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Regulation and Compliance > Federal Regulation > SEC

SEC Probes Morgan Stanley, Barclays Over Puerto Rico Bonds

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The U.S. Securities and Exchange Commission may take action against bankers from Barclays Plc and Morgan Stanley for their roles in Puerto Rico bond sales before a worsening fiscal crisis sent it hurtling toward bankruptcy.

The SEC’s staff made a preliminary recommendation 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 the Financial Industry Regulatory Authority.

The staff also made an initial determination in favor of 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 government’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 last month’s bankruptcy.

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. Marc Hazelton, a Barclays spokesman, declined to 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 declined to immediately comment, saying he had to consult conusel.


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