Alert: Roberto Herencia

Since publishing my analysis of control board candidate Roberto Herencia yesterday, sources have told me that his brother is a former partner at KPMG, the firm tasked with auditing PR’s financials. Since leaving KPMG, he has associated with CPA Lamba of LLMD CPA, the firm that prepares the Commonwealth’s financials before they go to KPMG to be audited.

This is just one more conflict to consider when weighing Herencia’s candidacy for the board.



Candidate Profile: Antonio Weiss

Those who have watched the Control Board over the last several years are very familiar with Antonio Weiss. Given the large role that he played in lobbying for PROMESA, many observers will no doubt be surprised to learn that Weiss is in serious consideration for a board seat or an auxiliary role advising the board.  This is not to mention the not so insignificant role the U.S. Treasury will play, and is playing already with the oversight board.antonioweiss

Weiss is a former executive at investment banking giant Lazard. He left Wall Street after receiving a nomination for a position at Treasury in 2015. What was supposed to be a routine nomination process became a political battle between the Democrats when Senator Elizabeth Warren famously led a fight against his nomination, citing his Wall Street ties and the generous retirement package he received from his former employers.

As a result, the Obama Administration withdrew Weiss’ nomination, and essentially circumvented the nomination process altogether by installing him as a “counselor” to Treasury Secretary Jack Lew, a position in which he does the more or less the same job as the one for which he was originally nominated.

Over the last year, Weiss has been the Obama Administration’s point man on Puerto Rico. He has been the most visible administration official lobbying in favor of PROMESA and PR’s access to a “comprehensive” debt restructuring. In this role he has testified before Congress multiple times, and worked extensively behind the scenes with lawmakers during the drafting process. Since the board has been in place since July 1, Weiss is currently running Puerto Rico for all intents and purposes. In addition, “Weiss was head of investment banking at Lazard, which has a history of advising Puerto Rico on its municipal debt. . .    Lazard also advised US hedge funds to snap up the debt and has invested in some of the hedge funds that did so, according to the activists, led by Hedge Clippers and Rootstrikers, which target the moneyed elite. ” Talk about a conflict of interest.

There are many obvious problems with a top Treasury counselor having a close relationship with the control board – or being on the board itself – that should rule Weiss out immediately. Weiss is first and foremost, an Obama Administration official, and as such there are serious questions as to whether he can put the best interest of the Puerto Rican people above the best interests of the administration, should a conflict ever arise between the two. For me, this strikes at the heart of the board’s independence.

It is worth noting that in the months before PROMESA was enacted, Weiss engaged in a grueling and at times bitter campaign against creditors, and put forth a proposal that would have put payments to pensions above creditor payments. His involvement with the board that will decide restructuring outcomes for those groups is an obvious conflict.

Further, appointing Weiss to the board would be a death blow to any hopes of the board becoming a unifying force here in PR. The reason the control board worked so well in Washington, DC – and the reason that I supported consideration for that board’s CFO, Anthony Williams – is because the citizens of DC eventually embraced it and the changes it brought to their city. Giving Weiss, a sitting federal government official, a seat on the board makes achieving that next to impossible; the cries from some that the board represents a colonial overreach by the federal government would become deafening.

Verdict: red-flag Red Flag – Antonio Weiss is a non-starter for the control board. He has been involved in a deeply political restructuring campaign for months, and his appointment, or a role in any capacity outside of his current position as Counselor to the Treasury Secretary, will be seen as the essence of colonialism by many people in PR.

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Candidate Profile: Roberto Herencia

Roberto Herencia is a Chicago banker and a Puerto Rican native. He currently serves as the president and CEO of BXM Holdings, an investment fund that focuses on community banks, and as a member of the board of director of the Overseas Private Investment Corporation after being nominated by President Obama in 2011.Herencia yellow

Herencia made a trip to Washington with Governor Garcia Padilla late last year to lobby Republicans to address Puerto Rico in the omnibus legislation.

