Reps. Velázquez and Grijalva Call on DOJ to Crack Down on Conflicts of Interest Among FOMB Advisors in Puerto Rico

Reps. Velázquez and Grijalva Call on DOJ to Crack Down on Conflicts of Interest Among FOMB Advisors in Puerto Rico

Washington, D.C.— Today, Rep. Nydia M. Velázquez (D-NY) and Rep. Raúl Grijalva (D-AZ) penned a letter to the Executive Office for United States Trustees at the U.S. Department of Justice urging the office to crack down on conflicts of interest among professionals advising the Financial Oversight and Management Board (FOMB).

Reps. Velázquez and Grijalva introduced the Puerto Rico Recovery Accuracy in Disclosures Act (PRRADA) of 2021, which requires the consultants, accountants, and law firms advising FOMB to reveal their conflicts of interest to the people of Puerto Rico. Puerto Rico taxpayers are expected to exceed $1.6 billion in fees and expenses paid to FOMB advisors by fiscal year 2026.

Since the passage of PRRADA, reporting has revealed that various FOMB advisors possess troubling conflicts of interest. The Wall Street Journal reported that the consulting firm McKinsey & Co., which is estimated to have earned at least $120 million in advising fees to the FOMB, also had Quanta Services among its clients. Quanta Services owns half of LUMA Energy, the private company that won the lucrative 2020 contract to operate Puerto Rico's electric transmission and distribution system. McKinsey also reportedly has multiple clients that have entered in agreements with the Commonwealth. This includes New Fortress Energy, which recently entered in an agreement with a fixed annual fee of $22.5 million with the Puerto Rico Public Private Partnerships Authority (P3A) to operate 12 of the Puerto Rico Electric Power Authority's (PREPA) power generating units for ten years.

The law firm O'Neill & Borges also faced scrutiny after a private citizen filed a motion in the U.S. District Court for Puerto Rico, claiming that the firm represented the FOMB while also representing four financial firms that acquired a $384 million loan portfolio from Banco de Desarrollo Económico para Puerto Rico (BDEPR). BDEPR transactions are overseen by the FOMB.

"It appears that these professionals, who have a fiduciary duty to advise the FOMB, also have clients who benefit from multi-million and multi-billion-dollar transactions with the FOMB," wrote the lawmakers. "We urge you to fully investigate any professionals serving the FOMB who have knowingly concealed or intentionally failed to disclose their conflicts of interest, or who have acted as interested persons at any time during their employment as professionals in the PROMESA process."

The U.S. Trustee is currently in the process of reviewing several fee applications from McKinsey. The Trustee will then recommend to U.S. District Court Judge Laura Taylor Swain whether the application fees should be approved, and whether McKinsey should collect its fees or not. With the Trustee set to receive McKinsey's final fee application soon, the lawmakers urge the office to investigate potential conflicts of interest aggressively.

For the full text of the letter, click here.