. Gov. Wanda Vázquez was the first governor in the nation to order businesses to close and people to stay home. Experts say that her quick action helped stave off an even worse medical crisis on the island. But the pandemic has nonetheless plunged Puerto Rico into its fifth dire emergency in three years, one that the government has struggled to manage. Thanks largely to hurricane reconstruction, Puerto Rico’s economy had been inching toward recovery after a devastating 2017 storm and the bankruptcy of the island’s government the same year. A civic uprising paralyzed the island last summer and led to the ouster of Governor Vázquez’s predecessor. Then a series of earthquakes shook the south side of the island in January, damaging homes and buildings, sending thousands to live on the street, and closing schools across the island. As of last week, despite guidance from the Centers for Disease Control and Prevention that everyone should be washing their hands frequently during the coronavirus pandemic, the governor announced that because of a severe drought, parts of the island would have running water only every other day for the foreseeable future. So far, the island has had 8,714 confirmed and likely cases of the virus, and 157 deaths. Experts say this latest economic crisis has been even more difficult than the one that followed Hurricane Maria. For one thing, aid has not come pouring in from around the world, as it did after disasters of the natural kind. And with Covid-19 creating serious problems in Florida and other parts of the United States, unemployed Puerto Ricans, who fled to the mainland in droves after Hurricane Maria, have nowhere to turn.

Puerto Rico’s bankrupt public power utility signed a long-term deal to outsource the business of delivering electricity, making an expensive bet that private operators can curb the high costs and service problems that have long plagued consumers, WSJ Pro Bankruptcy reported. The U.S. territory’s government-owned power monopoly is putting a consortium of operators including infrastructure contractor Quanta Services Inc. in charge of running the electricity grid for 15 years, hoping they can reverse years of mismanagement. The operators are inheriting steep challenges as they take over an energy system crippled by years of under-investment, a legacy of political interference and lasting damage stemming from the 2017 hurricane season. The deal marks a seminal moment for the Puerto Rico Electric Power Authority, which emerged as a crown-jewel public asset during and after World War II, powering the island’s industrialization efforts and helping turn it into a manufacturing hub for pharmaceuticals and medical devices. The utility, known as Prepa, became less efficient over time, skimping on capital investments while piling up debt. When Puerto Rico sank into recession more than a decade ago, demand for power from industrial and residential customers declined, stretching the utility’s finances to the breaking point by 2014. Putting the consortium — Quanta and its partners ATCO Ltd. and IEM — in charge of the grid will come at a cost, including a roughly $60 million mobilization fee during a yearlong transition period. In subsequent years, the operators will also receive fixed annual service fees adding up to hundreds of millions of dollars over time, with the potential for additional payments based on performance metrics.

Facing declining enrollment, a bloated pension system and more than $341 million in debt, the University of Puerto Rico needs to cut spending, boost revenue and reduce its retirement obligations, a federally-appointed oversight board said yesterday as it unveiled its 2020 fiscal plan for the institution, Bloomberg News reported. The plan acknowledges the university’s financially-fragile state — and the impact of the coronavirus, which has paralyzed activity on much of the island. As a result, the oversight board recommended maintaining Puerto Rico government support for the university system at current levels of about $879 million, delaying planned reductions for a year. In addition, previously scheduled tuition and fee increases were also postponed by a year. With 11 campuses and almost 13,000 employees, UPR is seen as one of the drivers of Puerto Rico’s economy, and it’s one of the few commonwealth entities that continues to pay its bondholders as the island tries to claw its way out of bankruptcy.

The Puerto Rico Federal Oversight and Management Board submitted a proposed $10 billion budget on Thursday as federal legislators debate whether to curtail the board’s power over the U.S. territory, the Washington Post reported. The proposed Puerto Rico budget is slightly bigger than last year’s and largely suspends government cuts for one year to help the island impose reforms sought by the board including increasing Puerto Rico’s labor participation rate, making it easier to do business on the island and providing cheaper and more reliable electricity. Local government officials agree with some of the proposed changes but argue the board sometimes oversteps its boundaries as it continues to restructure a portion of Puerto Rico’s more than $70 billion public debt load amid an economic crisis. “Over the last several years, the board has attempted to take advantage of this unclear separation of powers to gain control over day-to-day operations of the government,” said Omar Marrero, executive director of Puerto Rico Fiscal Agency & Financial Advisory Authority. Marrero spoke at an online hearing held by the U.S. House Natural Resources Committee, which oversees affairs in U.S. territories. The committee’s chairman, Rep. Raúl Grijalva, recently submitted amendments to a federal law that created the board as part of a financial package for Puerto Rico. He and several other Democrats have said the board is not doing enough to protect Puerto Ricans and improve the island’s situation since its creation in 2016. The changes they’re seeking include allowing the island to shed certain debt, which board executive director Natalie Jarekso said would erode the confidence of creditors and lead bondholders to seek a more expensive and restrictive type of debt. Read more. 

Available later this week in the ABI Newsroom will be a special podcast looking at the June 1 decision by the Supreme Court that the appointment of the Puerto Rico Oversight Board did not violate the Appointments Clause.

The federal control board that oversees Puerto Rico’s finances sued the U.S. territorial government on Monday, asking courts to order it to provide documents related to a failed multimillion-dollar purchase of Covid-19 testing kits and other medical supplies, the Associated Press reported. The board said that it requested the documents two months ago and said that while the government has released some information, it has “completely ignored” repeated calls to turn over all documents. “The rules for how the government spends money must be clear and transparent at all times, including under the immense pressure of emergencies,” Natalie Jaresko, the board’s executive director, said in a statement. The government has already turned over more than 1,000 documents, and the island‘s Health Department has requested more time to confirm the existence of the documents sought by the board, said Omar Marrero, executive director of Puerto Rico’s Fiscal Agency and Financial Advisory Authority. The lawsuit was filed nearly two months after Gov. Wanda Vázquez announced she was canceling all contracts awarded to people and companies whose names have been publicized as part of a local and federal investigation into an attempted purchase of $38 million worth of Covid-19 testing kits. Vázquez had initially defended the purchase order that was eventually canceled, resulting in the government recovering its $19 million deposit.

Although the members of the Financial Oversight and Management Board of Puerto Rico were not nominated by the President nor confirmed by the Senate, the Supreme Court ruled yesterday that the appointment of the Board did not violate the Appointments Clause of the Constitution because they exercise “primarily local duties,” according to an analysis from ABI Editor-at-Large Bill Rochelle. All of the justices agreed in the judgment reversing the First Circuit, which had held that the Board’s appointment violated the Appointments Clause. The decision by the high court means there will be no lingering doubt about the validity of Puerto Rico’s debt arrangement. Justice Stephen G. Breyer wrote the opinion of the court. Justices Clarence Thomas and Sonia Sotomayor concurred in the judgment, which means they agreed with the result but for different reasons. In her opinion, Justice Sotomayor raised but did not answer questions about the ability of Congress to set aside Puerto Rico’s democratically elected government by appointing a federal board to take over the island commonwealth’s fiscal powers and responsibilities.