Aside from that, Herencia has had a long career as a bank executive, primarily in Chicago. He serves as the non-executive chairman of the board of directors of FirstBancorp and its subsidiary FirstBank Puerto Rico. He also serves as independent directors of SKBHC Holdings and its subsidiaries First National Bank of Starbuck and AmericanWest Bank. Previously he has served as an officer at several community banks, and spent nearly two decades with Popular Inc., working in various capacities including as President of Banco Popular North America at its Chicago headquarters. While at Popular, the bank received almost $1 billion in TARP funding following issues with subprime mortgages.

In 2013, Herencia lead a group of investors in purchasing Chicago’s second-largest privately held bank, The Metropolitan Bank Group, which received a bailout from the Treasury in 2009 in exchange for $78 million in preferred shares. The Treasury agreed to accept $26 million for those as part of Herencia’s purchase.

Herencia’s involvement in the PR debt issue on behalf of Governor Garcia Padilla, his extensive ties to the Chicago PR and financial communities (the Chicago congressional caucus has a deeply influential PR member in Rep. Luis Gutierrez), and his history with the Obama Administration give credence to the rumors that he will be one of the Democrat’s nominees to the board.

Herencia is a Puerto Rican who clearly has a wealth of experience in the financial sector, and even in turning around troubled companies (which is essentially the type of job that is required in PR), though I would caution against Herencia’s clear ties to the Obama Administration. It is imperative that the board acts independently in the interest of PR and our economy, and does not to follow the agenda of the Obama Administration (with which Herencia has an established financial and professional relationship) toward whatever political legacy they wish to leave behind for the president. Congress should consider this carefully before giving Herencia the green light.

Verdict: yellow-flagYellow Flag – Herencia is a Puerto Rican with vast amounts of experience and clout in the financial world, but his potential conflicts within the Puerto Rican banking community raise questions.


Candidate Profile: Dennis Rivera

Dennis Rivera, a Puerto Rican by birth, is one of the nation’s foremost labor leaders, having served as president of the enormous New York-based healthcare workers union SEIU 1199 for nearly 20 years between 1989 and 2007. Since then, he has continued to maintain a presence as one of the most influential figures in the labor movement and New York Democratic politics.dennis

There are likely many Democrats in Congress, and maybe even some people in the administration, who would like to see Dennis Rivera on the control board. This, combined with the fact that he may qualify for the seat designated for someone who maintains a primary residence in PR (depending on how much time he spends on his farm in Culebra), is no doubt why his name has been floated as an early possibility. However, this is a pipe dream – there is simply no way that Rivera can be considered seriously for the board.

His role as essentially the face of organized labor in New York should rule him out immediately. Congress and the President cannot appoint someone who is a major stakeholder in the island’s debt restructuring to the board, and that is precisely what Rivera is with regard to the handling of PR’s pension systems. A Rivera nomination by the Democrats would be akin to Republicans appointing a hedge fund or mutual fund manager who oversees investments in PR bonds. As an example of Mr. Rivera’s influence in the PR Government, the president of the Puerto Rico Commission for the Comprehensive Audit of the Public Debt, which issued a Pre-Audit Report questioning the constitutionality of some of PR’s debt, also happens to be Mr.  Roberto Pagán Rodríguez, who is also president of the Puertorrican Workers Syndicate (Sindicato Puertorriqueño de Trabajadores, local 1996 SEIU). I don’t believe in coincidences.

There are also numerous red flags that further highlight Rivera as a non-starter. The New York Post recently reported that he sent more than $1 million through a string of non-profits to a “sham” charity allegedly used in a pay-to-play scandal by former New Mexico Governor Bill Richardson. Earlier this year, reports surfaced that one of those non-profits, which relocated to Puerto Rico and for which Rivera serves as Vice Chairman of the board of directors, listed Governor Alejandro Garcia Padilla’s brother as its only paid employee.

