Ex Secretary Of Sports And Recreation Indicted For Receiving Kickbacks, Fraud & Money Laundering

Department of Justice

U.S. Attorney’s Office

District of Puerto Rico

---

FOR IMMEDIATE RELEASE

Wednesday, June 21, 2017

Press Release

Six other individuals also charged in the $9.8 million conspiracy

SAN JUAN, Puerto Rico– Ramón Orta, former Secretary of the Department of Sports and Recreation (PR DRD), his Special Assistant Edgardo Vazquez-Morales, and four other individuals have been indicted and arrested for their participation in a conspiracy to steal federal funds involving fraudulently obtained contracts from the PR Department of Education (PR DOE) and the PR Public Housing Authority (PR PHA), announced U.S. Attorney Rosa Emilia Rodríguez-Vélez of the District of Puerto Rico. Orta and Vázquez-Morales were also charged for soliciting and receiving multiple kickback payments from a seventh defendant pertaining to DRD’s lease of a facility in Guayama, Puerto Rico. The United States Department of Education, Office of Inspector General, is handling the investigation with the Federal Bureau of Investigation and the United States Department of Housing and Urban Development, Office of Inspector General.

The indictment returned yesterday, June 20, 2017, by a federal grand jury in the District of Puerto Rico, includes 50 counts against the following individuals:

1. Ramón Orta-Rodríguez, the Secretary of the Puerto Rico Department of Sports and Recreation (PR DRD) from January 2013 until December 2016;
2. Edgardo Vázquez-Morales, the Special Assistant to Ramón Orta-Rodríguez from January 2013 until December 2016;
3. Oscar Rodríguez-Torres, President of Rosso Group, Inc.;
4. Miguel Sosa-Suárez, owner of Global Sports Initiative, LLC (“Global”);
5. Irving Riquel Torres-Rodríguez, President of Administrative, Environmental and Sports Consultants Corp. (“AESC”);
6. Cecilia Amador-López, wife of defendant Riquiel-Torres; submitted proposals to PR DOE
7. Juan Carlos Ortiz-Nieves, owner of Sports Consultants Inc.

The companies involved in the conspiracy are:

1. Rosso Group Inc. (“Rosso”), created to fund projects awarded by Orta-Rodríguez as Secretary of the PR DRD. From 2013 to 2016, Rosso received approximately $8,767,446.52 from PR DRD.
2. Global Sports Initiative, LLC (“Global”), was a domestic non-profit corporation managed by Sosa-Suárez; engaged in managing, organizing, and promoting boxing events in Puerto Rico and elsewhere. Global received approximately $500,000 during the conspiracy.
3. Administrative, Environmental and Sports Consultants Corp. (“AESC”), a for-profit corporation. Irving Riquel Torres-Rodríguez was the president and treasurer of AESC from 2010 until 2012, and in 2015. AESC received $554,246.89 from Rosso.
4. Sports Consultants Inc., a for-profit corporation incorporated by Juan Carlos Ortiz-Nieves; the company received in excess of $70,000 from Estate A to make kickback payments to Orta and Vázquez.
5. Estate A (an estate with multiple members, including defendant Ortiz-Nieves) owns property in Guayama, Puerto Rico. In 2015, Ortiz-Nieves negotiated a lease agreement on behalf of Estate A for the PR DRD to utilize a portion of the land and building as a sports and recreation facility with a five-year term at $14,500 per month.
   According to the indictment, the defendants used Orta-Rodríguez’ position as Secretary of PR DRD to benefit and enrich themselves and defraud the United States as follows:

