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Federal prosecutors indicted a high-ranking Federal Emergency Management Agency official and the former president of a Puerto Rico utility contractor, charging them with corruption in connection with repairs to the U.S. territory’s hurricane-ravaged electric grid, WSJ Pro Bankruptcy reported. The U.S. Attorney’s Office in Puerto Rico filed fraud and conspiracy charges yesterday surrounding a Mammoth Energy Services Inc. subsidiary that billed more than $1.4 billion turning Puerto Rico’s lights back on after its electrical system was destroyed by Hurricane Maria. The indictment reached into the highest levels of the government response to Puerto Rico’s post-hurricane blackout, which left some parts of the island without electricity for 11 months and contributed to a death toll that Harvard University researchers estimated at more than 4,600. Prosecutors accused Ahsha Tribble, a FEMA deputy regional administrator who supervised the relief efforts, of using her position to steer contract work to Mammoth unit Cobra Acquisitions LLC after receiving bribes from its former president, Keith Ellison. Ellison was charged with providing her various “things of value” in return for special treatment. In the indictment, prosecutors said Ellison provided Tribble with hotel accommodations, use of a helicopter, airfare, personal security and a credit card to win more favorable treatment from FEMA, which reimbursed Puerto Rico’s bankrupt power utility for Cobra’s billings. Ellison also secured a job for Jovanda Patterson, a former FEMA official and friend of Tribble’s who was also charged, according to the indictment. In exchange, Tribble pressured the Puerto Rico Electric Power Authority to award business to Cobra and to accelerate payments to the company, prosecutors said.

Supreme Court Justices have a challenge in deciding who will argue what, when and for how long in the five consolidated cases involving a constitutional challenge to the board created to oversee Puerto Rico's massive debt restructuring, according to a Law.com commentary. The financial stakes are enormous and, not surprisingly, the parties have turned to some of the Supreme Court bar's most recognizable advocates: former U.S. solicitors general Donald Verrilli Jr. of Munger, Tolles & Olson, and Theodore Olson of Gibson, Dunn & Crutcher; former acting Solicitors General Walter Dellinger of O'Melveny & Myers and Ian Gershengorn of Jenner & Block, among others. The consolidated cases are set for argument on Oct. 15. The justices have three motions for divided arguments that offer them various ways of handling what are essentially two issues: Does the Constitution's appointments clause apply to the appointment of members of the Financial Oversight and Management Board for Puerto Rico and does the de facto officer doctrine validate previous acts by the board if there was a violation of the appointments clause. The U.S. Court of Appeals for the First Circuit said selection of the board's members violated the appointments clause. The court applied the de facto officer doctrine to preserve the board's prior decisions.

Two holdout bond insurers have agreed to a previously announced deal to restructure more than $8 billion of revenue bonds issued by Puerto Rico’s bankrupt electric utility, the U.S. commonwealth’s federally created financial oversight board said yesterday, Reuters reported. The action by National Public Finance Guarantee Corp. and Syncora Guarantee Inc. to join a definitive restructuring support agreement (RSA) reached in May with other creditors moves the Puerto Rico Electric Power Authority (PREPA) closer to exiting a form of bankruptcy filed in July 2017. “The addition of Syncora and National to the RSA provides significant certainty to the restructuring not only of PREPA’s bonds, but to the transformation of PREPA to a modern, efficient power utility able to deliver clean, reliable and affordable energy to the people and businesses of Puerto Rico,” a statement from the oversight board said. It added that all of the insurers guaranteeing payments on the utility’s debt and holders of about 90 percent of PREPA’s other, uninsured bonds have now joined the agreement. National Public Finance, a subsidiary of MBIA Inc, is PREPA’s largest single creditor, owning or insuring about $1.4 billion of the utility’s bonds, according to the company, which claimed earlier this year it had been excluded from negotiations as it sought a court-appointed receiver for the utility.

A lawsuit filed by Puerto Rico’s financial oversight board over a new pension and healthcare funding law will move forward after a federal judge on Thursday denied the U.S. commonwealth’s motion to dismiss the case, Reuters reported. The litigation, which marked the latest skirmish in an ongoing battle between the board and the government over spending priorities, targets a law that transfers hundreds of millions of dollars in municipal pension and healthcare costs to the bankrupt Puerto Rico government. U.S. District Court Judge Laura Taylor Swain rejected arguments by the island’s government that the lawsuit cites faulty claims based on the 2016 federal PROMESA Act, which created the board and a bankruptcy-like process to restructure about $120 billion of Puerto Rico’s debt and pension obligations. Judge Swain, who is hearing the island’s bankruptcy cases, ordered the lawsuit to proceed. A fiscal 2020 budget passed by Puerto Rico lawmakers included funding for local pensions and health insurance costs to aid cash-strapped municipalities despite warnings from the board that so-called Law 29, which enabled the move, is inconsistent with its fiscal plan. The board’s lawsuit seeks to void the law, contending it would impair the PROMESA Act by diverting hundreds of millions of dollars Puerto Rico’s government could otherwise use to spur economic growth.

