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Fiscal Oversight Board

Conflict of Interest Shadows Members of the FOB

On August 31, 2016, President Barack Obama appointed the members of the Supervising Fiscal Oversight Board to oversee the budget and seeks solutions to the fiscal crisis affecting Puerto Rico. Since the announcement was made, the appointees to the Oversight Board have come under scrutiny for possible conflict of interest.

An examination of the evidence suggests that the members and legal counsel of the Oversight Board have the financial background and experience to attend the fiscal crisis that is affecting Puerto Rico. In this context, each member of the Oversight Board could contribute in many ways in seeking solutions to Puerto Rico’s fiscal crisis.

In an article by Centro de Periodismo Investigativo, concerns are raised about the conflict of interest that board members Carlos M. García and José R. González could have in the debt restructuring. Specifically, as noted in the appendix to this brief, both worked for Santander Bank, which played an important role in the issuing of the debt. During the Fortuño administration, Santander Securities played the role of an underwriter in the issuing of bonds, mostly the ones from COFINA. This means that the government of Puerto Rico paid millions of dollars in fees and commissions to Santander Securities, who helped to issue millions of dollars in bonds. According to reports, there could be a link between the role that García and González played in Santander Bank and in the GDB.

The case against García is more alarming because he was the president of the GDB under the Fortuño administration when a substantive portion of the debt was issued, and where he appointed several executives of Santander Bank to important position in the GDB.

The historical connections of García and González to the Santander Bank and the GDB raise question about their impartiality when making decisions. Are they serving the best interest of the people or the best interest of the banks for which they have worked? In a recent interview, González says that these accusations, primarily raised by the Hedge Clippers[1] are irresponsible and that it evidence a lack of knowledge about the topic. Also, Gonzalez claims that the bonds that were issued during his time in the GDB should have expired or refinance, and that he worked at Santander Bank only until 2008. As for García, he has been silent about the Hedge Clippers’s accusations.

In addition, there is some concern about the role that the law firm O’Neill and Borges have played in previous years, both as tax counsel for the government of Puerto Rico and representing Santander Bank, Banco Popular, and UBS Financial Services in various legal disputes. Here again, questions are raised about what interest will this firm look for if a restructuring process begins.

At this point, there is no public data or cited sources to confirm the allegations made by the Hedge Clippers. The evidence to support or contradict the allegations could be gather as part of the auditing of the debt. Governor Rosselló recently announced that he decided that the debt should not be audited.

More research should be made about the role of Santander Bank and other banks on the rise of the debt. In the meantime, we should continue raising concerns about the decision to not audit the debt and to clarify any potential conflict of interest among the members of the oversight board. On the fourth public meeting, the Oversight Board decided to create a Code of Ethics and to have an ethics expert to look at any allegations of conflict.

[1] HEDGE FUND VULTURES IN PUERTO RICO, #HEDGEPAPERS NO. 17, retrieved 2/8/17 from http://hedgeclippers.org/hedgepapers-no-17-hedge-fund-billionaires-in-puerto-rico/


Edwin Meléndez
Víctor R. Martínez
Saturday, April 15, 2017 - 5:30pm