The Securities and Exchange Commission ended a 3-1/2 year investigation into the 2014 Puerto Rico general obligation bond sale without taking any enforcement action.

Puerto Rico sold the $3.5 billion bond in March 2014 even after the ratings agencies downgraded the commonwealth to speculative grades earlier that year. In the following months the price of the bond on the secondary market drifted downward.

New disclosure items on the SEC's revised Form ADV includes additional disclosure requirements for RIAs.
The U.S. Securities and Exchange Commission delivered letters last week saying it was dropping its investigation of Puerto Rico's 2014 bond sale. Bloomberg News

According to a source involved with the bond sale, some bondholders made complaints with the SEC in late 2014. The SEC started an investigation around then and gathered documents in 2015.

The Official Statement for the sale was 252 pages long.

In 2016 the SEC conducted interviews with involved parties.

Last week, involved parties received letters saying the SEC didn’t plan to charge anyone connected to the sale.

The letter said, “We have concluded the above-referenced investigation as to [redacted]. Based on the information we have as of this date, we do not intend to recommend an enforcement action by commission against [redacted] on this matter.

“We are providing this notice under the guidelines set out in the final paragraph of Securities Act Release No. 5310, which state in part that the notice ‘must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation.'”

In response to Puerto Rico's financial problems, the U.S. government passed the Puerto Rico Oversight, Management, and Economic Stability Act in the summer of 2016. This provided a mechanism for cutting the island government's debt. This process is still underway.

People involved in the sale were confident that there wouldn’t be charges, the source said, adding that the sale was unusual in that it included a disclosure counsel.

Barclays, the lead underwriter on the sale, declined to comment on the development. The SEC and the Puerto Rico Fiscal Agency and Financial Advisory Authority also declined to comment.

The source said that Barclays plans to soon submit a notice on the SEC action to the Financial Industry Regulatory Authority.

The SEC started an investigation of the Puerto Rico Electric Power Authority’s 2012 and 2013 bonds in October 2016. This investigation is continuing.

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