Monday, January 9, 2017

Puerto Ricans Are Broke But Millions of $$ Are Spent Out There To Protect The Trillion$$ IRS Tax Haven for billonaires (not for Puerto Ricans) created by Washington in the US Territory of Puerto Rico

As Puerto Rico’s government anxiously awaits a decision from Congress as to whether the federal government will play a more direct role in solving the island’s fiscal problems, a report from the Center for Investigative Journalism (CIJ) this week examined the political money behind the debate, including how investment firms who would collect on the island’s $72 billion debt have donated to U.S. senators working on ways to resolve the crisis.

CIJ provided Latino USA a version of the English article it published on December 9. (A Spanish version was also published.) The CIJ reporters are Joel Cintrón Arbasetti, Laura Moscoso and Carla Minet. The following italicized text is a condensed version edited from CIJ’s report, with some revisions to reflect new developments, including measures from Republicans to offer the island $3 billion and establish a federal financial oversight board:

The investment firms waiting to collect on the $72 billion debt from Puerto Rico and its corporations have separated into two groups: those who oppose the restructuring of the debt or that the island be included in Chapter 9 of federal bankruptcy law, and those who support it. Democrats have said that they back H.R. 870 (introduced to the U.S. House of Representatives by Puerto Rico’s Resident Commissioner Pedro Pierluisi). That bill seeks to include Puerto Rico in Chapter 9 protection. Republicans, who control both houses of Congress, are opposed to Pierluisi’s measure, although a new measure to assist the island was introduced on December 9. That measure is called the Puerto Rico Assistance Act of 2015.

Politicians from both parties who are members of the U.S. Senate Finance Committee, which has to evaluate the Chapter 9 measure for Puerto Rico and held a hearing about this issue in September, have received $327,250 in donations from mutual fund and hedge fund companies that hold the island’s bonds, the Center for Investigative Journalism found out. The 14 Republicans committee members and 10 of the 12 Democrats members have received donations from companies between March 2014 and October 2015, according to Federal Electoral Commission documents.

On the other hand, the Senate Judiciary Committee, which held a Puerto Rico hearing last week, is made up of 11 Republicans and 9 Democrats. Seven Republicans and seven Democrats of that committee have received donations from investment firms that hold Puerto Rico government bonds. The political donations were made through investment firm employees or through political action committees.



g Puerto Rico bonds was Chuck Schumer, the senior Democratic senator from New York and member of the Finance and Judiciary Committees. Schumer has expressed his support for Chapter 9 legislation. Between March 2014 and October 2015, he received $99,150 from these companies.

Among Schumer’s donors who hold Puerto Rico bonds are hedge and vulture funds firms York Capital, Fore Research & Management, Appaloosa Management, Fir Tree Capital, Davidson Kempner, Redwood Capital, Centerbridge Capital, Avenue Capital, Blue Mountain, Apollo Management and D.E. Shaw.

In addition, law firms hired by different bondholder groups in Puerto Rico have also made donations: Quinn Emanuel Urquhart & Sullivan, the firm hired by the Ad Hoc Group of bondholders of COFINA (Puerto Rico Sales Tax Financing Corporation); Davis Polk & Wardwell, hired by the Ad Hoc bondholders group of Puerto Rico’s GDB (Government Development Bank) and Gibson Dunn, hired by the bondholders of the AEE (Puerto Rico Electric Power Authority).

Schumer has also received donations from companies hired to lobby for or against including Puerto Rico in Chapter 9 legislation: Podesta Group, hired by the government of Puerto Rico to lobby in favor, and Venable LLP, hired by the investment firms to lobby against Puerto Rico.



The Investment Company Institute of Mutual Funds, MassMutual Life Insurance and the Oppenheimer Fund have also made donations to Schumer. MassMutual and its subsidiary company, the Oppenheimer Fund, which according to Morningstar holds more than $4 billion in Puerto Rico bonds, are opposed to the restructuring of the debt. Besides donating to Schumer, MassMutual and the Oppenheimer Fund made donations to Iowa senator Chuck Grassley (R), who chairs the Judiciary Committee and is also a member of the Senate Finance Committee. Grassley has opposed including Puerto Rico in Chapter 9. This week, however, Grassley co-sponsored the Puerto Rico Assistance Act of 2015.

“There are political interests that have two sides. They push one side more than the other, but they cover themselves with the other side just in case as to not get too hot. This is the cockfighters’ strategy: I’ll bet on my rooster but I’ll bet on my opponent’s in case I lose. It’s a matter of political maturity and we should not only focus about people in favor and the others against. This is why I don’t have any problem saying that bankruptcy for Puerto Rico is impossible. Money is against it,” said Alfonso Giménez-Lucchetti, political and international issues commentator who has worked with Democrats.

