Commentary
Richard Lawless
On September 27, at the Waldorf Astoria Hotel in New York, Commercial Solar
Power, one of the many victims of the Puerto Rico financial collapse, will host
a press conference detailing its findings.
Sources close to the investigations suggest that there was rampant and repeated
massive government theft of public funds going on for over a decade. The theft
of public money, along with widespread Wall Street fraud associated with the is-
land’s bond issues, resulted in $39 billion in bondholder losses.
Although all the specifics may not be known until September 27, the following
has been shared with us.
The Puerto Rico Power Authority (PREPA), one of the world’s largest govern-
ment owned utilities, has been burning lowest grade No. 6 fuel oil for over a de-
cade. The authority has been billing its citizens for the higher grade No. 2 oil.
The payments for this oil have been wired offshore and then kicked back to gov-
ernment officials’ family members. The difference in cost between No. 2 and No.
6 oil is approximately 58 percent. In some years the overpayments exceeded $1.6
billion.
Our source also states that the ongoing EPA testing results could only occur with
the utility burning low grade sludge oil and that the equipment needed to burn No.
6 fuel oil is different than the equipment needed for the burning of higher grade No.
2 fuel. A quick walk through of PREPA’s plants showed that PREPA was indeed
using equipment for fuel No. 6, which requires preheating.
[Note: Number 6 fuel oil is a high-viscosity residual oil requiring preheating to
220–260 °F (104–127 °C). Residual means the material remaining after the more
valuable cuts of crude oil have boiled off. The residue may contain various unde-
sirable impurities including two percent water and one-half percent mineral soil…
literally the bottom of the barrel.]
Additionally, a review of the agencies financial statements shows hundreds of mi-
llions of dollars in public funds missing from the equipment purchase and mainte-
nance accounts each year.
PREPA alone is responsible for almost $2 billion a year in missing or stolen public
funds.
An inter-agency review of Puerto Rico’s other agencies reflected similar activity.
It is estimated that as much as $3 billion a year in public funds are unaccounted
for in Puerto Rico.
Reviews of the various agencies’ financial statements indicate those agencies were
all technically bankrupt as early as 2007. Normally, bankrupt entities would not be
able to secure any credit rating, let along investment grade ratings. Without invest-
ment grade ratings the agencies could not issue bonds to raise more capital.
The typical fee for a credit rating is 1-2 percent but, by paying the rating agencies
as much as 9 percent, the Puerto Rico municipal agencies were able to secure good
credit ratings.
These fraudulent credit ratings allowed Puerto Rico to issue new debt ultimately
resulting in the financial collapse and a loss to the original bondholders of $39 bi-
llion.
I have been told that all members of both the Congress and the Senate knew this
when they voted to revoke all legal rights for the victims, the bondholders.
It is reasonable to expect, when a full disclosure is finally made, that Wall Street
and Washington will have some explaining to do.
Mr. Lawless is a career Banker and CEO of Commercial Solar Power, Inc. Mr. Lawless has been
working with the SEC, the FBI, The U.S. Attorney’s Office and the Treasury Department to un-
cover the reasons for Puerto Rico’s $70-billion-dollar bond default. Mr. Lawless has held Senior
and Executive positions with Wells Fargo Bank, Home Savings and Washington Mutual Bank
specializing in the issuance of debt instruments. Mr. Lawless holds a BA from Pepperdine Uni-
versity and a Master’s Degree from the University of San Diego.
The opinions expressed in the preceding commentary are exclusively those of the author and
do not necessarily reflect those of The Puerto Rico Monitor, its contributors or advertisers.
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