1

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO 

RICO, as representative of

THE COMMONWEALTH OF PUERTO 

RICO, et al.,

Debtors1

PROMESA

Title III

No. 17 BK 3283 – LTS

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO 

RICO, as representative of

The Puerto Rico Sales Tax Financing 

Corporation (“COFINA”)

Debtor

PROMESA

Title III

No. 17 BK 3284 – LTS

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO 

RICO, as representative of

The Puerto Rico Highways and 

Transportation Authority (“HTA”)

Debtor

PROMESA

Title III

No. 17 BK 3567 – LTS

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO 

RICO as representative of

The Employee Retirement System of the 

Government of Puerto Rico (“ERS”)

Debtor

PROMESA

Title III

No. 17 BK 03566 – LTS

 

1 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number and the last four (4) 

digits of each Debtor’s federal tax identification number, as applicable, are the (i) Commonwealth of Puerto Rico 

(Bankruptcy Case No. 17 BK 3283-LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales Tax Financing 

Corporation (Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal Tax ID: 8474); (iii) Puerto Rico 

Highways and Transportation Authority (Bankruptcy Case No. 17 BK 3567-LTS) (Last Four Digits of Federal Tax ID: 

3808); (iv) Employees Retirement System of the Government of the Commonwealth of Puerto Rico (Bankruptcy 

Case No. 17 BK 3566-LTS) (Last Four Digits of Federal Tax ID: 9686); and (v) Puerto Rico Electric Power Authority 

(Bankruptcy Case No. 17 BK 4780-LTS) (Last Four Digits of Federal Tax ID: 3747) (Title III case numbers are listed as 

Bankruptcy Case numbers due to software limitations).

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In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO 

RICO as representative of

The Puerto Rico Electric Power Authority

(“PREPA”)

Debtor

PROMESA

Title III

No. 17 BK 4780 – LTS

COOPERATIVA DE AHORRO Y 

CRÉDITO ABRAHAM ROSA, 

COOPERATIVA DE AHORRO Y 

CRÉDITO DE CIALES, COOPERATIVA 

DE AHORRO Y CRÉDITO DE JUANA 

DÍAZ, COOPERATIVA DE AHORRO Y 

CRÉDITO DE LARES Y REGIÓN 

CENTRAL, COOPERATIVA DE 

AHORRO Y CRÉDITO DE RINCÓN, 

COOPERATIVA DE AHORRO Y 

CRÉDITO VEGA ALTA, COOPERATIVA 

DE AHORRO Y CRÉDITO DR. MANUEL 

ZENO GANDÍA

Plaintiffs

v.

COMMONWEALTH OF PUERTO RICO; 

PUERTO RICO SALES TAX FINANCING 

CORPORATION; FINANCIAL 

OVERSIGHT AND MANAGEMENT 

BOARD FOR PUERTO RICO; PUERTO 

RICO FISCAL AGENCY AND 

FINANCIAL ADVISORY AUTHORITY, 

PUBLIC CORPORATION FOR THE 

SUPERVISION AND INSURANCE OF 

COOPERATIVES OF PUERTO RICO; 

GOVERNMENT DEVELOPMENT BANK; 

GDB DEBT RECOVERY AUTHORITY 

AND ITS TRUSTEES, AS WELL AS THE 

GDB PUBLIC ENTITY TRUST AND ITS 

TRUSTEES; JOSÉ B. CARRIÓN III, 

ANDREW G. BIGGS; CARLOS M. 

GARCÍA; ARTHUR J. GONZÁLEZ; JOSÉ 

R. GONZÁLEZ; ANA J. MATOSANTOS; 

DAVID A. SKEEL, JR.; CHRISTIAN 

SOBRINO; PUERTO RICO HIGHWAYS 

AND TRANSPORTATION AUTHORITY; 

EMPLOYEE RETIREMENT SYSTEM OF 

ADVERSARY COMPLAINT

Adv. Proc. No. 18-_______________

Related to Bankruptcy Cases:

17 BK 3283 – LTS

17 BK 3284 – LTS

17 BK 3567 – LTS

17 BK 03566 – LTS

17 BK 4780 – LTS

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THE GOVERNMENT OF 

COMMONWEALTH OF PURETO RICO; 

PUERTO RICO ELECTRIC POWER 

AUTHORITY; SECURITIES FIRMS A-Z; 

SECURITIES FIRMS COUNSELS A-Z; 

BOND COUNSELS A-Z; EXTERNAL 

AUDITORS A-Z; INSURANCE 

COMPANIES A-Z; JOHN DOES 1-12

Defendants

ADVERSARY COMPLAINT

TO THE HONORABLE COURT:

COME NOW Plaintiffs, Cooperativa de Ahorro y Crédito Abraham Rosa, 

Cooperativa de Ahorro y Crédito de Ciales, Cooperativa de Ahorro y Crédito de Rincón, 

Cooperativa de Ahorro y Crédito Vega Alta, Cooperativa de Ahorro y Crédito Dr. 

