Creditors Want to Investigate Puerto Rico’s Financial Downfall

By Daniel Gill

The official committee of unsecured creditors in Puerto Rico’s ‘bankruptcy’ asked permission to investigate possible “bad actors” who may have caused or contributed to its financial ruin.

On May 15, the committee filed a “renewed” motion to conduct discovery under Bankruptcy Rule 2004. That rule applies in Puerto Rico’s insolvency proceedings commenced under a special law which incorporates much of the bankruptcy code and rules.

The committee charges in its motion that the Oversight Board overseeing the bankruptcy and an investigator it hired last year haven’t adequately investigated such claims as possible assets to be administered.

On May 3, 2017, Puerto Rico initiated the largest municipal restructuring in U.S. history. The committee in July filed a similar discovery motion, outlining a program “targeting the most significant ‘potential bad actors’” identified as profiting from the financial transactions leading to the financial crisis.

The Oversight Board objected to the first motion, asserting that a special investigator it hired should conduct the same analysis. The court denied the motion without prejudice, meaning it could refile it in the future.

Now the committee complains the Oversight Board failed to keep its promise and complete the investigation by April 2018.

The committee argues that enough time has passed, and that it should be allowed to explore claims for the benefit of creditors.

It wants to start discovery on August 15, or earlier if the investigator completes a report before then.

The court handling the case has already referred the motion to a U.S. magistrate judge for consideration.

Paul Hastings LLP represents the committee. The Commonwealth of Puerto Rico is represented by Proskauer Rose LLP.

The case is In re The Commonwealth of Puerto Rico , Bankr. D.P.R., 17-03283, Motion 5/15/18 .

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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