Puerto Rico’s hedge fund creditors can sue the federal government over the losses they sustained as the government reorganized the island’s finances, a federal judge has determined.
United States Court of Federal Claims chief judge Susan Braden wrote in a document filed Friday that a group of hedge funds invested in Puerto Rico debt could proceed with a lawsuit against the federal government for stiffing them by creating the 2016 Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, which set up an oversight board to restructure the island’s debt and budget.
Braden, a George W. Bush appointee, dismissed the government’s attempt to dismiss the suit on the grounds that the creditors didn’t have a case.
Instead, she concluded that the oversight board, which is empowered to overhaul Puerto Rico’s budget and restructure its debt, is an entity of the federal government. She also concluded that there is “little doubt” that its board members, appointed by the president, are federal officers who can be sued.
The board sets up the structure of Congress’ attempt to aid Puerto Rico out of its debt crisis for review by the federal judiciary.
At issue are more than $3 billion in pension bonds that were set to be restructured by the oversight board.
The plaintiffs, represented by the law firm Jones Day, include hedge funds like Glendon Capital Management and Oaktree Capital Management.
