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Legislation to create a financial control board for heavily indebted Puerto Rico will be filed on Thursday or Friday, the U.S. territory's government affairs secretary Jesus Manuel Ortiz said yesterday, Reuters reported. The financial control board, a key recommendation from a plan released in September to try and solve the U.S. territory's pressing debt problems, would have oversight over most government entities. Puerto Rico has seen its debt balloon to $72 billion, while the number of taxpayers shouldering the burden has dwindled, with thousands moving to the U.S. mainland each year. The U.S. territory defaulted on debt in August by paying only a fraction of what was due on some bonds. Read more. 

In related news, for the second time in a month, a global bank with operations in Puerto Rico has agreed to pay millions of dollars to settle accusations that it violated industry rules when selling the island’s bonds to customers, the New York Times DealBook blog reported today. Santander Securities, a subsidiary of Banco Santander, will pay $4.3 million in restitution to clients on the island who lost money on Puerto Rican bonds, according to the Financial Industry Regulatory Authority (FINRA). FINRA also said that the brokerage unit would buy back Puerto Rican bonds from a limited group of customers who still hold them, and would pay a fine of $2 million for failing to properly supervise its employees. It estimated the total restitution and penalties to be $6.42 million. Read more. 

For developments on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

Puerto Rico, at risk of running out of cash as soon as November, may be unable to pay investors as it looks to restructure $73 billion of debt, said Steven Rhodes, the former U.S. bankruptcy judge who is advising the island’s government, Bloomberg News reported on Friday. Puerto Rico faces a $354 million principal and interest payment on Dec. 1 for Government Development Bank debt, including securities that the commonwealth backs with its general-obligation guarantee, according to bond documents. Officials have said that the government may run out of cash in November unless it can get a short-term loan or renegotiate its debts. A $357 million interest payment on general-obligation bonds is due Jan. 1. Read more.

Stay up to date on Puerto Rico’s debt crisis with ABI’s “Puerto Rico in Distress” website. 

Rep. Tom Marino (R-Pa.), who has balked at legislation that would let some Puerto Rico government agencies seek bankruptcy, said that he’s instead pushing for the creation of a federal board to advise the island on its finances, Bloomberg News reported yesterday. Marino, chairman of the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law, said that the panel would be appointed by Congress and the Obama administration. He said that it would suggest how the territory could cut spending and take other steps — such as seeking an exemption from the minimum wage — to put an end to its chronic budget deficits and spur the economy. It wouldn’t take direct control. "Strictly advisory," he said. "This takes it out of the hands of the passions of the people of Puerto Rico." Read more. 

For further developments on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

The top Democrat on the U.S. House Natural Resources Committee is pushing for a congressional hearing into the role of hedge funds in Puerto Rico’s debt crisis, Bloomberg News reported yesterday. Making the request yesterday, Rep. Raul Grijalva (D-Ariz.) pointed to a Sept. 4 report by his staff asserting that some hedge fund managers are trying to affect the outcome of the crisis to pad profits rather than accept losses from investment miscalculations. “This behavior, while profitable, is reprehensible,” Grijalva wrote in a letter to committee Chairman Rob Bishop (R-Utah). Republicans who lead both chambers of Congress have signaled little urgency in extending aid to Puerto Rico, while President Barack Obama’s administration has made clear it won’t bail out the commonwealth.

The Swiss bank UBS has agreed to pay about $34 million to resolve charges by federal financial regulators that the bank failed to adequately supervise the sale of investments in troubled Puerto Rico mutual funds, the New York Times reported today. At issue are a series of UBS mutual funds that are heavily invested in Puerto Rico municipal bonds and that used high amounts of leverage to lift returns. With the island in the midst of an unprecedented restructuring, the mutual funds have collapsed in value, decimating the retirement savings of thousands of Puerto Rico residents. The agreement with the Securities and Exchange Commission settles charges that a UBS branch manager, Ramiro L. Colon III, in Puerto Rico, did not monitor the sale of the mutual funds to everyday Puerto Ricans. The bank was also fined on Tuesday by the Financial Industry Regulatory Authority for failing to monitor the amount of borrowed money and concentrations of Puerto Rico bonds in the mutual funds.

Puerto Rican officials pressed Senate lawmakers on yesterday to allow the island access to chapter 9 of the Bankruptcy Code as the U.S. territory wrestles with its debt, MarketWatch.com reported yesterday. They found support from Democrats at a Senate Finance Committee hearing but met skepticism from the Republican chairman of the panel. Melba Acosta-Febo, president of the Government Development Bank for Puerto Rico, and Pedro Pierluisi, Puerto Rico’s representative in Congress, told a finance committee hearing the bankruptcy power should be available to the island in the same way it is available to other U.S. entities. Acosta-Febo also described the financial situation in Puerto Rico as having “passed the tipping point.” “Puerto Rico, in the face of an immediate liquidity crisis, has no access to the capital markets on sustainable terms and faces significant financing gaps over the next decade,” she testified. Height Securities said in a note yesterday that it expects Puerto Rico to run out of cash by November. Read more.

For more information on Puerto Rico’s financial crisis, be sure to visit ABI’s “Puerto Rico in Distress" webpage. 

Rep. Pedro Pierluisi is the invited keynote speaker at this year’s Winter Leadership Conference. The early-bird rate is expiring soon, so register by Friday to save! 

• Hon. Pedro R. Pierluisi, Congressman for Puerto Rico, U.S.  House of Representatives
• Melba Acosta, President, Government Development Bank for Puerto Rico
• Douglas Holtz-Eakin, President, American Action Forum
• Sergio M. Marxuach, Public Policy Director, Center for a New Economy

• Hon. Pedro R. Pierluisi, Congressman for Puerto Rico, U.S.  House of Representatives
• Melba Acosta, President, Government Development Bank for Puerto Rico
• Douglas Holtz-Eakin, President, American Action Forum
• Sergio M. Marxuach, Public Policy Director, Center for a New Economy