Chapman Strategic Advisors managing director James Spiotto said Puerto Rico would be better off focusing on economic development than on circumstances around old securities.

Major investment firms made unethical and probably illegal loans to Puerto Rico's government from 2000 to 2008, according to a report from a populist financial industry watchdog.

The ReFund America Project, a group devoted to helping local organizations "restore the balance of economic power to Main Street" following the financial crisis, made the accusation in a report "Beware of Bankers Bearing Gifts," released Wednesday.

The Puerto Rico Oversight Board should "petition the Securities and Exchange Commission to bring a disgorgement action against the banks to make them return their ill-gotten gains," the report says.

"As Puerto Rico's financial health deteriorated, banks targeted it with more and more complex debt deals that generated millions in fee income for Wall Street," the group's executive director Saqib Bhatti and research director Carrie Sloan write in the report. "They were overpriced, highly risky, and structured in a way that would protect the banks even if the commonwealth were unable to pay the bondholders."

"In many cases, the bankers that marketed these deals to public officials likely broke federal securities law by misrepresenting how volatile these financial instruments truly were, and the commonwealth may have legal recourse to recover its losses from the banks," they write.

In particular, the authors complain about the firms' encouragement to Puerto Rico to use variable interest rates, interest rate swaps, and auction rate securities.

In 2013 and 2014 Puerto Rico had to pay $780 million in swap termination penalties, they said.

The other instruments the investment firms encouraged Puerto Rico to use also cost the commonwealth money, though the authors don't provide comprehensive estimates.

Puerto Rico's legislature started a commission to review the commonwealth's debt in 2016. In January Puerto Rico Gov. Ricardo Rossell- ordered it to be disbanded.

The authors call for the governor to reinstate the commission and fully fund it.

They call for the Oversight Board to cancel debt that the debt-review commission finds illegitimate. Under the Puerto Rico Oversight, Management and Economic Stability Act the board doesn't have the power to do this. Only a court acting under Title III of the act could.

The authors name Goldman Sachs, Barclays, Morgan Stanley, JPMorgan, Bank of America, Bank of New York Mellon, Santander, UBS, and RBC as illegitimately profiting at Puerto Rico's cost.

In response Goldman Sachs said, "We strongly disagree with this group's characterization of past business we may have done with Puerto Rico." UBS and JPMorgan told The Bond Buyer that they had no comment on the report. The other firms didn't respond to requests for comment.

Asked about the report's call for SEC action on the interest rate swaps and auction rate securities, Chapman Strategic Advisors managing director James Spiotto said the agency would have to consider the statute of limitations, whether the commonwealth had a cause of action, and whether the commonwealth was fully informed of the risks. Some of these securities are "pretty old and cold" he said.

Instead of fighting over these old securities, Puerto Rico would be better off focusing on steps to improve its economy, Spiotto said. The Oversight Board should focus on the economy and finding a way to stabilize the commonwealth's budget, he said.

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