Alleges conflict of interest in hiring of financial advisers to represent PREPA in bankruptcy proceedings; Domenech, governor reject accusations
By The Star Staff
Leaders of the Popular Democratic Party (PDP) have referred La Fortaleza Chief of Staff Francisco Domenech to federal and local officials due to potential conflicts of interest regarding the hiring of financial advisers to represent the Puerto Rico Electric Power Authority (PREPA) in its bankruptcy process.
On Thursday, PDP Rep. Héctor Ferrer Santiago, PDP Sen. Luis Javier Hernández Ortiz, and PDP Secretary General Manuel Calderón Cerame announced that they had sent letters to the federal prosecutor’s office in Puerto Rico, the island Department of Justice, and the federal bankruptcy court. The letters request investigations into possible conflicts of interest related to the hiring of financial advisers to represent PREPA in its bankruptcy proceedings who previously represented the utility’s creditors.
The documents highlight the selection of the firm Houlihan Lokey by the Fiscal Agency and Financial Advisory Authority (AAFAF by its initials in Spanish), even though it previously represented PREPA’s creditors. In 2017, Houlihan Lokey advised bondholders in PREPA’s case. Houlihan Lokey’s Stephen Spencer testified in a U.S. Senate Judiciary Committee Hearing on Puerto Rico.
The letters also question Domenech’s appointment as AAFAF director and La Fortaleza chief of staff, noting that he previously led the lobbying firm Politank, which represented bondholders in Puerto Rico during the bankruptcy process.
“Puerto Rico is facing an unprecedented bankruptcy process, and it is unacceptable that those advising the government in this situation are the same individuals who recently advocated for the interests of PREPA bondholders,” Ferrer Santiago said in a written statement.
He emphasized the importance of investigating whether the contract violates ethical standards, conflicts of interest, or even legal provisions. Hernández Ortiz stated that the letter to the federal prosecutor’s office calls for an investigation under corruption and conflict-of-interest laws, expressing concern over the possible influence of private interests on government decisions.
Calderón Cerame noted that the letter sent to the local Department of Justice requests an evaluation of whether the actions of AAFAF and its leadership violate Puerto Rico’s Anti-Corruption Code, the Government Ethics Law, and the Penal Code.
“It is essential for the Department of Justice to investigate whether the hiring of this firm and the role of Francisco Domenech comply with anti-corruption and government ethics laws. The people of Puerto Rico deserve a transparent government free from conflicts of interest,” Calderón Cerame said.
Additionally, a letter sent to Judge Laura Taylor Swain, who is presiding over the PREPA bankruptcy case, requests an evaluation of potential conflicts of interest affecting AAFAF’s representation and its impact on the integrity of the judicial process.
“If the same advisers who previously defended the bondholders are now advising AAFAF, it is crucial to assess whether this influences the fairness of the process,” Ferrer Santiago said.
The PDP leaders emphasized that the requests for investigations aim to ensure that decisions regarding the future of Puerto Rico’s electrical system are made transparently and without undue influence from private actors with economic interests in PREPA’s bankruptcy.
Domenech rejected the complaints and referrals later on Thursday and defended the hiring of the financial advisors in question.
“Puerto Rico deserves to have the best advisers on its side,” he said in a written statement. “There is simply no conflict of interest. This is pure demagogy on the part of the representatives of the Popular Democratic Party who were precisely the ones who led Puerto Rico to bankruptcy.”
The official denied that there is a conflict with the hiring of the Houlihan Lokey firm, stressing that it is one of the main financial advisory firms globally, with experience in restructurings such as that of the city of Detroit, and other electrical systems.
Regarding the accusations that there may have been a conflict of interest due to his ties to Politank, Domenech stated that he sold the firm before assuming his position and that Houlihan Lokey has never been a client of the company.
“The Popular Democratic Party is trying to misinform the people with unfounded allegations,” he said. “Houlihan Lokey’s only representation of PREPA bondholders occurred more than five years ago [with] a group completely different from the current creditors.”
Gov. Jenniffer González Colón later echoed Domenech’s rejection of the accusations and statements issued by the PDP, stating that they are attempts to tarnish reputations without foundation and a recurring political strategy of the opposition party.
“They asked for me to be investigated, for the secretary of Natural Resources to be investigated; the Popular Party has nothing to do,” she said at a press conference. “They are asking for investigations every day. [...] That is politicking.”
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