Manuel Zeno Gandía, and Cooperativa de Ahorro y Crédito de Juana Díaz, through the 

undersigned attorneys, and very respectfully STATE, ALLEGE, PRAY, AND REQUEST 

RELIEF as follows.

NATURE OF THE PROCEEDING

1. Plaintiffs, who are several state-chartered credit unions2 with material 

holdings of debt instruments issued by the Commonwealth of Puerto Rico and its 

instrumentalities,

3 and who are part of a financial cooperative system in the island 

encompassing around 1.2 million members and depositors (low-income savers and the

elderly), seek declaratory judgment, injunctive relief, and compensatory damages from 

Defendants.

 

2

State Chartered credit unions in Puerto Rico are known as “Cooperativas de Ahorro y Crédito,” or “Cooperatives.”

3

For purposes of this adversary complaint, these instruments are referred to as “Puerto Rico Debt Securities”, 

which term is defined as those securities issued by the Commonwealth, the GDB and various other agencies, 

instrumentalities, entities and public corporations which were offered and sold to the Cooperatives.

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2. In particular, this adversary complaint seeks declaratory judgment relief 

determining that Plaintiffs’ claims owed by the Commonwealth, including the 

compensation of damages claimed herein, are non-dischargeable and unimpaired by 

the filing of a Title III proceeding due to the fact that the Commonwealth by itself and 

through its instrumentalities incurred in false representations, defalcation while in their 

fiduciary capacity and in actual fraud to appropriate funds from the plaintiffs. 

3. The Commonwealth of Puerto Rico and codefendants COSSEC, GDB and 

FAFAA were aware of Plaintiffs’ sound operations and safe financial conditions even in 

times of financial crisis. Maliciously, in a calculated way and under false pretenses,

Defendants offered and sold to Plaintiffs unsound Puerto Rico Debt Securities availing 

themselves (Defendants) of the Cooperatives’ assets. This resulted in an undue 

concentration of bonds in the cooperatives’ portfolios and created a systemic risk for the 

Cooperatives. 

4. The governmental entities with legal and fiduciary obligations to ensure 

the financial health of the cooperative system ignored their obligations and induced the 

offer and sale of the unsound debt securities. These entities incurred in the reckless 

disregard of the systemic risks to cooperatives and failed to comply with statutory 

mandates, and ministerial and fiduciary duties. As a consequence, Plaintiffs suffered 

material damages, which are claimed herein. Such actions preclude the discharge of 

Plaintiff’s claims under the regulations of the Bankruptcy Code.

5. Furthermore, this action seeks that Defendants be instructed to comply 

with their ministerial and legal duties as per applicable law in order to maintain the 

safety and soundness of the cooperative system, and to promote its financial growth for 

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the well-being of a large portion of the population in Puerto Rico. Consequently, this 

action seeks that in order to protect the Cooperative Financial System, its members and 

depositors, and the economy in general, Defendants be instructed to address the risks, 

damages and losses at hand through policy provisions that impart adequate protection 

in the debt restructuring and/or adjustment plans to be approved under the PROMESA 

Title III cases.

PARTIES

Plaintiffs

6. Plaintiff Cooperativa de Ahorro y Crédito Abraham Rosa (“Coop. 

Abraham Rosa”) is a credit union organized under the laws of the Commonwealth of 

Puerto Rico, having its principal place of business at 2 Rd., Km. 17.7, Macún Sector, 

Toa Baja, PR 00949. Coop. Abraham Rosa is a creditor in this Bankruptcy case.

7. Plaintiff Cooperativa de Ahorro y Crédito de Ciales (“Coop. Ciales”) is a 

credit union organized under the laws of the Commonwealth of Puerto Rico, having its 

principal place of business at 48 Palmer Street, Suite 2, Ciales, PR 00638-3233. Coop. 

Ciales is a creditor in this Bankruptcy case.