• Orta-Rodríguez utilized his position as Secretary of PR DRD to solicit federal funds from the PR DOE and PR PHA based on material misrepresentations regarding PR DRD’s ability to perform the activities and the scope of the activities subject to the proposals. Orta-Rodríguez, as Secretary of PR DRD, entered into contracts with Rosso, for the administration of various projects funded with federal monies. Rosso did not participate in any competitive bidding or evaluation process for the award of these contracts, which totaled $10,510,460. The services were supposed to be rendered by PR DRD, pursuant to its contracts with the PR DOE and PR PHA.
• The PR DRD-Rosso contracts were inflated to provide net proceeds to Rosso, which were later distributed amongst co-conspirators. The co-conspirators split approximately $3.9 million in net profits from the PR DOE contracts. Orta-Rodríguez obtained net proceeds of approximately $799,740 for PR DRD on one education project. Orta-Rodríguez also disbursed $200,000 in discretionary funds to other co-conspirators to operate and promote boxing events through Global.
• DRD contracted the services of ROSSO to provide television programming services for one television show about public housing projects in Puerto Rico. SOSA agreed with the individual who provided the services, to inflate the invoices for those services and to produce a second television show, DRD.TV, for the DRD. In 2015, SOSA was paid the difference between the actual cost of the production of both shows and the inflated invoice cost, which was paid from HUD funds. In 2016, ROSSO was paid this difference. DRD was also able to use federal funding for the DRD.TV show, which was outside the scope of the federal funding. SOSA was paid $311,345.30 on the HUD contracts by the television producer. ROSSO was paid $237,609.12 by the producer on the HUD contracts. The total amount misapplied by ORTA and excessively paid on the HUD contract (including the DRD.TV show) was approximately $1,216,650. Federal funds fraudulently obtained by members of the conspiracy were utilized for business ventures, travel, and to make purchases for political campaigns and political parties.
• Orta-Rodríguez executed a five-year lease agreement with Estate A for $14,500 which was in excess of the $8,500 price proposed by Ortiz-Nieves. Ortiz-Nieves created Sports Consulting and caused the transfer of funds from Estate A to Sports Consulting so that cash withdrawals could be made to pay Orta-Rodríguez and Vázquez-Morales the kickback payments generated from the $6,000 difference of the lease agreement. Approximately $26,000 was paid, in cash, as kickbacks to Orta-Rodríguez and Vázquez-Morales.
  The indictment also includes the following substantive charges: nine counts of wire fraud; two counts of mail fraud; five counts of aggravated identity theft; and twenty-seven counts of money laundering.
  “Public corruption continues to erode the trust between government officials and our citizens. Defendant Ramón Orta, along with his coconspirators, exploited his government position to rob Puerto Rican taxpayers of more than $10 million,” said U.S. Attorney Rosa Emilia Rodríguez-Vélez. “As Secretary of the DRD, Orta was entrusted with performing his duties honestly and ethically. The charged offenses are reprehensible, more so in light of Puerto Rico’s fiscal crisis. I commend the commitment of the agents, financial analysts, and prosecutors whose tireless work made these arrests possible.”
  “These defendants knowingly and willfully abused their positions of trust for personal gain. That is unacceptable,” said Aaron Jordan, Assistant Inspector General for Investigations at the U.S. Department of Education. “I want to commend the OIG Special agents and our law enforcement colleagues whose efforts brought about today’s actions and helped stop such calculated plunder. The OIG will continue to aggressively pursue those who misappropriate Federal education funds for their own selfish purposes. Our students and taxpayers deserve nothing less.”
  “The public must be able to trust the officials who are put in charge of government funds. Anyone who violates that trust will be brought to justice, because the citizens of Puerto Rico deserve no less. The FBI is proud to share this commitment with its partners from the United States Attorney's Office, and the Inspectors General for the Departments of Education and Housing and Urban Development,” stated Douglas Leff, Special Agent in Charge of FBI, San Juan.
  “Our core mission is to investigate cases where there is evidence of waste, fraud and abuse involving H.U.D. programs. It is through the collective law enforcement effort present here today that we are able to ensure the integrity of those programs and to pursue those that would use them for personal gain,” stated Nicholas Padilla, Jr., Assistant Inspector General for Investigations, United States Department of Housing and Urban Development, Office of the Inspector General.
  The case is being investigated by the United States Department of Education Office of Inspector General in conjunction with the FBI’s San Juan Division and the United States Department of House and Urban Development Office of Inspector General. The case is being prosecuted by Assistant U.S. Attorney Seth Erbe. If found guilty, the defendants are facing possible sentences of up to 10 years for conspiracy, theft of government funds, and bribery, and up to 20 years for mail fraud, wire fraud and money laundering.
  The charges contained in the indictment are merely accusations. The defendants are presumed innocent unless and until proven guilty.