These are serious red flags and, taken together with Rivera’s clear stake in the outcome of the board’s work, they make it obvious that he is a bad choice for control board consideration.

Verdict: red-flag Red Flag – Rivera’s numerous potential conflicts would compromise the board’s integrity and independence.


Candidate Profile: Douglas Holtz-Eakin

Douglas Holtz-Eakin is the president of the conservative-leaning Washington think tank American Action Forum, and, as a conservative economist who supported PROMESA, Holtz-Eakin will likely have the support of a number of congressional Republicans if he is considered for a control board seat as early reports indicate he may be.

He is familiaDoug Holtzr with many lawmakers, having served as chief economist of President George W. Bush’s Council of Economic Advisers from 2001-2002, as a senior staff economist under President George H.W. Bush from 1989-1990, and as director of the Congressional Budget Office from 2003-2005. Prior to his most recent work in Washington, he worked in academic circles, as a professor of economics at Columbia University in the mid-80s and Syracuse University from 1990-2001.

During his various exploits, Holtz-Eakin has built up experience in the realm of financial crises and economic growth. He spent much of his time as chief economist of CEA addressing the recession that followed the 9/11 terrorist attacks. He was appointed to serve on the Financial Crisis Inquiry Commission by Senator Mitch McConnell in 2009, where he authored a lengthy dissenting statement to the Commission’s report along with fellow commissioner Keith Hennessey and Vice Chairman Bill Thomas, which, though noting general agreement with many of the majority’s overall findings, criticized the report for being “more an account of bad events than a focused explanation of what happened and why.”

In recent times, he has railed against the federal government’s addiction to public spending and warned of mounting federal debt. In PR, he opposed extending Chapter 9 to public corporations and was initially skeptical of the ability of a control board to be successful while respecting PR’s sovereignty, but ultimately endorsed PROMESA. He has supported privatizing some of our large public corporations, exempting PR from the Jones Act, and exempting PR from the federal minimum wage as a means of creating jobs. While not every Puerto Rican will agree with the specifics of his preferred policy solutions, he has taken a relatively holistic approach to the debt in his many writings and public comments – calling on all stakeholders to share the burden of restructuring while also insisting that there must be a focus on economic growth to curb mass emigration to the states. This seemingly makes him both a likely pick for President Obama should he wind up on one of the Republican lists of nominees, and smart choice for Republicans looking to advance conservative policies.

Of course, the one question that must be asked is whether Holtz-Eakin is conflicted through his consulting work. He formerly ran a firm called DHE consulting, and no doubt continues to engage in advisory work to this day. This is an area in which Congress must vet him thoroughly because, as I have indicated before, the board’s independence is of upmost importance. If there are no red flags in this area, however, then he is worthy of consideration for a spot on the board.

Verdict: yellow-flag green-flag Yellow-Green Flag – Assuming that Douglas Holtz-Eakin is not conflicted through consulting work, then he is a sensible choice for the board given his experience and his insistence on attacking PR’s debt at the root of the problem: our fundamental lack of economic growth. 



Candidate Profile: Martha Kopacz

Martha Kopacz, a financial advisor currently employed as a senior managing director at the consulting firm Phoenix Management Services, is a unique among the individuals that I have profiled so far, in that she is likely not in contention for one of the seven seats on the control board. Rather, Kopacz is widely rumored to be interested in, and actively lobbying for, an advisory role to the board, or as executive director of the board.    Because the board’s advisors or executive director will no doubt be instrumental in the board’s decisions and actions it takes, I have decided to profile some of the higher-profile candidates for these positions alongside the various candidates for board seats. In addition to her time at Phoenix Management, Kopacz has held notable positions as an adviser to the Nassau County Interim Finance Authority – a New York State-appointed control board in charge of resolving the county’s $300 million deficit – and as a managing director at Alvarez and Marsal, which has counted the Puerto Rican Government amongst its clients. Kopacz also served as an adviser to the Archdiocese of Boston in 2002 (where potential control board candidate, Archbishop of San Juan Roberto Gonzalez Nieves, was the auxiliary bishop under Cardinal Bernard Francis Law), when it filed for bankruptcy as a result of settlements in sexual-abuse-related litigation.184x170_pl-martha-kopacz

