Seven Democratic senators are urging the Securities and Exchange Commission to investigate potential misconduct involving Puerto Rico’s bonds as the Senate prepares to take up a bill that would impose a control board to oversee the restructuring of the commonwealth’s $70 billion in debt.
“We write to ask you that you investigate possible market manipulation, conflicts of interest, trading practices, and fraud in the underwriting, sale, distribution and trading of municipal securities of and relating to Puerto Rico, as well as any other fraudulent, illegal or wrongful conduct,” according to a letter released Tuesday by the office of Robert Menendez, New Jersey’s senior senator.
Puerto Ricans deserve to know whether illegal activity contributed to the current debt burden, according to the letter to SEC Chair Mary Jo White. Menendez has said he’s opposed to provisions of the House bill, such as the control board, rather than general oversight. The Senate is expected to take up the bill by the end of the month.
Menendez asked White what the SEC was doing to review Puerto Rico’s debt crisis during a hearing Tuesday of the Senate Banking, Housing, & Urban Affairs Committee.
“I can’t comment on specifics of, you know, anything ongoing that we’re looking at, but I think I can say that we’re very focused on the issues that you raised,” White said.
Along with Menendez, Elizabeth Warren of Massachusetts, Charles Schumer and Kirsten Gillibrand of New York, Bernie Sanders of Vermont, Jeff Merkley of Oregon and Richard Blumenthal of Connecticut signed the letter.
The letter follows a report compiled by a Puerto Rico commission earlier this month that says the commonwealth may have violated its constitution when it sold $3.5 billion of general-obligation bonds in March 2014. It also pointed out that underwriters and outside professionals are required to determine that a borrower will provided financial statements and audits on time. About six weeks after the 2014 bonds were sold, Puerto Rico said it would miss a deadline to file its fiscal 2013 audit.
Others are also requesting the SEC to look into Puerto Rico’s debt. The AFL-CIO last month called on the federal regulator to investigate whether OppenheimerFunds Inc. and Franklin Templeton Resources adequately valued their commonwealth bond holdings as the island’s fiscal crisis worsened. New York City Council Speaker Melissa Mark-Viverito sent a similar letter to the SEC on May 5, asking the SEC to look into whether OppenheimerFunds complied with securities laws and regulations regarding its investments in Puerto Rico debt.
The calls for SEC investigations come as Puerto Rico faces its first default on general-obligation debt, which the island’s constitution stipulates must be repaid before other expenses. Puerto Rico and its agencies owe $2 billion of principal and interest on July 1, including $805 million for general obligations. Governor Alejandro Garcia Padilla has said the island cannot make that payment in full and also pay for essential services for 3.5 million residents.