The Real Cause of Puerto Rico’s Financial Collapse Wasn’t The Economy!

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.

History Is Repeating Itself and America May Not Survive

Commentary

Richard Lawless











In 2006 a financial crisis of unprecedented magnitude hit America.

Wall Street, with at least complicit support from our legislators, the DOJ and re-
gulatory agencies began to create new financial instruments to sell to the Ameri-
can people.  Unfortunately, these new investments consisted of pools of troubled
mortgages.

What made this all possible was that the three big credit rating agencies handed
out high investment grade credit ratings that allowed the complicit banks to sell
these investments to the general public. It really was that simple.  Today there is
universal agreement that Moody’s, S&P and Fitch provided fraudulent credit ra-
tings.

Could you image what would happen to a real estate appraiser that knowingly
issued home values that were hundreds of thousand higher than the value of the
property and a dishonest borrower that borrowed millions based on these phony
valuations.  The Banks would incur millions in losses and the borrower and app-
raiser would go to jail.

As of 2016, not one employee or executive at the rating agencies were ever
charged.

Our legislature is the recipient of tens of millions per year in political contribu-
tions and paid speeches.  None of that money comes without strings. Our Cong-
ressmen and Senators did what they were paid to do and protected their Wall St-
reet friends.  The DOJ and regulatory agencies are run by these very same legis-
lators and were prevented from prosecuting anyone.

Six trillion dollars in lost wealth, six million homes lost to foreclosure and mill-
ions of jobs lost.

Well, the Credit Rating Agencies are at it again and this time our country does
not have the resources to withstand another major crisis.

It has been a few years now since the start of the wholesale financial collapse of
Puerto Rico.  Sufficient time has passed allowing Individuals, companies, regul-
atory agencies and our legislators the time to understand the root causes of his
crisis.

That’s right, you guessed it!  All of the credit ratings issued on Puerto Rico debt
were either misleading or outright fraudulent.  But it does not end there, a quick
review of bond ratings from Chicago, Connecticut, California and New York re-
flect similar concerns.

The municipal bond market is $4,2 trillion dollars.  Preliminary indications sugg-
est that as much as 60% of these bonds were sold to investors with an inappropri-
ate or misleading credit rating.

Once again our regulatory agencies, the DOJ and our legislators have circled th-
eir wagons around Wall Street.  No matter how many American’s need to be thro-
wn under the bus, our government will not move against their friends.

So far tens of billions have been lost by our senior citizens who purchase these bo-
nds to supplement their modest retirement incomes.  It will not end with Puerto Ri-
co; Puerto Rico is only the beginning.


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.

Three Defendants Plead Guilty In Identity Theft Tax Fraud Schemes

U.S. Attorney's Office

San Juan

Press Release










Defendants Gabriel Aquino-Camilo and Pedro J. Esteves-Rosa and
defendant Samer Suboh-Kased plead guilty before United States Dis-
trict Judge Juan M. Pérez-Giménez to twenty counts, ten counts, and
five counts, respectively, of theft of government property, announced
Rosa Emilia Rodríguez-Vélez, United States Attorney for the District
of Puerto Rico.

From December 2011 through May 2012, Aquino-Camilo gave Este-
ves-Rosa twenty (20) U.S. treasury checks totaling $138,912.43 that
were fraudulently obtained by filing false tax returns with the Internal
Revenue Service (IRS) using stolen identities of residents of Puerto Ri-
co. Esteves-Rosa successfully deposited the checks into two business
bank accounts that he controlled. The treasury checks were endorsed
with the victims’ signatures, but each victim denied filing the tax return
and endorsing the check.

