• The Star Staff

Judge pushes for proposed bankruptcy deal by February; denies probe into insider trading claims

By The Star Staff

U.S. District Court Judge Laura Taylor Swain on Wednesday ordered the Puerto Rico Financial Oversight and Management Board to submit by February a motion consisting of a term sheet of an amended debt deal for the commonwealth and denied a probe into claims of insider trading.

Swain, who denied a request by parties of the commonwealth’s plan support agreement (PSA) to dismiss the bankruptcy case if the deadlines were not met, said the bankruptcy process needed to move forward during an omnibus hearing on the Title III bankruptcy process. She said the filing in February also had to include a disclosure statement.

Since March, the oversight board has requested adjournments on the commonwealth debt deal citing that it needed to be amended to take into account the impact of the global coronavirus pandemic on Puerto Rico’s finances.

She said the request by the PSA creditors was inappropriate given factors such as the upcoming general election. PSA creditors, including the Ad Hoc Group of Constitutional Debtholders, the Ad Hoc Group of General Obligation Bondholders, the Lawful Constitutional Debt Coalition and the QTCB Noteholder Group, among others, had sought deadlines toward the approval of a PSA in a motion earlier this month.

Swain also denied a motion from bond insurer National Public Finance Guarantee Corp. for the appointment of an independent investigator to look into whether some of Puerto Rico’s bondholders traded bonds using as a basis confidential information obtained from the mediation process.

Swain said there is no statutory provision under the Title III bankruptcy process of the federal Puerto Rico Oversight, Management and Economic Stability Act to start such a probe or order the U.S. trustee to do so. The U.S. trustee can investigate claims when an identifiable right is being impacted.

The judge said National did not provide evidence that the alleged insider trading was detrimental to the parties or the markets.

The claims “were largely speculative,” she said. Swain also noted that it was unfair to impose the costs for an independent probe on Puerto Rico in an effort to defeat the PSA.

On Oct. 5, National asked for an independent investigator arguing that information about the holdings supplied by several Puerto Rico bondholders points to possible insider trading. In August, members of Congress Alexandria Ocasio-Cortez (D-N.Y.) and Nydia Velázquez (D-N.Y.) asked the New York State Attorney General’s Office to investigate the allegations.

National’s lawyer Marc E. Kasowitz said that, overall, hedge funds that were parties to the PSA had increased holdings of late vintage general obligations, which are those issued after 2012, from about $5 billion to about $7 billion.

Hedge funds such as QTCB Noteholder, the Ad Hoc Group of General Obligation Bondholders, the Ad Hoc Group of Constitutional Debtholders and the Lawful Constitutional Debt Coalition (LCDC) opposed the investigation.

LCDC lawyer Susheel Kirpalani accused National of having ulterior motives. National does not support the PSA because it will cut the constitutional general obligation debt, forcing National as bond insurer to pay creditors for the difference.

Kasowitz said the payments may take National “to insolvency.”