Government Development Bank

Lex Claims Oral Argument April 4, 2017

On April 4, 2017, Judges Howard, Lynch and Barron heard oral arguments in the Lex Claims case, where Judge Besosa had decided the PROMESA stay did not apply to some of the claims, including the validity of COFINA and its alleged lien. 

As usual, right from the start of the Supervisory Board’s argument, the Judges started asking pointed questions. Judge Barron started asking technical questions that boiled down to whether the stay applied to a declaration that Governor Garcia Padilla’s executive order were invalid or preempted. Judge Howard asked if some or all of the causes of action arose after PROMESA was approved. The Board’s lawyers denied this but clearly the Judges are not convinced. Judge Lynch seemed concerned about other cases arising but was assured there are none.


Judge Howard asked about mediation and was assured it would start next week. When Senior COFINA lawyers started their argument, Judge Barron asked why the declaration of the Executive order was preempted. COFINA had to admit that such declaration is not an issue of control.


Ambac came next for appellants and likened the Lex complaint to a bank in state court attempting to determine where income should go for a bankruptcy debtor but this did not bar Judge Barron from asking the same question as to declaratory judgment. We can see a pattern there.


Once Lex Claims came to argue, it invoked section 303(3) of PROMESA claiming this was not precluded by the stay. Judge Lynch, who seems intent on preserving the stay, asked if there was explicit language that pointed that way. Lex conceded there was none but that the overall interpretation of PROMESA showed that. Lynch did not seem convinced. Lex continued arguing that they did not seek control, but Judge Barron challenged this view. Judge Lynch went to the offensive and asked if you filed your complaint, why should we relieve you of it in clear reference to the second amended complaint. Lex answered that it could amend the complaint.


From this we may surmise that as the Circuit Court’s stay order stated, the Judges will decide the stay will apply to all of the Lex Claims’ complaint, although Judge Barron could file a partly dissenting opinion or convince them it does not apply to the declaratory judgment sought by appellee. Since I assume the panel will be as swift as it was in the Peaje case, a decision could come down by next week or earlier. If it comes down by next Tuesday, April 11, there would only be 19 days left of the stay.


This brings us to another issue. Since it is clear negotiations will start later than April 10, the PROMESA stay which was enacted to afford PR an opportunity to attempt to restructure its debt consensually has been instead used by the Government and the Board to pick and choose winners among bondholders. This may have serious repercussions in the coming Title III as I will discuss in an upcoming posting.


Melba Acosta’s Resignation



Today, Governor accepted the resignation of Melba Acosta as President of the Government Development Bank. The resignation will be effective at the end of July. Her letter of resignation mentions the approval of PROMESA as a reason, but it will not start functioning until October at the earliest. And to say that she has accomplished what she came to accomplish is to ignore the realities of our financial crisis. Why then, did she resign with only 5 months left before the end of this administration? Let’s see.


Melba Acosta has shown a personality that needs to exercise control over her environment and refuses to share information with the public or the Legislature. The coming of the Supervisory Board will definitely take away many of her functions but it will not start functioning until October at the earliest. So that cannot be the reason.


Today, ENDI published a note about an investigation by the Securities and Exchange Commission of bond issues by PREPA. The note states that the investigation deals with this administration and that it started in 014. We all know that investigations of this type take time and the U.S. Attorneys Office likes to indict persons in positions of power close to elections. An SEC investigation may bring indictments pursuant to section 17(a) of the Securities Act de 1933 and Rules 10b-5 y 15c-12 of the SEC. In addition to criminal charges, which have to be done through the DOJ, the SEC may file civil suits against PR or the persons involved in violations of said laws and regulations.


And it is not only the SEC that will be involved in an investigation. Senator Orrin Hatch asked the SEC to investigate the PR bond issues and also said the Senate Finance Committee would conduct its own investigation. Does Melba know something we don’t know? ¿Are these investigations the reason for her resignation? Time will tell.






En el día de hoy, el Gobernador García Padilla aceptó la renuncia de Melba Acosta a la presidencia del Banco Gubernamental de Fomento. La misma será efectiva al final del mes de julio. La carta menciona la venida de la Junta como razón, pero ésta no entrará en funciones antes de octubre, como temprano. Y decir que ya ha cumplido con lo que tenía que hacer obvia la realidad de la crisis. ¿Por qué la renuncia con 5 meses para acabar el cuatrienio? Veamos.


Melba Acosta ha demostrado ser una personalidad que necesita el controlar todo su entorno y no comparte información ni con el Pueblo ni con sus legisladores. La venida de la Junta de Supervisión Fiscal definitivamente le quitará muchas funciones a Melba pero esta no vendrá a funcionar hasta octubre como temprano. Así que esta no puede ser la razón.


En el día de hoy, ENDI publica una nota de una investigación del Securities and Exchange Commission sobre emisiones de bonos de la AEE. La nota nos dice que la investigación comprende este cuatrienio y comenzó desde el 2014. Todos sabemos que las investigaciones de este tipo toman tiempo y Fiscalía Federal le gusta acusar personas en posiciones de poder cerca de las elecciones. Una investigación del SEC puede conllevar acusaciones criminales bajo la Sección 17(a) del Securities Act de 1933, las Reglas 10b-5 y 15c-12 del SEC. Además de cargos criminales, que tienen que llevarse a través del DOJ, el SEC puede demandar civilmente a PR o las personas envueltas en violaciones de las antes mencionada ley y reglamentos.


Y no es solamente la SEC la que estará envuelta en investigación. El Senador Orrin Hatch solicitó al SEC una investigación a las emisiones de bonos de PR y también indicó que el Comité de Finanzas del Senado también llevará a cabo una investigación. ¿Sabrá Melba algo que no sabemos? ¿Serán estas investigaciones la razón? Time will tell.