From September through October 2012, defendant Suboh-Kased also
received treasury checks that were fraudulently obtained by filing frau-
dulent tax returns with the IRS. He deposited these checks into his busi-
ness bank accounts, without the authorization of the individuals whose
names were on the checks, and then Suboh-Kased withdrew the money
in cash. Suboh-Kased received a percentage for each check he deposited
and another individual kept the remaining amount.

The cases were investigated by the Internal Revenue Service, Criminal
Investigation (IRS-CI) and prosecuted by Assistant United States Attor-
ney Nicholas W. Cannon. Esteves-Rosa and Suboh-Kased are scheduled
to be sentenced on November 29, 2016. Aquino-Camilo is scheduled to
be sentenced on December 15, 2016.

Corrupt Cop Sentenced For Illegal Search

U.S. Attorney's Office

San Juan

Press Release









Francisco Martínez-Mercado was sentenced to 87 months in prison and
three years of supervised release for conspiracy to deprive a person of ci-
vil rights, announced Rosa Emilia Rodríguez-Vélez, United States Attor-
ney for the District of Puerto Rico. Defendant was found guilty to the
charge on February 26, 2016.

The evidence presented at trial showed beyond a reasonable doubt that
the defendant, a sworn police officer and federal task force officer plan-
ned and executed a violation of civil rights by conducting an illegal sea-
rch and seizure of an apartment where he knew there were drugs and mo-
ney. The defendant came up with a plan, sought out the necessary perso-
nnel, including two other corrupt police officers and a marked patrol car.
Witnesses testified that they were hired by the defendant to sit in a mar-
ked patrol car outside of a condominium in Isla Verde while two thugs
broke into said apartment.

During the course of the trial, the government presented overwhelming
evidence that showed that the defendant used his knowledge and contacts
 as a police officer in order to plan and execute the illegal search and sei-
zure object of the indictment. Had the defendant not been a police officer,
he certainly would not have had access to other corrupt officers who in
turn had access to the patrol car and radio that were used on his behalf.

“The evidence showed that defendant used his law enforcement knowl-
edge to do the opposite of what he was supposed to do with the trust that
was placed in him,” said Rosa E. Rodíguez-Vélez. “The defendant abu-
sed his position of trust and used his contacts in the police to commit the
offense.”

The case was prosecuted by Assistant United States Attorneys Teresa
Zapata-Valladares y Mariana Bauzá.

Puerto Rico News Digest For May 10, 2016

RECESSION TO LAST INTO 2017

From The San Juan Daily Star:

"More red ink is in store for Puerto Rico, according to an island Planning
Board statement issued late last week that projected negative growth in the
gross domestic product (GDP) of minus 1.2 percent for fiscal year (FY) 2016
and a minus 2.0 percent contraction for FY 2017. In FY 2015, at current pri-
ces the local economy measured by the GDP generated $68.52 billion, repre-
senting a growth of 0.1 percent with relation to FY 2014..."

EIGHT-YEAR-OLD GIRL SHOT DEAD IN CIALES

From Fox News Latino:

"A little 8-year-old girl died of a gunshot to her head while another 14 peo-
ple suffered multiple bullet wounds in two unrelated incidents during a vio-
lent weekend in Puerto Rico...The death of the 8-year-old, local authorities
said Monday in different reports, occurred Sunday night, though the circums-
tances of the shooting are as yet unknown...One or more unknown persons
shot at a vehicle carrying the little girl and her parents as they arrived home
in the town of Ciales on the north side of the island...They took their daugh-
ter to a  hospital where she was pronounced dead..."

NO URGENCY FROM CONGRESS ON ZIKA FUNDS

From Caribbean Business:

"Republicans from states at greatest risk, such as Florida, Texas, Louisiana
and Georgia, have been slow to endorse Obama’s more than 2-month-old re-
quest for $1.9 billion to battle the virus, which causes grave birth defects. The
Centers for Disease Control and Prevention currently reports more than 470
cases in the continental U.S., all so far associated with travel to Zika-affected
areas. Polls show that the public isn’t anywhere nearly as scared of Zika as it
was about the Ebola outbreak in...2014. Aides to GOP lawmakers, even those
representing Southern areas most vulnerable to Zika, say they’ve yet to hear
from many anxious constituents..."

