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Billionaire Dan Loeb, founder and chief executive
officer of Third Point LLC, will be holding a fundraiser for Gov. Cuomo at his
East Hampton mansion.
While Puerto Rico’s 3.5 million residents continue to
face a frightening government default on its debt, a group of New York hedge
fund executives will be partying this weekend at a $5,000-a-head East Hampton
fundraiser for Gov. Cuomo.
Many of those same hedge fund moguls happen to be playing an
unprecedented role in Puerto Rico’s troubles, concludes a new report by
Hedge Clippers, a liberal research group – a role so big that several
community organizations in the city are planning to picket the soiree.
Hedge funds have “bought up huge chucks of Puerto
Rican debt at discount prices, pushed the island to borrow more, and are
driving toward devastating austerity measures,” the report claims.
Up to half of Puerto Rico’s $73 billion in bonds is
held by hedge funds, Fortune magazine has estimated.
Some of the biggest Puerto Rico players are Andrew Feldstein of
BlueMountain Capital, Mark Gallogly of Centerbridge Partners, Paul Tudor Jones,
a key investor in Stone Line Capital, and John Paulson, the principal investor
in the island’s biggest bank and in luxury hotels there. All are also
big contributors to Cuomo and backers of New York’s growing charter school
enterprises, the report notes.
Andrew Feldstein’s BlueMountain holds $400 million in
Puerto Rico electric authority bonds. Bloomberg/Bloomberg via Getty Images
Paul Tudor Jones is a key investor in Stone Line
Capital. Lucien Capehart/Getty Images
Feldstein’s BlueMountain, for example, holds $400 million in
Puerto Rico electric authority bonds, and it successfully sued in federal court
last year to overturn a Puerto Rican law that would have allowed the company to
file for bankruptcy.
Meanwhile, ordinary residents of the island are
paying a steep price. On July 1, the island’s sales tax jumped from 7% to a whopping
11.5%, to help pay for a set of bonds backed by sales tax revenue.
Even worse, a recent report by former International
Monetary Fund economists has proposed lowering the island’s minimum wage,
reducing benefits for government workers and slashing social spending further.
This for a territory that is already broke, that
suffers from depression-level unemployment, and where the population is
declining as residents flee to the continental U.S.
An updated report Puerto Rico released last week
claims “fiscal deficits are much larger than assumed and are set to
deteriorate” to as much as $3 billion to $8 billion per year.
Douglas Hesney, a spokesman for BlueMountain, declined to
comment on his firm’s investments or how it believes Puerto Rico can get out of
this hole.
Russell Grote, a spokesman for the Ad Hoc Group, a coalition of
creditors group that includes Centerbridge and Stone Line, and which holds $4.5
billion in Puerto Rico bonds, also declined comment.
In other countries, these New York hedge funds are derided as
“vulture funds.”
“They have been taking advantage of distressed economies in
other parts of the world, in Argentina, in Greece, and now they are pushing the
people in Puerto Rico to the brink,” said Javier Valdes co-director of Make the
Road NY.
Puerto Rico Crisis Threatens Bond Insurers
Valdes’ group is one of the organizations that plan
to picket Saturday outside the East Hampton mansion of billionaire Dan Loeb, host of the
fund-raiser for Cuomo.
Loeb’s firm, Third Point LLC, was a major player in Puerto Rico
bonds as recently as last year, but divested itself after acknowledging to
investors major losses on those holdings.
“We generally don’t comment on our investments,” a
Third Point spokeswoman told The News.
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