Kopacz is likely counting on two factors in her campaign to win an advisory or formal position to the board from the Obama Administration: 1.) her experience as a paid, expert witness to bankruptcy judge Steven Rhodes (who himself is a potential candidate for a control board seat) during Detroit’s 2014 bankruptcy proceedings, and 2.) her familiarity and involvement as a commentator on our own fiscal crisis over the past two years.

In 2014, she served as a hand-picked, expert witness to Judge Rhodes, when she advocated on behalf of Detroit’s restructuring plan in bankruptcy court, which she termed “feasible.” At the time, this description drew criticism from municipal market research firm Municipal Market Advisors, which said, “The feasibility described to the court by Ms. Kopacz is fragile at best.” Detroit is poised to exit the oversight of its own version of a control board, Michigan’s Financial Review Commission, after it posted its third-straight balanced budget for 2016-2017.

It is clear, however, is that Kopacz’s expert testimony was not cheap, and cost Detroit and its taxpayers a great deal of money. Judge Rhodes ordered the City of Detroit to pay Kopacz and her team over $500,000 following her testimony in June of 2014.

As our own debt crisis has progressed over the last two years, Kopacz has again been a visible player here in Puerto Rico. She has released numerous publications through Phoenix Management, in which she took various stances that could be described as friendly to the Garcia Padilla Administration, including backing the Krueger Report, downplaying the government’s inability to provide timely, audited financial statements, and advocating for the creation of a “comprehensive restructuring” authority for Puerto Rico. In February, she served as an expert witness in the Walmart v. Puerto Rico litigation, during which she asserted her view that “Puerto Rico is insolvent. Whatever debt it chooses to pay is uncertain,” and that a restructuring is “inevitable.”

Many in the Puerto Rican general public would have first heard Kopacz’s name only a few weeks ago, when media outlets reported on her visit to the island, during which she was ostensibly laying the groundwork for a board position. As reported in multiple news outlets, Kopacz came to San Juan for the purported reason of meeting with several non-profits, though she hired a media consultant, former Banco Popular public relations head Jorge Marchand.  According to sources, she presented herself as working for the US Treasury in an unofficial capacity during these meetings, and is rumored to have inquired about taking over CitiBank’s San Juan lease at the behest of the Treasury.  Moreover, it is no secret that Treasury wants parts of the PR Government to restructure their debts in order to use the savings in debt payment to be used to bolster the retirement funds and thus help its ally Organized Labor. The Treasury was denied a place on the Board for this very reason, and it would be a defeat of Congressional intent to have someone affiliated with the agency serving the board.

In my view, Kopacz’s outspoken stance on restructuring make her an unsuitable fit for any role relating the control board at the outset. Her comments on the matter – including her work as an expert witness – clearly demonstrate that she will enter her work with a predisposed view on how to restructure the debt, despite the fact that this is a determination that the independent control board is tasked to make for itself following a thorough review of available information. Her pursuit of an advisory position would be further complicated if Judge Rhodes or Archbishop Gonzalez Nieves is considered for a board seat, given the previously lucrative relationship she enjoyed with Rhodes during the Detroit bankruptcy and her role advising the Boston Archdiocese bankruptcy in 2002.

Verdict: red-flag Red Flag – Kopacz’s outspoken views on the necessary scope of a Puerto Rico restructuring mean that she would not enter her service on the board as a truly independent actor. Her recent trip to Puerto Rico where she reportedly presented herself as a US Treasury intermediary raises further doubts about her independence. She also faces potential conflicts with rumored board candidates.