PR SENATE HANDS PREPA PROBE TO FBI

From ABC News:

"A special commission looking into fuel purchases by the financially troubled 

electric utility in Puerto Rico has turned over its findings to U.S. federal autho-

rities for further investigation, the majority leader of the island's Senate said 

Monday...The special Senate investigative commission has been looking into 

allegations that the utility overcharged customers by hundreds of millions of 

dollars while amassing about $9 billion in debt in recent years. Utility officials 

appearing before the commission denied wrongdoing..."

$1.2M Building Bought By Corrections Now Abandoned

Press Release

Puerto Rico Comptroller's Office 

Translated from Spanish

A special report of the Comptroller of Puerto Rico reveals that the Puerto
Rico Corrections Administration has never used a building in Rio Piedras 
which it acquired on October 31, 2008 and which was federally funded to 
the tune of $1.2 million to create a social adaptation home for inmates. The 
building located at 873 Avenida Muñoz Rivera is vandalized, in a total state 
of neglect and is partially burned. This case demonstrates that there was no 
prior control as established by Act No. 230 for government operations and 
expenses are not made within the framework of utility and austerity...Fur-
thermore, with respect to this transaction the Administration could not su-
pply our evidence how auditors made the payment of attorney's fees of 
$13,114.

Additonally, the report notes that of the 9 contracts and 45 amendments for 
$ 34.7 million formalized from 2004 to 2008 for the construction of fences 
in correctional complexes in Bayamón, El Zarzal in Rio Grande and La Pica
in Jayuya, the Administration did not submit 22 amendments of $ 3.2 milli-
on to the Office of the Comptroller and neither did it maintain complete cons-
truction project records. This situation is contrary to Law 18 and Regulation
33 on registration of contracts.

The opinion of the Comptroller is partially adverse and covers the period 
from 1 July 2012 to 30 June 2015.


(Full report in Spanish is available here).

Questionable Charity in Puerto Rico Has One Employee— the Governor’s Brother

NLPC


Peter Flaherty

A nonprofit group founded by ex-New York SEIU boss Dennis Rivera
has received big contributions from corporations that do business with
the Puerto Rican government, while employing the governor’s brother
as its only employee. This arrangement was reported today by Alana
Goodman of the Washington Free Beacon, based on information pro-
vided by NLPC.


The charity, now known as “Sociedad Económica De Amigos del Pais,”
was founded in New York in 1996 by Rivera and former New Mexico
Governor Bill Richardson as the Hispanic Education and Legal Fund
(HELF). Its name change, relocation to Puerto Rico and change of mi-
ssion raise additional red flags...[CONTINUE READING]

I Threw A Pebble In A Pond And Started A Ripple

Commentary

Richard Lawless


You might not believe what I am about to tell you but I hope you read
this article through to the end.

My company invested in developing a large solar power plant for the
Puerto Rico Electric Power Authority (PREPA).  PREPA is one of the
largest government owned utilities in the world. At the time the utility
had BBB+ ratings from the credit agencies.

As time went on we felt the utility was not acting in good faith.  Their
behavior was really bizarre.  We had experience with other large utilities
and this was nothing like them.  The long and short of it was, we lost eve-
rything, our company went bankrupt and all of the executives that guaran-
teed our loans are now being sued.

Normally, not an uncommon occurrence.  Unfortunate but it can happen.
I felt terrible that we could not pay back our creditors and investors so ra-
ther than throw my hands up, I started to take a better look at this govern-
ment agency.

What I found will shock you.  It appears that this government entity has
been defunct for many years.  They have been issuing billions of dollars
in municipal bonds they couldn’t pay for and Wall Street’s largest com-
panies knew it, but went along.  The credit rating agencies knew it and
issued false and misleading credit ratings.  This weekend, The Puerto Ri-
co Government admitted they issued $11 billion dollars in fraudulent bo-
nds.  But that is only part of the story.

