SEC Investigates Morgan Stanley and Barclays Bankers Over Puerto Rico Bond Sales

Barclays (BARC) and Morgan Stanley (MS) were underwriters when the island sold $3.5 billion of bonds in 2014. According to Bloomberg, brokerage firm records submitted to the Financial Industry Regulatory Authority (“FINRA”) indicate that the U.S. Securities & Exchange Commission’s (“SEC”) staff is recommending that the SEC file an enforcement case against Barclays bankers James Henn and Luis Alfaro. The two men are under investigation for allegedly violating fair dealing in selling Puerto Rico bonds. They are also under investigation for alleged violations of securities rules and municipal bond rules as they pertain to misrepresentation, deception and fraud related to the securities.

Additionally, Bloomberg reports the SEC’s staff wants to issue a sanction against Morgan Stanley Managing Director Charles Visconsi and his ex-colleague Jorge Irizarry over disclosures that Puerto Rico made in documents that were sent to investors. The staff is interested in whether the broker-dealer adequately examined representations that were made by the island’s government. Visconsi and Irizarry reportedly have not been accused of any intentional misconduct.

In other Puerto Rico bond fraud news, the Puerto Rico Electric Power Authority (“PREPA”) has joined the island in filing bankruptcy protection. PREPA is currently overburdened with $9 billion of debt.

The bankruptcy filing took place after the island’s financial oversight board rejected a previously worked out deal that would have allowed the electrical authority’s bondholders to receive new debt valued at 85% of the principal owed to them. The refusal to accept the deal came one day after bond insurers National Public Finance Guarantee Corp. and Assured Guarantee Ltd. sued the board to make its members accept the debt agreement. The bond insurers collectively insure $2.3 billion of PREPA bonds. Now that PREPA has sought bankruptcy protection, it will be up to a judge to decide how much the electrical authority’s bondholders are repaid.

Also, Fitch Ratings has downgraded its rating of Puerto Rico’s sales tax revenue bonds, called “COFINA” bonds, from C to D. The lower ratings impacts $8.9 billion of first subordinate COFINA bonds and $6.3 billion of senior COFINA bonds.

COFINA bondholders and general obligation bondholders are two of Puerto Rico’s biggest creditors. They are fighting for first rights over the cash COFINA collects in sales tax revenue. Since COFINA and general obligation bondholders could not reach an agreement prior to Puerto Rico’s bankruptcy filing, it is up to the U.S. Bankruptcy Court to determine who should be in charge of the more than $400 million in funds that the sales-tax bond trustee is holding as well as future money collected from sales taxes.

Puerto Rico Bond Claims
While Puerto Rico and a number of its agencies seek to resolve their debt woes in bankruptcy court, our Puerto Rico municipal bond fraud attorneys are working hard to represent investors in the U.S. territory and on the mainland in their fight to recover money they lost from investing in the island’s securities. Many investors lost everything after brokerage firms and their brokers recommended that they invest in Puerto Rico bonds. A number of these financial representatives misrepresented or failed to disclose the risks involved in these investments.

If you are an investor who has suffered losses in Puerto Rico bonds that may have been inappropriately recommended to you by financial representatives for Barclays, Morgan Stanley, UBS Puerto Rico (UBS-PR), Santander Securities (SAN), Banco Popular, or other firms, contact Shepherd Smith Edwards and Kantas, LTD LLP today and ask to speak with one of our experienced Puerto Rico bond fraud attorneys today.

SEC Probes Barclays, Morgan Stanley Bankers Over Puerto Rico, Bloomberg, June 28, 2017

Puerto Rican Power Utility PREPA Files For Bankruptcy, Fortune, July 2, 2017

Fitch downgrades Puerto Rico COFINA bonds to D, The Bond Buyer, July 3, 2017