Several New York members of Congress have asked the state's attorney general to investigate whether some New York-based hedge funds engaged in insider trading by manipulating prices of Puerto Rico bonds that are now part of the commonwealth's restructuring deal.
"Recent filings in the PROMESA Title III litigation revealed that some hedge fund groups may have engaged in insider trading by artificially manipulating bond markets. Since the bonds at issue were governed by New York State law and sold and marketed within the state, this falls within the jurisdiction of the New York Attorney General's office," said the letter from the members of Congress, led by Rep. Alexandria Ocasio-Cortez and Nydia Velázquez, both Democrats.
The letter was prompted by financial disclosures ordered by the judge overseeing the restructuring, including from a group of bondholders identified as the Lawful Constitutional Debt Coalition whose members include Aristeia Capital, Whitebox Advisors, Taconic Capital Advisors, and GoldenTree Asset Management.
A coalition statement said: “The LCDC’s members adhered to and respected all elements of the mediation protocol and trading restrictions during the period in which they were negotiating with the oversight board. As creditors with long-term investments in Puerto Rico, our members have consistently engaged in a constructive, transparent manner with the oversight board to facilitate the commonwealth’s timely emergence from bankruptcy and economic recovery.”
The letter from New York lawmakers said that the bondholder group took public positions that drove down the price of certain debt securities while some of the hedge funds bought at lower prices, in anticipation of an eventual deal reached with Puerto Rico's financial oversight board, which declined to comment on the New York legislators' letter.
"Not only is this another example of deep-pocketed interests profiteering off Puerto Ricans' suffering, but these hedge funds may have also violated securities law," the letter said. "There needs to be an immediate, thorough investigation and any wrongdoing must be swiftly prosecuted."
The letter asks the attorney general to investigate whether the hedge funds failed to properly disclose their "true economic interests."