Federal judge rules OCIF can proceed with liquidation of Phoenix Fund despite bankruptcy request for reorganization.

A federal judge allows Puerto Rico’s financial regulator, OCIF, to continue liquidating The Phoenix Fund despite the fund’s Chapter 11 bankruptcy filing, aiming to protect public and institutional investors from potential losses.

By THE STAR STAFF

A federal bankruptcy judge has ruled that Puerto Rico’s top financial regulator may continue its liquidation and enforcement actions against The Phoenix Fund LLC, clearing the way for the Office of the Commissioner of Financial Institutions (OCIF) to push ahead despite the Fund’s recent Chapter 11 filing for reorganization.  

The decision comes as public documents and investigative findings indicate that the State Insurance Fund Corporation (CFSE) may face losses estimated between $80 million and $90 million as a result of its investments in the embattled private equity fund.

OCIF launched an examination of The Phoenix Fund in January 2025, but regulators say they were unable to complete the review due to the Fund’s persistent noncompliance. After more than a year of delays, OCIF escalated the matter by issuing an Amended Complaint and Receivership Order on February 18, 2026. That order forced the Fund to stop accepting new investments, initiated its liquidation, and appointed Driven, P.S.C. as interim receiver with full managerial authority over the entity.

Just five days later, on February 23, The Phoenix Fund sought Chapter 11 protection citing $400 million in liabilities against $566 million in assets. In its internal resolution authorizing the filing, the Fund argued that OCIF’s liquidation order was not in the best interest of its stakeholders and that the agency’s actions could lead to the “demise” of the company. The filing attempted to keep former management in control as debtor‑in‑possession.

OCIF quickly responded, filing emergency motions on February 25 asking the bankruptcy court to recognize that its enforcement action was exempt from the automatic stay and that its appointed receiver, not the Fund’s prior management, holds legal authority to act on behalf of the company.

In a detailed opinion issued March 11, the bankruptcy court agreed with OCIF, ruling that the regulator’s actions fall under the “police and regulatory power” exception of Section 362(b)(4) of the U.S. Bankruptcy Code. The judge found that OCIF is acting to protect public welfare and the integrity of Puerto Rico’s financial system, not to pursue a financial claim. Therefore, the automatic stay does not prevent the continuation of the Enforcement Action or the liquidation process.

The court also concluded that Driven, P.S.C. — the receiver appointed by OCIF — holds legitimate authority to act as the debtor‑in‑possession under federal law. This means prior management’s attempt to maintain control through the Chapter 11 filing is invalid.

Amid the unfolding legal battle, Puerto Rico’s State Insurance Fund Corporation (CFSE) may lose between $80 million and $90 million invested in the fund—money originating from the government‑run workers’ compensation insurance system.

The potential loss is compounded by earlier red flags raised inside the agency. According to internal minutes from a June 10, 2021 meeting of the CFSE governing board obtained by Bonita Radio, the agency’s Director of Finance and CPA, Laura M. Ortiz Ramos, alerted board members to troubling findings involving Francisco José Rivera Fernández, who served as both an investment advisor and a broker to the CFSE. Investigators found he simultaneously held a position on the advisory board of The Phoenix Fund—an apparent conflict of interest that put him on both sides of the investment transaction.

Documents reviewed during that meeting referenced an investigation by the Puerto Rico Office of the Comptroller into investments made on December 27, 2019 with The Phoenix Fund and ARC Trust Fund III. CFSE staff conducted a review of approvals, ownership structures, and financial returns associated with the investments. During that process, they discovered that the firm and the president who recommended the investment also appeared on the advisory board of the fund receiving CFSE money. The website address for The Phoenix Fund was found to be the same as that of the CFSE’s own investment advisor.

This overlap raised immediate governance concerns, yet the investments proceeded — commitments that now place tens of millions of dollars of public funds at risk.