WASHINGTON – The Securities and Exchange Commission is mulling charges over fair dealing and due diligence violations against four individuals who played a role in Morgan Stanley & Co. and Barclays Capital’s work on Puerto Rico municipal bond offerings, according to Financial Industry Regulatory Authority documents.
The SEC staff's determination about recommending the charges is a preliminary determination, according to the FINRA documents that were filed in April. The staff would have to officially make the recommendations and then the commission would have to agree with the recommendations for the charges to move forward.
Two individuals who worked at Morgan Stanley, Charles Visconsi and Jorge Irizarry, could face charges over the SEC’s preliminary determination that Morgan Stanley did not fully meet its due diligence obligations as underwriter when reviewing the truth of the statements the commonwealth made in its March 2014 issuance of general obligations bonds.
Morgan Stanley and Barclays both served as underwriters on the March 2014 $3.5 billion issuance along with RBC Capital Markets and a number of other firms. The issuance was meant to give Puerto Rico a chance to reroute its economy. The commonwealth’s governor declared in 2015 it could not repay its debt, and the territory is under an oversight board and eying paths to restructure portions of its roughly $70 billion of debt.
Visconsi, who has been with Morgan Stanley since 1998, is currently a managing director at the firm. Irizarry is no longer with the firm or registered with FINRA. He is currently executive director of the Puerto Rico bondholder group Bonistas del Patio and prior to working with Morgan Stanley held positions with the Government Development Bank for Puerto Rico.
The SEC probe was reported Wednesday by Bloomberg News.
Morgan Stanley said in a statement accompanying the FINRA disclosure that it and Visconsi are confident they satisfied their underwriter obligations.
The firm said it and Visconsi intend to “vigorously defend” themselves if the staff does recommend and the commission approves an action.
Irizarry couldn’t be reached for comment. Rafael Rojo, Chairman of the Board of Directors of the bondholder group, said that he was hired based on his ability and track record. “Mr. Irizarry has informed us of this inquiry by the SEC,” Rojo said. “At this point, the SEC Staff has not suggested that Mr. Irizarry or anyone else at Morgan Stanley engaged in intentionally wrongful conduct.”
The two Barclays individuals who may face SEC charges are James Henn and Luis Alfaro. SEC staff said they preliminarily determined to recommend that there be an enforcement action filed alleging fraud and fair dealing violations under the Securities Act of 1933 and Municipal Securities Rulemaking Board Rule G-17.
Both Henn and Alfaro, who FINRA records indicate are still employed with Barclays, have been given opportunities to make a Wells Submission to the commission. The Wells Submission allows the individuals to explain to the commission why the proposed enforcement action should not be filed.
A Barclays spokesperson said the firm didn't have a comment on the potential actions the SEC could take.
