According to Bloomberg, Puerto Rico bonds that were issued this month are now at record low prices after the Financial Industry Regulatory Authority announced that it is looking at transactions involving the new securities. The US territory sold $3.5 billion of general obligation bonds, which is the largest junk bond offering in the history of the municipal market.
According to numerous financial news sources, the offering documents for Puerto Rico’s newly issued bonds stated there would be a $100,000 minimum order allowed so that the purchasers of the junk bonds would be limited largely to institutional buyers. Their prospectus says that bonds were to be issued at a $100,000 minimum and “integral multiples of $500,000 in excess thereof” unless Standard & Poor’s, Moody’s Investors Services, and Fitch Ratings raise Puerto Rico’s credit to investment grade. All three credit ratings agencies recently declared the US territory’s credit ratings “junk.”
Nevertheless, many transactions under the $100,000 amount have been reported, despite the lack of an upgrade in the bonds. As a result, scores of Puerto Rico bond transactions issued this month were cancelled. There is also data indicating that some brokers are trading under the $1,000 minimum established by the prospectus.
Additionally, BondBuyer.com is reporting that not only were there deals that violated the $100,000 minimum denomination requirement cancelled but they have been modified as if they never happened and/or were removed from EMMA, which is the Electronic Municipal Market Access system. This, say some, is a failure to make sure that retail investors and the public are being provided with transparency that they are owed. BondBuyer.com noted that as of the end of March 24, just 15 of the 70 illegal Puerto Rico bond trades that it discovered were still there.
While Puerto Rico municipal bonds have been popular with some investors because of the favored tax status they receive, they have sustained huge losses in the last six months. Puerto Rico is now more than $70 million in debt and continues to be on negative credit watch. Nevertheless, Puerto Rican brokerage firms, such as Santander Securities, Popular Securities, UBS (UBS) and Merrill Lynch (MER), as well as many US based brokerage firms, have heavily pushed Puerto Rican debt.
If you invested in Puerto Rico bonds and you sustained losses, you may have grounds for a Puerto Rico muni bond fraud case. Contact Shepherd Smith Edwards and Kantas, LDT LLP today.
Scores of Puerto Rico Trades Sub-$100,000 Voided by Dealers, Bloomberg, March 26, 2014
Problem Puerto Rico Bond Trades Erased, Survey Shows More Troubled Sales, The Bond Buyer, March 25, 2014
Finra Examining Trading in Puerto Rico Bonds, The Wall Street Journal, March 21, 2014
Electronic Municipal Market Access (EMMA), Municipal Securities Rulemaking Board
More Blog Posts:
Puerto Rico Senate Votes to Sell $3.5B in Bonds, Stockbroker Fraud Blog, February 28, 2014
Hedge Funds Interested in Upcoming Puerto Rico Bond Offering Want The Territory to Borrow Money To Last Two Years, Stockbroker Fraud Blog, February 17, 2014
Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013