Cooperativas Level New Fraud Charges Against Puerto Rican Government
Cooperativas allege that the island’s government engaged in “a pattern of organized crime activity.”
Seven island-insured credit unions have upped the ante in their lawsuit against the Puerto Rican government.
The cooperativas are seeking approval to add allegations that the island’s government engaged in “a pattern of organized crime activity” when they coerced the financial institutions to purchase excessive amounts of Puerto Rican debt securities that they knew were neither safe nor sound.
“The unfortunate reality here is that the Government abused its power as financial regulator of plaintiff credit unions to appropriate for itself and for its related agencies the funds and monies of plaintiffs, which are non-profit depository institutions,” the seven cooperativas said, in the suit.
The lawsuit alleges that the island’s government “engaged in a pattern of organized criminal activity of illegal appropriation of millions of dollars from the Cooperatives through fraud.”
The cooperativas are insured by the territory’s Corporation for the Supervision and Insurance of Cooperatives (COSSEC). These institutions are in addition to the island’s credit unions that are insured by the NCUA.
Puerto Rico is in the midst of a long fiscal crisis that began even before hurricanes battered the island in 2017. Congress, island officials and the Trump Administration continue to battle over the amount of hurricane aid the island should receive.
Meanwhile, the government has filed for bankruptcy and Congress has enacted legislation that created an oversight board that was designed to help the island recover from its fiscal problems.
There are 116 cooperativas on the island, the lawsuits states; they have more than 12 branches and one million members, according to the lawsuit.
The cooperativas are asking the U.S. District Court for Puerto Rico to rule that the debts they are owed based on the bonds they purchased cannot be discharged by the bankruptcy filing because they were based on false representations and fraud.
They first filed suit in March 2018 and are now seeking to amend the lawsuit. The cooperativas are even more blunt in the amended suit concerning their allegations against the government.
They repeat their allegations that COSSEC officials told them that unless they agreed to “cooperate with the government’s financial and development needs,” the government would be forced to reevaluate the cooperativas’ tax-exempt status.
And while the island government, oversight board and COSSEC have not responded to the new lawsuit, the agencies did respond to the initial suit.
In documents filed in Puerto Rico federal court, the government, its fiscal oversight board and its local credit union regulator said the cooperativas have not demonstrated that they were coerced into buying government bonds whose values have dropped as a result of the fiscal crisis the island faces.
And they said that the bonds should be included in the island’s bankruptcy proceeding, which could mean the cooperativas may not be repaid the full amount they are owed.