Last July, Schumer introduced another legislative motion in the Senate to allow public corporations and municipalities in Puerto Rico to file Chapter 9, in a bill prepared jointly with Sen. Richard Blumenthal (CT), another Democrat and member of the Senate Judiciary Committee.

Schumer’s July proposal received support from Democrats but not from Republicans. At the last Judiciary Committee hearing about Puerto Rico, Schumer asked Congress to pay attention to financial situation on the island and said that the protection provided by Chapter 9 is a necessary measure but it is not enough to solve the island’s crisis.

“I am not surprised that Schumer has many donations from investment funds because he is a senator from New York and the majority of those funds have their operations base in New York. And Schumer is the first one who is promoting the Chapter 9 bill that I introduced in the House and is one of the co-authors in the Senate,” said Pierluisi, when asked about the influence of donations to politicians as related to Puerto Rico’s debt.

As for the various committee hearings this year in Washington, Pierliusi said that “the reason these hearings are held is that they have to acknowledge the issue or, at least, listen to it. They do not have a choice in the matter, the issue of Puerto Rico has generated so much press coverage, in Washington, in New York, in Europe, that they cannot ignore it… the least [members of Congress] have to do become acquainted with, become informed.”

60 Plus, Mainstreet Bondholders and the Center for Individual Freedom

Another option available to influence politics is the creation of 501(c)(4) nonprofit organizations, which function as political pressure groups. An example of this type of organization is 60 Plus, which created the “Mainstreet Bondholders” project and has brought together a coalition of bondholders in Puerto Rico. The 60 Plus entity says it represents older people and is primarily financed by multi-millionaires David and Charles Koch.

This type of organization cannot influence political party issues, and they are not required to reveal who their contributors are. Mainstreet Bondholders lobby in the United States and in Puerto Rico against the restructuring of the government debt and are against Chapter 9 legislation. They have invested tens of thousands of dollars in Puerto Rico through media and the Internet.

CIJ asked 60 Plus vice president Matthew Kandrach who the organization’s contributors were and why it has paid for media ads related to the Puerto Rico debt. Kandrach refused to reveal the information.

In 2014, Citizens for Responsibility and Ethics filed a IRS complaint against 60 Plus and its president, Amy Noone Frederick. The complaint alleged that 60 Plus violated federal law by not disclosing the $11 million spent in political activities in 2010 and 2012.

Another 501(c4) nonprofit organization running a campaign against Chapter 9 for Puerto Rico is the Center for Individual Freedom (CIF), a conservative group that set aside $1.9 million in 2012 for media campaigns against Democratic politicians. This year, CIF has spent $26,000 in congressional lobbying, which included opposing Chapter 9 for Puerto Rico.

“At the very least, there should be a requirement in the law where contributors have to identify themselves. I believe, that as part of a democracy—people and the press should have access to their names, addresses and, if they are corporations, we need to know which corporations are making donations, as well as individual donors. I am in favor that there should be more transparency in the electoral process and in contributions,” Pierluisi told CIJ.

Chapter 9 Lobbying

The lobbying in the two measures submitted in Congress to extend Chapter 9 to Puerto Rico add up to more than $1,377,800 against it and $1,010,000 in favor, for the first three quarters in 2015. These amounts could be larger, since in some cases, the lobbying reports in the House of Representatives and the Senate several bills can be included under the same budget and the amount assigned to each measure is not specified.



The efforts in favor of the measure are channeled through the Podesta Group, Smith Dawson & Andrews, The Roth Group and Primer Policy. The Government of Puerto Rico has invested a total of $300,000 in 2015. This total includes lobbying efforts of other issues not related to Chapter 9. Another player that lobbies in favor of Chapter 9 is the Fonalledas Company. It has spent $490,000 in the first three quarters of 2015 lobbying for Chapter 9 through the East Por LLC and Akin Gump firms.

Hedge funds companies Blue Mountain, Knighthead, Marathon Asset and Angelo Gordon & Co. have lobbied against the Chapter 9 measure, as well as insurance company Ambac Financial Group, CIF and the National Public Finance Guarantee Corp.

“The lobbyist group is an industry that thrives on those interests. If you show me opposition, I will lobby against you. I know that you are going to win but I make money lobbying against you. This is barbaric capitalism. To lobby against something that is impossible to defeat is part of the business. The lobbyists know this, but provide hope that we can make you win even though they know it is not going to happen. This is the game of –in parenthesis– American democracy,” stated Giménez-Lucchetti.

But does that strategy work on politicians? “Not much. When they are clearly in favor of one party, well, no,” Giménez-Lucchetti concluded.

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