In June 24, 2015 the government of Puerto Rico issued a 23-page legisla-
tive report that is no less than a detailed confession. The report details how
government officials in Puerto Rico conspired with Wall Street firms to co-
mmit $11 billion dollars in financial fraud. After reviewing this document
and other evidence for many months, the FBI is claiming that the best prose-
cutors in the DOJ have not yet found criminal grounds to move forward.
Let’s look at the confession:
· “Investors allowed PREPA to issue bonds, then, PREPA borrowed from
private banks to pay the bond’s interests; then, borrowed from the Govern-
mentDevelopment Bank (from herein “GDB”) to pay back the private bank
loans, and the GDB, in turn, issued more bonds to refinance all.”
“This practice could constitute a fraud scheme for which the federal agen-
cies that regulate financial instruments and the Security Exchange Commi-
ssion could take action against and/or pursue civil suits against these
The legislature is describing a Ponzi Scheme.
· “Therefore, the institutional bondholders bought this debt with the know-
ledge and with consent of what was going on financially in the corporation,
which was ailed with technical insolvency or bankruptcy.”
This means the Wall Street firms bought these bonds knowing they were no
good and they in turn resold them to retail investors. Puerto Rico is clearly
saying these firms conspired with them.
· “This goes to show that the financial intermediaries and the institutio-
nal holders, despite being fully aware of PREPA’s fiscal situation, had no
qualms with Unjustly Enriching themselves and with having the conse-
quences of their negligent acts be paid for by the people of Puerto Rico”.
Why did the Wall Street firms participate? According to Puerto Rico “to
unjustly enrich themselves (fee income).
· “in the face of the credit houses, whom, knowing this, and therefore
PREPA’s technical insolvency, allowed this public corporation, and thus
the people of Puerto Rico, to continue running into debt”.
(Credit Houses is a reference to Moody’s, S&P & Fitch Credit Rating
To clarify, the credit houses issued unjustified credit ratings to earn
fee’s according to the report.
· “Said debt was sold at discount, a large quantity of it between .60 to
less than .50 cents to the dollar”
Once the scheme was uncovered, the investors that owned the bonds lost 40
to 50 cents on the dollar. With $11 billion outstanding that is around
$5 billion in losses.
· “That this Report be forwarded to the Justice Department of the Common-
wealth of Puerto Rico and the United States of America for their correspon-
“That this Report be forwarded to the United States Securities Exchange
Commission for its corresponding action;”
Legislature is clearly suggesting a criminal act occurred and should be
The report gives many, many more specifics. Given all this information, the
DOJ believes there may not have been any actual crimes. Umm?
Richard Lawless is CEO of Commercial Solar Power, Inc. in Temecula, CA. The opinions expressed in the
preceding commentary are exclusively his own and do not represent the opinions of The Puerto Rico Monitor,
its editors or advertisers.