Candidate Profile: José Ramon González

José Ramon González is a former Puerto Rican banking executive who has served as the president and CEO of the Federal Home Loan Bank of New York since being appointed to the post in 2014. He has been among the most frequently-posited names in early press reports on potential board candidates due to his wealth of experience in the banking industry and his extensive ties to Puerto Rico.Jose flag

Before joining FHLBNY as an executive vice president in 2013, Ramon González served as an executive at OFG Bancorp, an executive and board member at Santander BanCorp, an executive at Credit Suisse, president and CEO of the Government Development Bank under Governor Rafael Hernández Colón from 1986-1989, and president of the Securities Industry Association of Puerto Rico and the Puerto Rico Bankers Association.

Admittedly, his tenure as GDB president may initially give some observers pause. After all, the GDB as an institution has played no small part in putting us in the position in which we find ourselves today, and it is possible that there are still some outstanding bond issuances with which he was involved. But it is important to remember that Ramon González left that position 27 years ago – long before the GDB began playing the toxic role of making loans to our government which it obviously could never repay, and when Puerto Rico itself was in a much stronger financial position. Since that time, he has gone on to great success in three decades in the private sector, making him one of the foremost Puerto Rican financial experts on this earth.

There are further concerns raised about Ramon González’s lengthy career at big banks before assuming a public/private role at FHLBNY. There is simply no avoiding the fact that his former employers, especially OFG Bancorp, are as deeply in the Puerto Rican debt. It is likely that questions about his time at big banks, and the professional and personal ties he maintains to them, will be raised if his name does indeed come up during the nomination process.

At the same time, however, Ramon González has more or less steered clear of the current crisis and, unlike other Puerto Rican bankers who will undoubtedly come up as potential nominees, he has avoided wading into the financial politics that have engulfed our island for the last few years. Quite simply, there are few Puerto Ricans who are as qualified for the job as he is, who have avoided taking public positions or campaigning on behalf of certain stakeholders with regards to the debt.

Indeed, the combination of Ramon González’s insight into the inner workings of the Puerto Rican public finance apparatus, his wealth of experience, and the fact that he has refrained from intervening in the politics of the current crisis makes him a person that I would consider for a control board seat – assuming that he can make a convincing case for his independence from the clutches of Wall Street.

Verdict: yellow-flag  green-flag Yellow-Green Flag – José Ramon González is highly experienced and very familiar with Puerto Rico and the finances of our government. Though he has ties to several big banks and the GDB – and, as a result, their involvement in our public debt – this should not rule him out if he can make a convincing case for his independence.

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Promesa’s First Test

Yesterday, the Government of PR asked for a stay of proceedings pursuant to PROMESA in Ambac vs. the PR Highway & Transportation Authority.  This is the first test of PROMESA. If PR wins, this could severely restrain cases from challenging unconstitutional laws and actions by the PR Government against bondholders, both local and stateside.

Upon the enactment of PROMESA, section 405 establishes a stay of proceedings of cases against Puerto Rico filed after December 18, 2015. At this time, there are 6 cases in the Federal District Court for the District of Puerto Rico against the government of the island related to default on several bonds and one in the Federal District Court Southern District of New York. These cases are:

Assured Guarantee, Corp. v. García Padilla, 16-1037.  The complaint seeks declaratory judgment that the Governor’s executive orders for the clawback at the beginning of 2016 of funds to pay several of the bonds insured by plaintiff were contrary to the U.S. Constitution and to prevent any future action of this nature. There is no prayer for money payment;

Financial Guarantee Insurance Company v. García Padilla, 16-1095.  The complaint by a bond insurer is similar to the previous, but goes further seeking to declare that the PR Constitution Debt Priority provision, the law of Office and Management and the Executive Orders on the clawback are preempted by the Bankruptcy Code and the latter unconstitutional pursuant to the US Constitution. There is no prayer for money payment. These two cases are consolidated;

