Fiscal board and its legal counsel ordered to answer claim that they concealed loan
By The Star Staff
Title III Bankruptcy Court Judge Laura Taylor Swain has ordered the Financial Oversight and Management Board and its legal counsel O’Neill & Borges (O&B) to answer by June 2 claims that they concealed from the court a $384.2 million loan, to benefit law firm clients.
Carlos Lamoutte, a San Juan attorney, filed a motion by himself on May 18 informing the court that in violation of the Puerto Rico Recovery Accuracy in Disclosures Act of 2021 (PRRADA), a federal statute that requires professionals hired by the oversight board to disclose conflicts of interest to the U.S. Trustee and to other parties, O’Neill & Borges did not inform of a conflict of interest to “financially benefit several private clients of that firm, to the corresponding detriment of the bankruptcy estate of the debtor in this case, the commonwealth of Puerto Rico.”
In the motion, Lamoutte also charged that oversight board executives, including General Counsel Jaime A. El Koury and the board’s ethics adviser, Andrea Bonime-Blanc, helped O&B conceal the firm’s conflict of interest.
He is seeking the firm’s disqualification as counsel. O&B is the oversight board’s lead counsel in Puerto Rico.
O&B, Lamoutte and the oversight board did not answer requests for comment.
The conflict of interest is because O&B represents the oversight board, including the Economic Development Bank (EDB), as well as PR Recovery and Development, Parliament Capital Management (PCM), Parliament High Yield Fund (PHYS), and Island Portfolio Services (IPS) in the acquisition of a $384 million commercial loan portfolio previously owed by the EDB.
Former EDB President Luis Burdiel had sold the bank’s $384 million loan portfolio, which contributed to its decapitalization. Current EDB officials are trying to reverse the transaction in the commonwealth court.
Lamoutte said that in “bad faith,” O&B excluded the four firms from the amended list of material interested parties submitted by the oversight board to the court as required by PRRADA.
The $384.2 loan sale agreement was entered into in 2018 between EDB as a seller and PR Recovery as purchaser in a petition filed after the government had filed for bankruptcy. The post-bankruptcy petition identifies O&B as legal counsel to PR Recovery in the transaction, Lamoutte said.
“Furthermore, discovery disclosures in the commonwealth contract rejection case also situate PCM, PHYF and IPS, also clients of O&B, as co-arrangers of the $384.2 million loan sale agreement, together with PR Recovery,” the motion states.
The loan, Lamoutte said, is a matter of public record as it was the target of a legislative probe and also the target of litigation because the EDB is challenging its legality in the commonwealth court claiming fraud and criminal conduct. The EDB wants the Superior Court to void the $384.2 million loan agreement.
Lamoutte said the oversight board did not examine or approve the loan prior to its execution. He also said the board has been advised by counsel against taking action in relation to the loan agreement, in an action he described as “benefitting” O&B clients.
He said the cancellation of the loan agreement by the Title III court will create value for the bankruptcy estate of the commonwealth.
The docket in the Title III case, according to Lamoutte’s motion, shows that O&B failed to disclose to the U.S. Trustee, to the court and other parties its association with the firms in the loan agreement and its concurrent representation of the oversight board.
“O&B’s undisclosed dual, concurrent representation of the Oversight Board and the [firms] has placed the EDB at risk of forfeiting to one or more private clients of O&B in excess of $384 million in state-owned assets that form part of the bankruptcy estate,” the lawyer said.