I uncovered strong data that would suggest that this very same govern-
ment entity was also missing up to $1 billion dollars a year in public fun-
ds.  It now appears that there may be missing funds in their huge construc-
tion and capital improvement budgets as well as creating a scheme to buy
low quality oil for their power plants while paying for high quality oil.
The difference in price on the oil, up to $700,000,000 a year was alleged-
ly kicked back to politicians and government bureaucrats.  Again, I want
to stress, Puerto Rico has not admitted to this yet.

Big news right? Well I took this data and gave it to the SEC, EPA, FBI,
U.S. Attorney and the Attorney General.  Bottom line, no one but the SEC
took any interest.  You see the SEC is run by a four-person panel and is
not subject to the political pressures the DOJ and the EPA are.  The infor-
mation I provided was supported by financial reports and was unquestiona-
ble. I also took this information to the press, The Wall Street Journal, New
York Times, The Bond Buyer, The Financial Times, Bloomberg, Cavoto,
John Stossel, Reuters, AP and others.  The few that paid attention and con-
tacted me, laughingly suggested I couldn’t prove any of this or they may
look into it, but no promises.  Again, I gave them proof! Maybe they coul-
dn’t read, didn’t understand financials, were lazy or just incompetent?  Or
could it be that it reflected negatively on the administration, a Democratic
administration and that outweighed informing their readers and preventing
them from losing more money on this scheme?

It is clear that the administration wants bankruptcy for Puerto Rico and
this story breaking would not be helpful.  The Treasury Secretary deman-
ded Congress get moving and consider a bankruptcy option for Puerto Rico.
I should mention two things here.  The Treasury Secretary used to run Citi-
bank a firm that issued billions in these fraudulent bonds.  Our President is
from Chicago and Chicago definitely needs a bankruptcy option.  An option
that would likely be available if Puerto Rico gets it.  Lastly politicians like
Chuck Schumer need to win the Puerto Rico vote and even though he had this
information, Mr. Schumer continues to push for bankruptcy.

Bankruptcy would help hide all this malfeasance and mismanagement.  It
would also make it more difficult to sue.

These bonds failed and were sold for 50-60 cents on the dollar.  $11 billion
in fraudulent bonds, that means the owners of these bonds, Americans, lost
about 5 billion dollars.  Let me write that out: $5,000,000,000.00.

Our politicians knew about this and did nothing.  The press knew about this
and did nothing.

How broken is our system of government?

DOJ is subject to political pressure. The Treasury Secretary like the politi-
cians wanted to run over millions of Americans to get what Obama wanted
and protect his wall street friends.  Our career government employees, our
Attorney General, the head of the FBI, the head of the EPA all kicked up
their skirts and bent over their desks to achieve a political result.  If it does-
n’t enrich them personally or enhance their career, they are not interested.

It may be over for Puerto Rico but the United States is right behind them.
The restructuring of our voting districts gave job guarantees to our career
politicians.  They no longer answer to each other or the people.  They come
into office relatively poor and leave 30 years later a multi-millionaires and
it’s not from their salaries.

Could you imagine that I let one of my employees accept a $500,000 spea-
king fee from a company and then let that employee direct our equipment
purchases to that company.  In Washington that is what it is all about.

Unfortunately, in a few days everyone will forget my name and with pre-
ssure from the administration and congressional politicians the Press will
kill this story.  I suspect the full magnitude of this criminal enterprise will
never be told. Billions of dollars buy a lot of cooperation.

It’s all our fault because come election day we will almost certainly vote
for the same corrupt career politicians that put this all in place.

God help America, how will we ever survive?


The opinions expressed in the preceding commentary are exclusively those of the author and do not 
necessarily represent those of the Puerto Rico Monitor.