Brigade Leveraged Capital Structures Fund, Ltd. v. García Padilla, 16-1610.  Plaintiff, a group of GDB bondholders, claim that the PR Moratorium Act, the new GDB liquidation procedure and the Governor’s Executive Orders are unconstitutional and also preempted by the Bankruptcy Code. Also, Brigade filed a motion seeking a recognition that its case was not stayed under PROMESA and in the alternative, that the stay be lifted. More on this later. There is no prayer for money payment;

Ambac Assurance Corporation v. Puerto Rico Highway and Transportation Authority, 16-1893.  This case has the potential of stopping cold any cases challenging PR’s unconstitutional acts and omissions in reference to bonds and other Government obligations. In the amended complaint, Ambac, a bond insurer, seeks information on the agency’s financial situation, an injunction against proceeds that go to the agency from being used for something else, the naming of a receiver to administer the agency and an injunction against the agency “from committing any further breaches of fiduciary or contractual duties owed to Plaintiff.” There is no specific prayer for money payment. In this case, the Government of PR has asked for a stay of proceedings pursuant to PROMESA. Judge Pedro Delgado has ordered all other proceedings stayed and Ambac has to file its opposition by July 11, replies and sur-replies five days later. Judge Delgado will probably rule quickly;

National Public Finance Guarantee Corporation v. García Padilla, 16-2101.  The complaint seeks to declare the Moratorium law unconstitutional. National filed for summary judgment after the Supreme Court affirmed the invalidation of the PR Recovery Act in Franklin California v. Commonwealth. Judge Besosa (the presiding Judge in the Franklin case and who declared the Recovery Act preempted) ordered defendants to answer the motion by July 11, reply by July 18 and no further motions are allowed. My impression is that the Judge will rule by August, probably in favor of plaintiff. There is no prayer for money payment;

Trigo v. García Padilla,16-2257.  Plaintiffs, a group of PR bondholders, filed a complaint on July 1, claiming that the Moratorium law and the new GDB liquidation process violates the PR and US Constitutions. There is no prayer for money payment;

Jacana Holdings v. Commonwealth of Puerto Rico, 16-4702.  This complaint filed in NY’s southern district, claims that the Moratorium law cannot change NY law since the bonds plaintiffs hold are from the 2014 issue and are ruled by that jurisdictions statutes. It also claims that the Moratorium law violates parts of the US Constitution. There is no prayer for money payment.

As we can see, these cases seek various equitable relief but no specific monetary payment for PR’s default. The question is, then, are these cases stayed by PROMESA?

Section 405(b) of PROMESA calls for a stay of :

“(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the Government of Puerto Rico that was or could have been commenced before the enactment of this Act, or to recover a Liability Claim against the Government of Puerto Rico that arose before the enactment of this Act;

(2) the enforcement, against the Government of Puerto Rico or against property of the Government of Puerto Rico, of a judgment obtained before the enactment of this Act;

(3) any act to obtain possession of property of the Government of Puerto Rico or of property from the Government of Puerto Rico or to exercise control over property of the Government of Puerto Rico;

(4) any act to create, perfect, or enforce any lien against property of the Government of Puerto Rico;

(5) any act to create, perfect, or enforce against property of the Government of Puerto Rico any lien to the extent that such lien secures a Liability Claim that arose before the enactment of this Act;

(6) any act to collect, assess, or recover a Liability Claim against the Government of Puerto Rico that arose before the enactment of this Act; and

(7) the setoff of any debt owing to the Government of Puerto Rico that arose before the enactment of this Act against any Liability Claim against the Government of Puerto Rico.”

Section 405(a)(2) of PROMESA defines a liability claim as:

“The term ‘‘Liability Claim’’ means, as it relates to a Liability—

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,

equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.”