8. Plaintiff Cooperativa de Ahorro y Crédito de Juana Díaz (“Coop. Juana 

Díaz”) is a credit union organized under the laws of the Commonwealth of Puerto Rico,

having its principal place of business at #113 Comercio Street, Corner of Hostos Street, 

Juana Diaz, PR 00795. Coop. Juana Díaz is a creditor in this Bankruptcy case.

9. Plaintiff Cooperativa de Ahorro y Crédito de Lares y Región Central 

(“Coop. Lares”) is a credit union organized under the laws of the Commonwealth of 

Puerto Rico, having its principal place of business at 111 Rd. Km 3.8, Los Patriotas 

Avenue, Lares, P.R. 00669. Coop. Lares is a creditor in this Bankruptcy case.

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10. Plaintiff Cooperativa de Ahorro y Crédito de Rincón (“Coop. Rincón”) is 

a credit union organized under the laws of the Commonwealth of Puerto Rico, having its 

principal place of business at 5 Cambija Street, Rincón, PR 00677. Coop. Rincón is a 

creditor in this Bankruptcy case.

11. Plaintiff Cooperativa de Ahorro y Crédito Vega Alta (“Coop. Vega Alta”) 

is a credit union organized under the laws of the Commonwealth of Puerto Rico, having 

its principal place of business at 61 Georgetti Street, Vega Alta, PR 00692. Coop. Vega 

Alta is a creditor in this Bankruptcy case.

12. Plaintiff Cooperativa de Ahorro y Crédito Dr. Manuel Zeno Gandía

(“Coop. Zeno Gandía”) is a credit union organized under the laws of the Commonwealth 

of Puerto Rico, having its principal place of business at Villa Los Santos Development, 4 

Street, Suite 1, Arecibo, PR 00612-3134. Coop. Zeno Gandía is a creditor in this 

Bankruptcy case.

13. All Plaintiffs are credit unions chartered under Puerto Rico Act 255 of 

October 28, 2002, as amended ("Act 255"). In Spanish, Plaintiffs are designated as 

"Cooperativas de Ahorro y Crédito"4 or "Cooperativas." Plaintiffs are hereinafter referred 

to as “Cooperatives,” and state-chartered credit unions other than Plaintiffs as “Fellow 

Cooperatives.”

Defendants

14. Defendant the Commonwealth of Puerto Rico (“Commonwealth”) is a 

territory of the United States. Together with the GDB, the Commonwealth controlled and 

directed the issuance of securities by entities other than the Commonwealth and the 

GDB (which are referred to as the “Related Issuers”).

 

4 Cooperative Savings and Credit Association Act., 7 L.P.R.A.§1361 et seq.

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15. Defendant Corporación Pública para la Supervisión y Seguro de 

Cooperativas de Puerto Rico (“COSSEC”) is a public entity created by 

Commonwealth Act 114 of August 1, 2001, as amended ("Act 114").5 COSSEC is the 

regulator and supervisor of the Cooperatives and insures their shares and deposits up 

to $250,000. In this respect, COSSEC is similar to both the National Credit Union 

Administration (“NCUA”), the federal entity that insures credit union shares and deposits 

pursuant to the Federal Credit Union Act (12 U.S.C. §1751 et seq.), and the Federal 

Deposit Insurance Corporation (“FDIC”), which insures bank deposits. Under Act 114, 

all of COSSEC's capital and income is provided by the Cooperatives through mandatory 

capital contributions, assessments, insurance premiums, and examination fees, among 

others.

16. Defendant Government Development Bank (“GDB”) is a public 

corporate entity created as a banking institution by Puerto Rico Act No. 17 of 

September 23, 1948, as amended, 7 L.P.R.A. 551 et seq., and by law acted as the 

Fiscal Agent to the Commonwealth and to all other governmental entities. Together with 

the Commonwealth of Puerto Rico, the GDB controlled and directed the issuance of 

securities by entities other than the Commonwealth and the GDB (which are referred to 

as the “Related Issuers”).

17. Defendant GDB Debt Recovery Authority, is a statutory public trust and 

a governmental public instrumentality of the Commonwealth of Puerto Rico created and 

organized pursuant to Act 109 of August 24, 2017, as amended, also known as 

“Government Development Bank for Puerto Rico Debt Restructuring Act” (“Act 109”) for 

 

5 Pursuant to Act 114, 7 L.P.R.A. 1334 et seq. COSSEC is the continued successor of PROSAD, established under Act 

5 of January 15, 1990.

