House lawmakers moved Wednesday to allow an investigation into sales and marketing practices of Puerto Rican bonds, as part of broader legislation designed to address the island’s debt crisis.
An amendment offered by Reps. Garret Graves, a Louisiana Republican, and Don Beyer, a Virginia Democrat, would permit a control board to probe any under-representation of risks for investors in the U.S. territory’s bonds. Any conflicts of interest by brokers or advisers could also be investigated by the board, an entity called for in the bill passed by the House Natural Resources Committee.
The committee, which has jurisdiction over U.S. territories, approved the bill on a vote of 29-10. Fourteen Republicans and 15 Democrats voted to send it to the House floor. The legislation would create a seven-member board to manage restructuring of Puerto Rico’s debt, as well as oversee the island’s finances.
Puerto Rico — which unlike U.S. states cannot declare bankruptcy — defaulted on a payment of about $400 million on May 2 and faces payments of $2 billion on July 1.
Committee Chairman Rob Bishop, a Utah Republican, calls the bill Puerto Rico’s “last and best chance to get on sound financial footing and put its economy on the path to recovery and prosperity.”
Rep. Beyer said in a statement: “While I am sure most of the Puerto Rican government bonds in question were marketed in good faith, my amendment today gives the oversight board the power to investigate any improprieties. Bringing these to light is important to help restore investor confidence in the government’s financial future.”
A House aide said the board could look at practices by brokers and advisers, and that the Puerto Rican government is not precluded from an investigation. The aide also likened a potential report from the board to a Government Accountability Office report instead of an investigation by the Securities and Exchange Commission. Findings of any report would be made public, but would not carry enforcement authority.
The SEC has settled at least one case involving Puerto Rico bonds. In September 2015, UBS Financial Services Inc. of Puerto Rico agreed to pay $15 million to settle charges from the SEC, which said the unit failed to supervise a broker who had customers invest borrowed money in bond funds. Including another fine and restitution, the unit paid about $34 million.
The bill, which has support from House Republican and Democratic leaders, as well as the Obama administration, now heads to the House floor for a vote. The Senate would also need to approve it for it to go to President Barack Obama.