Hence, any complaint that seeks payment of moneys is stayed until February 15, 2016 but could be extended for no more than 75 more days, see section 405(d). Of the aforementioned cases, the only one to which the stay could apply is to 16-1893, because Ambac seeks “from committing any further breaches of fiduciary or contractual duties owed to Plaintiff” and a receiver for the Highway Authority. This can very well be considered in violation of section 405(a)(2)(B). None of the other cases seeks any relief that could be considered in violation section 405(b). Even if the stay applied to all the cases, however, our inquiry would not end there.

The stay may be lifted pursuant to section 405(e) and (f). The jurisdiction for the lifting of the stay (although it should say venue, no jurisdiction) is in the Federal District Court for the District of PR.  The stay must be lifted after a “notice and hearing” and for “cause shown.” Those familiar with Bankruptcy court recognize the familiar wording. This means that all parties must be notified and movant must show cause, as per 11 U.S.C. § 362. The examination of Federal Bankruptcy Rule 4001, although this is not a bankruptcy proceeding will also help. The stay will expire if after 45-days after the request for the lifting unless the Court, after a notice and hearing, decides to maintain the stay. In other words, the Court must hold the hearing and decide within 45-days or the stay is lifted. See section 405(f). In addition, the stay may be lifted with or without a hearing if movant shows that it will suffer irreparable damage due to the stay, see section 405(g).

Moreover, the fact that there is a stay does not mean PR is excused from paying its debts. Section 405(l) states:

“Nothing in this section shall be construed to prohibit the Government of Puerto Rico from making any payment on any Liability when such payment becomes due during the term of the stay, and to the extent the Oversight Board, in its sole discretion, determines it is feasible, the Government of Puerto Rico shall make interest payments on outstanding indebtedness when such payments become due during the length of the stay.”

Hence, the July 1, 2016, PR’s default on GO’s was intentional and not protected by PROMESA.

In synthesis, the stay provision in PROMESA will probably not stop the complaints already filed or those to be filed as long as they do not seek payment of bonds. If a declaration of laws and actions by PR being contrary to the Constitution is claimed, it will probably not be stayed since there would not be any claim for payment due to default. A good example is a case against the Moratorium law which would still be in effect after the PROMESA stay expires. Even if a complaint for payment of moneys is filed, this will not prevent a plaintiff from seeking the lifting of the stay by showing cause as it is done in hundreds of bankruptcy cases each year. Hence, if the Court in the Ambac case were inclined to decide that the stay applies to the lawsuit, it could then, after notice and a hearing and for cause shown, lift said stay and continue the litigation. The devil is indeed in the details.

Candidate Profile: Harry Wilson

Harry Wilson is the founder and CEO of the “corporate turnaround” consulting firm MAEVA Group and a former “Hedge Fund star,” as described by the Wall Street Journal. His name has been thrown around in early media reports as a candidate for a control board spot thanks to his experience as a key member of President Obama’s Auto Task Force that handled the 2009 bailouts of Chrysler and General Motors.harrywilson_184x170 flag

On the task force, Wilson was in charge of the “deals and diligence” team, which conducted the research the informed the task force’s policy decisions. He has since sought to leverage this role into a political career and is rumored to be interested in the 2018 Republican nomination for governor of New York, having run unsuccessfully for comptroller in 2010.

Before his time on the task force, Wilson had a successful, if relatively brief, career in the hedge fund industry. He worked originally at Goldman Sachs, before leaving to lead Blackstone Group’s foray into distressed debt investing – aka “vulture” investing. Following his time at Blackstone Group, he joined a former Goldman Sachs colleague at a hedge fund called Silver Point Capital.

Wilson’s hedge fund career officially ended when he was forced out of Silver Point in 2008, but accusations of conflicts of interest stemming from his time on Wall Street have dogged him at multiple stops since his retirement.

While heading the task force’s “deals and diligence” team in 2009, Wilson was embroiled in a scandal over the task force’s decision to sell a bankrupt auto parts supplier, Delphi, to a Los Angeles-based private equity firm. The deal would have forced a group of hedge funds including Silver Point Capital to accept huge losses on their investments in the company’s debt.