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the purposes of (1) issuing the bonds in order to: (a) implement a restructuring 

transaction of the GDB and its debts, (b) facilitate compliance with the GDB Fiscal Plan, 

and (c) facilitate the funding of essential government or public services by the 

Government of Puerto Rico, and (2) owning and managing the assets transferred 

therein from the GDB. According to Act 109, the policies and powers of the GDB Debt 

Recovery Authority shall be implemented, managed and exercised by a Board of 

Trustees composed of three (3) members, which were recently designated by the 

Governor of the Commonwealth and are herein identified, in their official capacities as 

Trustees and as Defendants:

a. Defendant Jorge L. Padilla, as designated member of the Board of 

Trustees of the GDB Debt Recovery Authority. Pursuant to Act 109, the 

powers of the GDB Debt Recovery Authority shall be exercised and its 

general policy and strategic management shall be determined by its Board 

of Trustees. Plaintiffs sue Jorge L. Padilla in his official capacity.

b. Defendant Mathew Karp, as designated member of the Board of Trustees 

of the GDB Debt Recovery Authority. Pursuant to Act 109, the powers of 

the GDB Debt Recovery Authority shall be exercised and its general policy 

and strategic management shall be determined by its Board of Trustees. 

Plaintiffs sue Mathew Karp in his official capacity.

c. Defendant David Pauker, as designated member of the Board of Trustees 

of the GDB Debt Recovery Authority. Pursuant to Act 109, the powers of 

the GDB Debt Recovery Authority shall be exercised and its general policy 

and strategic management shall be determined by its Board of Trustees. 

Plaintiffs sue Mathew Karp in his official capacity.

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These defendants are being pleaded as nominal defendants to ensure the 

effectiveness of any judgement against the GDB.

18. The GDB Public Entity Trust is or will be a public entity trust and 

governmental instrumentality, to be created pursuant to Act 109 and its designated 

Trustee(s). This Adversary Complaint will be amended upon discovery of the 

confirmation of the creation and existence of the Trust and the identity of its Trustee(s) 

to provide all their pertinent information. The GDB Debt Recovery Authority and its 

Trustees, as well as the GDB Public Entity Trust and its Trustees, are or may become 

successors to the GDB and its assets and, as such, are liable for the actions and 

omissions of the GDB.

19. Defendant Puerto Rico Fiscal Agency and Financial Advisory 

Authority (“FAFFA”) is a public corporation organized under the laws of the 

Commonwealth of Puerto Rico pursuant to Puerto Rico Act 21 of April 6, 2016, as 

amended (“Act 21”). Pursuant to Act 21, FAFAA assumed the GDB's role as Fiscal 

Agent to the Commonwealth and to all other governmental entities, including its exofficio seat in COSSEC's Board of Directors. Since its creation, FAFAA also controlled 

and has been in charge of efforts to restructure Puerto Rico's debt. Through its exofficio seat in COSSEC's Board of Directors, FAFAA continues to exert significant 

influence in COSSEC's decision making processes. This influence has been 

heightened from September 2016 to the present. Actual control of FAFAA and its 

operations has been exerted by its Executive Directors. FAFAA's influence over 

COSSEC has been exerted through FAFAA's representative in COSSEC's Board and 

through private consultants selected by FAFAA.

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20. Codefendant Debtors in these Title III Cases, along with the 

Commonwealth, are public corporations that aided, abetted and benefited from the

actions and omissions of the Commonwealth, the GDB and COSSEC that resulted in 

the offer and sale of said Debtors’ Securities to the Cooperatives. These codefendant 

Debtors are:

(i) Puerto Rico Sales Tax Financing Corporation (“COFINA”) (Bankruptcy Case 

No. 17 BK 3284-LTS) (Last Four Digits of Federal Tax ID: 8474); 

(ii) Puerto Rico Highways and Transportation Authority (Bankruptcy Case No. 17 

BK 3567-LTS) (Last Four Digits of Federal Tax ID: 3808); 

(iii) Employees Retirement System of the Government of the Commonwealth of 

Puerto Rico (Bankruptcy Case No. 17 BK 3566-LTS) (Last Four Digits of Federal 

Tax ID: 9686); and

(iv) Puerto Rico Electric Power Authority (Bankruptcy Case No. 17 BK 4780-LTS) 

(Last Four Digits of Federal Tax ID: 3747) (Title III case numbers are listed as 

Bankruptcy Case numbers due to software limitations).

