The SEC may take action against bankers from Barclays and Morgan Stanley for their roles in Puerto Rico bond sales before a worsening fiscal crisis sent it hurtling toward bankruptcy.
The regulator's staff recommended that the agency file an enforcement action against Barclays' Luis Alfaro and James Henn for alleged violation of fair dealing rules for their roles in the island's debt sales, according to brokerage records filed with FINRA.
The staff also suggested sanctioning Morgan Stanley's Charles Visconsi, the co-head of public finance, and his former colleague Jorge Irizarry, in connection with disclosures Puerto Rico made in documents circulated to investors, according to FINRA records. That inquiry centers on whether Morgan Stanley adequately reviewed the island's representations.
Barclays and Morgan Stanley were both underwriters of Puerto Rico's $3.5 billion bond sale in March 2014, its last major borrowing, with Barclays serving as lead manager. A little more than a year later, then-Governor Alejandro Garcia Padilla said the island couldn't pay its debt, steering it into a series of defaults that culminated in Puerto Rico's bankruptcy last month.
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The wirehouse alleges two arbitrators failed to disclose key information about their professional and personal histories.
January 9 -
The wirehouse has served as a major banker for the island commonwealth, which has been defaulting on a growing share of its debt and has been placed under federal financial oversight.
September 28 -
In the latest in a series of cases, an arbitration panel has sided with a client against UBS, ordering the wirehouse to pay nearly $1.5 million in damages related to UBS' sale of Puerto Rican bonds and closed-end funds.
February 22 -
The firm suffered another arbitration loss this week to clients seeking damages related to the firm's closed-end funds of Puerto Rico municipal bonds.
September 1
SEC staff hasn't suggested that Visconsi, Irizarry or anyone else at Morgan Stanley engaged in intentionally wrongful conduct, according to the filing. Visconsi is still employed at Morgan Stanley, said Mark Lake, a firm spokesman. Brian Wynne is taking over as sole head of public finance while Visconsi finds another role at the firm, according to a person familiar with the matter. Mark Lane, a Barclays spokesman, didn't immediately respond to an emailed request for comment.
"Morgan Stanley and Mr. Visconsi are confident that they satisfied their underwriter obligation," the FINRA filing says. "Mr. Visconsi intends to vigorously defend himself in the event the staff in fact recommends, and the Commission approves, an action against him."
Messages were left on voice mail for Henn, Alfaro and Visconsi; Irizarry's listed phone did not pick up or get sent into voice mail.