A more recent controversy occurred in 2015, when Wilson put himself up for a General Motors board seat as part of an activist investor campaign to force the company to buy back $8 billion of its own stock. The campaign was backed by a group hedge fund managers, including David Tepper and Kyle Bass, who owned roughly 2 percent of the company’s stock and who agreed to give Wilson a share of the profits generated by their investments in the company.

Given his extensive ties to the hedge fund industry, and the stakes that many hedge funds have in the restructuring of Puerto Rico’s various debts, it seems inevitable that similar controversies would arise if Wilson were appointed to a spot on the control board. Further, his rumored gubernatorial aspirations in 2018 raise further questions about his ability to play the role of independent actor in the interest of the Puerto Rican people, and his ability to meet the time commitments that will be required by the board.

In light of that, as well as his history with vulture fund investing and his apparent attempt to profit off of his role on President Obama’s Auto Task Force, there are simply too many concerns about Wilson for him to be considered for the control board.

Verdict: red-flag Red Flag – There are significant concerns about Wilson extensive ties to Wall Street hedge funds, his ongoing political aspirations, and his previous attempts to profit off of appointed public positions. A Wilson appointment will compromise the independence of the control board.

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Candidate Profile: Anthony Williams

Anthony Williams is the CEO of Federal City Council, a non-profit that advocates for “the improvement of the District of Columbia” and has been a key driver of several infrastructure projects in Washington, DC over the last two decades, and a Senior Adviser at the law firm Dentons.
His real claims to fame, however, are his tenures as DC’s Chief Financial Officer from 1995-1998 and, subsequently, as mayor of Washington, DC from 1999-2007. These experiences made Williams, a Democrat, a favorite of Congressional Republicans seeking insight into the possibility of a Puerto Rican control board over the last year, and all but assure that he will considered for one of the board’s seven spots.

Williams was appointed by Mayor Manthony falgarion Berry to guide DC out of fiscal crisis in 1995 as the city’s financial officer, and received a unanimous vote of approval by the cities own control board shortly thereafter. He is widely credited with spurring DC’s financial turnaround: when appointed in 1995, DC had a budget deficit of $722 million, and by the time Williams left his post the district posted its first budget surplus in a decade. Without doubt, Williams was a key cog in the success of Washington’s control board and the ultimate financial turnaround of the city.

More impressive, however, was Williams’ ability to bridge the gap between the unelected control board and the people of Washington. Then-Mayor Marion Berry called the board a “rape of democracy” when it took control of the city, yet was forced to admit that its creation was ultimately good for DC and its citizens when it was allowed to leave power in 2001. Williams’ own popularity is evident in the fact that he resigned as an appointed official on that unelected board to run for mayor of Washington, following a campaign by DC residents to persuade him to run. He beat his opponent in the 1998 Democratic primary by 15 percentage points, won the general election by an astounding 36 points, and won reelection by a 26 point margin in 2002.

Williams is also a firm believer in the absolute independence of the control board. In recent congressional testimony he has stressed the importance of the control board’s independence, saying, “Rather than independent leadership being seen in hindsight as troublesome, all these situations illustrate that creating something new, fresh with ideas, and not wedded to the notions of any particular constituency, can help build the belief in a bright and vibrant future for a financially troubled government and provide the path by which once divergent interests can come to a consensual understanding.”

It must be mentioned that Williams’ role at Dentons makes him a former colleague of another person who is rumored to be in the running for an advisory position to the board or government, Mark Kaufman, a bankruptcy lawyer who left Dentons, just recently, for King & Spalding (more to come on him later). In spite of this obvious flag, Williams seems like an ideal candidate for the board.

Verdict: green-flag Green Flag – Mayor Williams’ hugely successful track record, highly relevant experience, and respect for the independence of the control board makes him an ideal candidate for consideration of a control board seat.

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