Audit Uncovers Massive Municipal Bond Fraud In Puerto Rico

Commentary

Richard Lawless


A recent audit shows that the Puerto Rico Electric Power Authority, a
large government owned utility, used phantom income to materially
overstate the utility's income.  This intentional misstatement was used
repeatedly to issue billions of the dollars in municipal bonds that the
utility nor the  government could pay for.

Innocent investors are set to lose hundreds of millions of dollars because
of this fraud. Puerto Rico is pushing for access to Bankruptcy. Bankrup-
tcy would allow the island to force those unwitting investors to take even
more significant losses.

The SEC and FINRA have been made aware of this fraud and have opened
investigations. The implications of this massive municipal bond fraud are
significant. It would suggest complicity with the rating agencies, bond issu-
ers and bond sellers, cutting a wide swath across Wall Street, shaking inves-
tor confidence to its core.

Given the administration’s position to provide bankruptcy protection for
Puerto Rico and by extension, Chicago. It is unlikely that the DOJ will be
allowed to pursue this.  Fortunately, FINRA and the SEC are outside the
reach of the administration's political control.


Click here to read the forensic accounting report.



Mr. Lawless has twenty-five years of experience in performing forensic accounting reviews.  
Mr. Lawless received his Bachelor of Science Degree from Pepperdine University and a 
Master’s in Business Administration with a focus on finance from the University of San 
Diego.  Richard has had a long banking career as a commercial lender and has served as a 
senior and executive manager for major banking institutions.  In these roles Mr. Lawless was 
responsible for billions of dollars in assets.  Mr. Lawless has also served as Chairman and 
CEO for a number of non-banking companies some of which have been in the energy sector.


The opinions expressed in the preceding commentary are exclusively those of
the author and do not necessarily represent those of the Puerto Rico Monitor.

Wall Street May Be Responsible For Puerto Rico’s Downfall

Commentary

Robert Williams


The major Banks and Credit Rating Agencies have been using Puerto
Rico as a private piggy bank for almost a decade.

Wall Street for almost a decade has been providing billions of dollars
in municipal debt to Puerto Rico when it was completely unjustified.
Wall Street provided Puerto Rico Government Agencies new capital
based on income that by any standard should not be included in reve-
nues. The Banks and Credit Rating Agencies knew this but push th-
rough billions in new bonds and short term lines of credit anyway.

I took a look at a number of bond offerings in Puerto Rico. Each issue
was for approximately $650,000,000. In the Offering Memorandums,
Wall Street claimed their uncollectable receivables as income, leaving
the investors with the misleading belief that Puerto Rico could make
the payments on the bonds. They couldn’t. Puerto Rico in all cases
secured more capital from other sources (lines of credit) and made up
the shortfall in revenues up by using the lines of credit.

A Ponzi Scheme is a criminal activity where a group of investors are
brought in and promised attractive returns that never really exist. To
keep the first investors blind to the fact they were misled, the compa-
ny quickly raises more money from new investors to pay the old inves-
tors.  It is a house of cards and it requires continued borrowing to keep
it going.

The question is why would these major banks and the credit rating agen-
cies participate in a Ponzi Scheme?  The answer may be the attractive
fee income they earned.


Mr. Williams is the editorial writer for Commercial Solar Power, an industry leading 
utility scale energy company. His opinions are solely his own and may not reflect those
of The Puerto Rico Monitor.

PREPA Is A One Billion Dollar A Year Criminal Enterprise

Commentary

by Richard Lawless


The Puerto Rico Electric Power Authority (PREPA) is one of the largest 
government owned utilities in the world. The politicians in Puerto Rico and
Government Employees have been using the utility as a private piggy bank 
for almost a decade.  Stealing up to one billion dollars per year in public mo-
neys. To accomplish this the utility issued up to 8 billion dollars in fraudu-
lent bonds and secured almost another billion dollars in short term debt. 

There are a number of parts to this criminal enterprise and I will take them 
on one at a time in this article.

There are two types of accounting that a business can use. Cash accoun-
ting,which is when you sell and item and take payment immediately. You 
record the expense of the item sold and the revenue for the payment recei-
ved. Pretty simple.

