Judge Swain dismisses suit filed by cooperatives claiming they were misled to buy PR bonds
By The Star Staff
The judge overseeing Puerto Rico’s bankruptcy cases, U.S. District Court Judge Laura Taylor Swain, recently dismissed a suit brought by six island credit unions accusing the government of leading them into buying Puerto Rico bonds, knowing it was not going to pay the debt.
Swain said the evidence provided was not strong enough to support the claims.
The six state-chartered credit unions are part of a financial cooperative system that provides banking and financial services to communities in Puerto Rico. They hold certain debt instruments issued by the Commonwealth of Puerto Rico, other commonwealth instrumentalities, and the Government Development Bank (GDB).
The cooperatives filed an adversary complaint against the Commonwealth, the GDB, the Financial Oversight and Management Board for Puerto Rico and its individual members, the Public Corporation for Supervision & Insurance of Cooperatives (COSSEC by its Spanish acronym), the GDB Debt Recovery Authority, the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), the Puerto Rico Sales Tax Financing Corp. (COFINA), the Puerto Rico Highways and Transportation Authority (HTA), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (ERS), the Puerto Rico Electric Power Authority (PREPA), and the Public Buildings Authority (PBA).
The complaint, which was a second amended complaint, alleged that defendants engaged in a fraudulent scheme from 2009 to 2015 to coerce the cooperatives into buying government bonds while defendants knew that the bonds were unsustainable and would diminish in value.
While the second amended complaint is unclear as to which government bonds each plaintiff purchased and when, they allege that approximately 65% of the cooperatives’ investment portfolio consists of government bonds.
When the government filed for bankruptcy in 2017, the cooperative system had to engage in a plan to avoid a collapse of that banking system.
The complaint said the fraudulent scheme violated Puerto Rico contract and tort law, Puerto Rico’s Act Against Organized Crime and Money Laundering, and provisions of the commonwealth and United States constitutions, and, in the alternative, entitled them to a claim for unjust enrichment. They said the government had said the bonds were secure investments.
They sought an order from Swain exempting their claims from discharge as part of the government bankruptcy. Swain said the allegations for the most part amount to conclusory assertions that fraud occurred at unspecified meetings attended by unspecified individuals over a four-year period. She also said the cooperatives failed to provide evidence of the false statements.