The Puerto Rican bankruptcy judge dismissed claims of nearly $ 1 billion that Puerto Rican credit unions had against the central government and institutions in Puerto Rico.
Judge Laura Taylor Swain rendered her ruling in the last week of 2021 in a notice granting the defendants’ motion to dismiss in adversarial proceedings. The court ended the adversarial proceedings on Tuesday.
Puerto Rico attorney John Mudd said Swain’s action was “to be expected given the lack of specificity of the allegations.”
Credit unions had purchased $ 976 million in notes and bonds from the Commonwealth of Puerto Rico, the Government of Puerto Rico‘s Development Bank, the Highways and Transportation Authority, the Employee Retirement System, Puerto Rico. Electric Power Authority, Public Building Authority, and Puerto Rico Sales Tax Funding. Corp. (COFINA). These represented 65% of their total investment portfolio.
The GDG and COFINA bonds and notes have already been adjusted. Commonwealth, PBA and ERS bonds are expected to be adjusted as part of the central government adjustment plan Swain is considering. The Supervisory Board said it would submit HTA and PREPA adjustment plans by the end of March.
The credit unions argued that the Commonwealth government and its credit union regulator, COSSEC, pressured them to buy the bonds and issued “misleading directives.” The credit unions have filed seven charges against the defendants. Counts one to five were based on allegations that the government had engaged in fraud.
Credit unions argued that during GDB and COSSEC meetings with credit union leaders, the former engaged in fraud, but Swain said credit unions did not provide enough content on meetings to substantiate these accusations.
While the credit unions said the GDB and the Puerto Rican Treasury should have been aware of the government’s inability to pay off the bonds in full even as they urged credit unions to buy them, Swain said the credit union’s claim of knowledge of the government was too “speculative.”
While the credit unions demanded an exemption from the proposed adjustment plan, claiming the government was dishonest towards them between 2008 and 2015, Swain said there was nothing in Puerto Rico‘s law on debt. monitoring, management and economic stability that allows exemption for dishonesty.
Swain said counts four and five, based on local laws, were prescribed by statute of limitations.
The Fifth Amendment revenue clause of the United States Bill of Rights and the Puerto Rican Constitution prohibits the adjustment of credit union claims, they said. However, Swain said the credit unions did not allege enough facts to show that they were required or “forced” to buy the bonds, which was necessary for their argument to succeed.
Credit unions have the right to appeal Swain’s decision to the First District Federal Court of Appeal. Their lawyers did not immediately respond to an inquiry from a bond buyer regarding their plans.