Larger firms, like PREPA use accrual accounting. Accrual accounting 
says you record the expense for the item when you receive it for sale 
and the income for the item when you bill for it.  In accrual accounting 
you may not have paid for the merchandise yet but record it as an expen-
se anyway and your customer may not have paid for it yet, but you rec-
ord it as revenue.  The accounting rule says if you are expecting payment 
within a year you record the revenue. If not,  you reserve for the loss of 
revenue in another account. The goal is to set realistic expectations of a 
company’s cash in and cash outs (cash flows).

PREPA for almost a decade has been providing material amount of elec-
tricity to government agencies without collecting any payments. Revenue 
that by any standard should not be included in revenues. PREPA repeated-
ly issued offering memorandums for new bond debt where they included this 
phantom (non-existent) income to make the bond buyers believe they could 
repay for the debt.

I took a look at the PREPA bond offerings for PREPA’s Power Revenue 
Bonds 2012A &B issued in May of 2012 and PREPA’s Power Revenue 
BondsSeries 2013A in August of 2013. Each issue was for approximately 
$650,000,000. In the Offering Memorandums, PREPA claimed their unco-
llectable receivables as income leaving the investors with the misleading 
belief that PREPA could make the payments on the bonds. They couldn’t.
PREPA in both cases secured more capital from other sources (lines of 
credit) and made the shortfall in revenues up by using the lines of credit. 

A Ponzi Scheme is a criminal activity where a group of investors are brought
in and promised attractive returns that never really exist. To keep the first in-
vestors blind to the fact they were misled, the company quickly raises more 
money from new investors to pay the old investors.  It is a house of cards 
and it requires continued borrowing from PREPA to keep it going.

The question is why would a major government owned utility participate in a 
Ponzi Scheme?  The answer is all cases is always to hide criminal activity. 

PREPA powers its power plants from oil.  Utilities use NO.2 Fuel Oil that is 
clean burning, good for the environment and good for the equipment. PREPA 
employees and others set up a scheme where they would have the utility pay
 for NO. 2 Fuel Oil but take delivery of No. 6 Fuel Oil. No 6 Fuel oil is much 
cheaper, heavily polluting and bad for the equipment. On average, No. 6 oil 
is 30% cheaper then No 2 Oil.

The utility pays the higher price for the No 2 Oil and the oil companies kick 
back the cost difference to the individuals who put this scheme together.

How big are the kickbacks, the following chart shows how much money 
was involved:


Actual Cost        2009        2010        2011         2012        2013    
Difference 
Oil Delivered      $575.9      $602.0     $687.4      $870.5     $781.08


That chart is in millions of dollars.  It helps explain why PREPA officials 
don’t want this house of cards to collapse.  It also explains why PREPA in 
continually under all sorts of legal orders from the EPA. But that is not all. 
It is just part of the story.

Each bond offering spells out huge amounts of money for capital improveme-
nts and construction projects.  Many of these projects never get completed 
but the money disappears.  Some projects are completed very slowly. Any 
project that would reduce their oil purchases are outright killed. In 2014-2015
PREPA killed 15 billion dollars in solar and wind projects that would have 
save the utility 20% on its cost to produce electricity.

If you combine the oil kickbacks with the missing construction money you 
have almost a billion dollars a year in missing funds.

The good news is that the schemes have been uncovered and it is just a 
matter of time until the authorities put an end to this criminal enterprise.


Mr. Lawless has twenty-five years of experience in performing forensic 
accounting reviews.  Mr. Lawless received his Bachelor of Science Degree 
from Pepperdine University and a Master’s in Business Administration with 
a focus on finance from the University of San Diego.  Richard has had a 
long banking career as a commercial lender and has served as a senior 
and executive manager for major banking institutions. In these roles Mr. 
Lawless was responsible for billions of dollars in assets. Mr. Lawless has 
also served as Chairman and CEO for a number of non-banking companies
some of which have been in the energy sector.



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.