Reps. Velázquez and Grijalva Ask DOJ to Crack Down on Conflicts of Interest Among La Junta Advisors

A report has revealed that various FOMB advisors have troubling conflicts of interest. One of them has as a client a company that owns half of LUMA Energy.

Various advisors of Puerto Rico’s Financial Oversight and Management Board (FOMB) have troubling conflicts of interest, according to reports requested by the Puerto Rico Recovery Accuracy in Disclosures Act (PRRADA).

Rep. Nydia M. Velázquez (D-NY) and Rep. Raúl Grijalva (D-Ariz.) urged the Executive Office for United States Trustees at the US Department of Justice (DOJ) to crack down on conflicts of interest among professionals advising the FOMB, which is known as la Junta on the island.

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The representatives have closely followed this issue because in 2021 they introduced the Puerto Rico Recovery Accuracy in Disclosures Act (PRRADA), which requires the consultants, accountants, and law firms advising FOMB to reveal their conflicts of interest to the people of Puerto Rico.

The island’s taxpayers are expected to exceed $1.6 billion in fees and expenses paid to FOMB advisors by the fiscal year 2026. 

Since the passage of PRRADA, reports have revealed that various FOMB advisors have troubling conflicts of interest.

One of the most worrisome is the consulting firm McKinsey & Co., which is an advisor to FOMB and is estimated to have earned at least $120 million in advising fees to la Junta. 

The firm also has 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. 

Two weeks ago, FOMB proposed an electricity increase of $13 for residential customers and from $ 16.25 to $ 1,800 for commercial customers to pay Puerto Rico Electric Power Authority’s (PREPA) debt. 

Since Luma began to operate on the island, there have been seven increases.

The report says McKinsey also has multiple clients that have entered into agreements with the island. This includes New Fortress Energy, which recently was granted a contract with a fixed annual fee of $22.5 million with the Puerto Rico Public Private Partnerships Authority (P3A) to operate 12 PREPA power-generating units for 10 years.

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Another advisor accused of conflict of interest is the law firm O’Neill & Borges. A private citizen filed a motion in Puerto Rico’s US District Court against the firm, claiming that it 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 by its Spanish acronym). 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. 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 representatives wrote in a statement.