A lawsuit filed by Puerto Rico’s financial oversight board over a new pension and healthcare funding law will move forward after a federal judge yesterday denied the U.S. commonwealth’s motion to dismiss the case, Reuters reported. The litigation, which marked the latest skirmish in an ongoing battle between the board and the government over spending priorities, targets a law that transfers hundreds of millions of dollars in municipal pension and healthcare costs to the bankrupt Puerto Rico government. U.S. District Court Judge Laura Taylor Swain rejected arguments by the island’s government that the lawsuit cites faulty claims based on the 2016 federal PROMESA Act, which created the board and a bankruptcy-like process to restructure about $120 billion of Puerto Rico’s debt and pension obligations. Swain, who is hearing the island’s bankruptcy cases, ordered the lawsuit to proceed. A fiscal 2020 budget passed by Puerto Rico lawmakers included funding for local pensions and health insurance costs to aid cash-strapped municipalities despite warnings from the board that so-called Law 29, which enabled the move, is inconsistent with its fiscal plan. The board’s lawsuit seeks to void the law, contending it would impair the PROMESA Act by diverting hundreds of millions of dollars Puerto Rico’s government could otherwise use to spur economic growth.

Bond insurance company MBIA Inc. yesterday sued several financial institutions over their role in underwriting billions of dollars of Puerto Rico bonds that eventually went into default, Reuters reported. The lawsuit filed in superior court in San Juan claimed the banks “inflicted a financial tragedy” on the now-bankrupt U.S. commonwealth by urging it to issue “unsustainable” debt. “That debt bankrupted the commonwealth and its agencies while the banks enriched themselves through massive fees,” the lawsuit stated. Puerto Rico filed for bankruptcy in 2017 to restructure about $120 billion of debt and pension obligations. According to the lawsuit, major banks underwrote more than $66 billion of bonds issued between 2001 and 2014 by Puerto Rico and its agencies, earning hundreds of millions of dollars in fees. The defendants are: UBS Financial Services Inc, UBS Securities LLC, Citigroup Global Markets Inc, Goldman Sachs & Co LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co LLC; Merrill Lynch, Pierce, Fenner & Smith Inc; RBC Capital Markets LLC, and Santander Securities LLC. MBIA argued that these underwriters failed to do their due diligence on Puerto Rico bonds, which led to disclosures that were “materially false or misleading” and upon which its unit, National Public Finance Guarantee Corporation, relied when it decided to insure the debt.

Puerto Rico got its third governor in less than a week yesterday just hours after the bankrupt U.S. territory’s supreme court ruled that Pedro Pierluisi’s assumption of the office was unconstitutional and ordered him to leave, Reuters reported. The island’s justice secretary, Wanda Vazquez, was sworn in as governor at the supreme court in San Juan. A unanimous decision by the nine-member high court nullified Pierluisi’s governorship based on the fact his earlier appointment as secretary of state and next in line for governor had not been confirmed by both chambers of the legislature. Vazquez last week initially voiced reluctance to take over the island’s top government post after being targeted by protesters for alleged corruption and being too close to disgraced Governor Ricardo Rosselló, who left office last Friday. In a statement after becoming governor, Vazquez said: “I will continue to focus on putting (Puerto Rico) back on track in an orderly and peaceful way.”

Puerto Rico’s newly installed governor and its Senate president faced off yesterday in written arguments submitted to the island’s supreme court, which will decide who is in charge of the bankrupt government, Reuters reported. Both sides agreed that Puerto Rico is facing its biggest constitutional crisis after days of protests forced Governor Ricardo Rosselló to leave office on Friday. Pedro Pierluisi, Rosselló’s handpicked successor, is fighting a constitutional challenge filed by Senate President Thomas Rivera Schatz over Pierluisi’s appointment as secretary of state, a position next in line to the governor. Pierluisi was sworn in as governor on Friday after the Puerto Rico House confirmed him as secretary of state, without confirmation from the Senate. On Sunday, Schatz filed a lawsuit claiming his chamber’s advice and consent duty under the island’s constitution was usurped and Pierluisi should be removed from office.

The future of Pedro Pierluisi as Puerto Rico’s governor will be up to the U.S. territory’s supreme court after the island’s Senate yesterday declined to vote on his confirmation, adding to the political turmoil that has swirled for weeks, Reuters reported. During a special session, Senate President Thomas Rivera Schatz said the lack of a vote by his chamber was equivalent to a rejection of Pierluisi’s nomination as secretary of state and next in line to replace Ricardo Rosselló, who resigned as governor on Friday. Schatz acknowledged that the supreme court would ultimately rule on the matter. Pierluisi also said it would be up to the court. “With the utmost deference to the Supreme Court of Puerto Rico, I will wait for its decision, trusting that what is best for Puerto Rico will prevail,” Pierluisi said in a statement. The high court yesterday put a lawsuit filed by Schatz on a fast track, ordering all parties to submit their arguments by midday today. The lawsuit seeks to oust Pierluisi from office on constitutional grounds because both legislative chambers had not consented to the nomination. Justice Secretary Wanda Vazquez would be next in line to become governor.