Bill Would Tighten Hedge Fund Reporting Rules Amid Puerto Rican Crisis

Rep. Nydia Velázquez, D-N.Y., introduced a bill Wednesday to crack down on the hedge funds that she says have contributed to Puerto Rico’s financial crisis. Congress has yet to act on a bill giving Puerto Rico bankruptcy protections.

The bill, H.R. 3921, the Hedge Fund Sunshine Act, amends the Securities Exchange Act of 1934 to require hedge funds to file with the Securities and Exchange Commission when they acquire ownership of 1% of a class of equity securities; the current threshold is 5%. Lowering the threshold would provide the public as well as the SEC with more clarity on a fund’s holdings and financial positions. 

“It has become increasingly clear that hedge funds, which have purchased a sizable part of Puerto Rico’s debt, are exacerbating the crisis and profiting from the island’s misery,” said Velázquez, a member of the House Financial Services Committee, in a statement. “This bill will allow regulators and the public to see exactly what role these funds are playing in Puerto Rico’s financial crisis and in our broader economy.” 

Her bill would also institute a new quarterly reporting requirement for all securities — both debt and equity — in which funds hold a 1% or greater ownership stake, ushering in the first time these funds would publicly report on their larger debt holdings, including derivatives.  

Valzquez noted reports that estimate hedge funds control as much as 50% of the island’s financial obligations.