• The Star Staff

Grijalva asks oversight board to investigate insider trading claims

By The Star Staff

U.S. House Natural Resources Committee Chairman Raúl Grijalva asked Financial Oversight and Management Board Executive Director Natalie Jaresko on Wednesday to investigate insider trading allegations against some of Puerto Rico’s creditors before continuing with negotiations to restructure the island government’s debt.

“These insider trading allegations put the integrity of the restructuring proceedings into question, placing a cloud of illegitimacy over a process the result of which could bind the residents of Puerto Rico and all creditors for decades,” Rep. Grijalva (D-Ariz.) wrote in a letter.

Facts underlying the insider trading allegations related to Puerto Rico’s restructuring proceedings were first detailed on Feb. 25 in a court motion filed by the Committee of Unsecured Creditors.

“At the heart of the request for more detailed disclosures was the concern that some hedge funds’ failure to publicly disclose the nature and amount of each economic interest as required by the Federal Rule of Bankruptcy Procedure 2019 was facilitating their engagement in unlawful practices without detection,” the U.S. lawmaker wrote. “These include the possibility that hedge funds traded on non-public information while using the PROMESA [Puerto Rico Oversight, Management and Economic Stability Act] restructuring proceedings to artificially manipulate bond markets.”

In response to the February motion, Judge Laura Taylor Swain in July ordered hedge fund groups to release more details about their holdings. A public accountability initiative analyzing the disclosures revealed that at least four hedge funds bought bonds they argued in court were of no value during court-ordered confidential mediation and while there was no public information suggesting that legal challenges to these bonds would be withdrawn. In August, several members of Congress sent a letter to New York Attorney General Letitia James, raising concerns about insider trading allegations and calling on her to launch an investigation.

On Oct. 5, National Public Finance Guarantee Corp. filed a motion asking Swain to order an investigation into whether hedge funds violated mediation confidentiality and engaged in insider trading.

Puerto Rico’s creditors in court documents have denied they have engaged in insider trading. Grivalva noted that while questions about insider trading has been raised, hedge fund groups meanwhile have asked the court to impose strict deadlines to finalize a restructuring agreement while failing to mention the insider trading claims.

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