SEC Probes Puerto Rican Debt

The Senate is preparing to take up a bill that would impose a control board to oversee the restructuring of Puerto Rico’s $70 billion debt. Seven Democratic senators are urging the Securities and Exchange Commission (SEC) to investigate potential misconduct involving the Puerto Rican bonds. A letter released Tuesday by the office of Robert Menendez, New Jersey’s senior senator, stated: “We write to ask you that you investigate possible market manipulation, conflicts of interest, trading practices, and fraud in the underwriting sale, distribution and trading of municipal securities of and relating to Puerto Rico, as well as any other fraudulent, illegal or wrongful conduct.” Also, according to the SEC, Puerto Ricans deserve to know whether illegal activity contributed to the current debt burden. The bill is expected to be taken up by the end of the month. The letter followed a report compiled by a Puerto Rico commission earlier this month that says the commonwealth may have violated its constitution when it sold $3.5 billion of general-obligation bonds in March 2014. It is also being called on for federal regulators to investigate whether OppenheiemerFunds Inc. and Franklin Templeton Resources adequately valued their commonwealth bond holdings as the financial crisis worsened. Puerto Rico’s general obligation debt must be repaid before other expenses. The island also cannot make that payment in full and also pay for essential services for 3.5 million residents.

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