21. Defendant the Financial Oversight and Management Board for Puerto 

Rico (“FOMB,” and “Oversight Board”) was created under Section 101(b)(1) of 

PROMESA (48 U.S.C. § 2121(b)(1)) and purports to be an “entity within the 

[Commonwealth] government.” 48 U.S.C. § 2121(c)(1). Inherent to that nature, the 

FOMB’s exercise of all powers and authority vested upon it constitute “State 

Action.” Accordingly, the FOMB, its members and officers are subject to the same 

constitutional standards applicable to the Commonwealth and its officers.6

 

6 Plaintiffs make express reservation of rights with respect to the constitutionality of the FOMB, the designation of 

their members and the powers vested in them.

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22. Defendant José B. Carrión III is the Chairman of the Oversight Board. 

Carrión participated in the Oversight Board’s certification of the Fiscal Plan and 

participates in the filing of all Title III petitions. Carrión is empowered, together with the 

other members of the Oversight Board, to approve any budgets submitted to the 

Oversight Board pursuant to PROMESA, and to create, file, modify, continue, and 

confirm any plan of adjustment. Plaintiffs sue José B. Carrión III in his official capacity.

23. Defendant Andrew G. Biggs is a member of the Oversight Board. Biggs 

participated in the Oversight Board’s certification of the Fiscal Plan and participates in 

the filing of all Title III petitions. Biggs is empowered, together with the other members 

of the Oversight Board, to approve any budgets submitted to the Oversight Board 

pursuant to PROMESA, and to create, file, modify, continue, and confirm any plan of 

adjustment. Plaintiffs sue Andrew G. Biggs in his official capacity.

24. Defendant Carlos M. García is a member of the Oversight Board. García

participated in the Oversight Board’s certification of the Fiscal Plan and participates in 

the filing of all Title III petitions. García is empowered, together with the other members 

of the Oversight Board, to approve any budgets submitted to the Oversight Board 

pursuant to PROMESA, and to create, file, modify, continue, and confirm any plan of 

adjustment. Plaintiffs sue Carlos M. García in his official capacity. Carlos M. García

served as president of the GDB from January 2, 2009 to March 1, 2011, which is within

the period of offer and sales of Puerto Debt Securities to Cooperatives.

25. Defendant Arthur J. González is a member of the Oversight Board. 

Arthur González participated in the Oversight Board’s certification of the Fiscal Plan and 

participates in the filing of all Title III petitions. Arthur González is empowered, together 

with the other members of the Oversight Board, to approve any budgets submitted to 

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the Oversight Board pursuant to PROMESA, and to create, file, modify, continue, and 

confirm any plan of adjustment. Plaintiffs sue Arthur J. González in his official capacity.

26. Defendant José R. González is a member of the Oversight Board. José 

González participated in the Oversight Board’s certification of the Fiscal Plan and 

participates in the filing of all Title III petitions. José R. González is empowered, 

together with the other members of the Oversight Board, to approve any budgets 

submitted to the Oversight Board pursuant to PROMESA, and to create, file, modify, 

continue, and confirm any plan of adjustment. Plaintiffs sue José R. González in his 

official capacity.

27. Defendant Ana J. Matosantos is a member of the Oversight Board. 

Matosantos participated in the Oversight Board’s certification of the Fiscal Plan and 

participates in the filing of all Title III petitions. Matosantos is empowered, together with 

the other members of the Oversight Board, to approve any budgets submitted to the 

Oversight Board pursuant to PROMESA, and to create, file, modify, continue, and 

confirm any plan of adjustment. Plaintiffs sue Ana J. Matosantos in her official capacity.

28. Defendant David A. Skeel, Jr. is a member of the Oversight Board. Skeel

participated in the Oversight Board’s certification of the Fiscal Plan and participates in 

the filing of all Title III petitions. Skeel is empowered, together with the other members 

of the Oversight Board, to approve any budgets submitted to the Oversight Board 

pursuant to PROMESA, and to create, file, modify, continue, and confirm any plan of 

adjustment. Plaintiffs sue David A. Skeel Jr. in his official capacity.

29. Defendant Christian Sobrino is an ex officio member of the Oversight 

Board as representative of the Governor. He is also president of the GDB and 

Chairman of FAFAA. Plaintiffs sue Christian Sobrino in his official capacity.

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30. Securities firms A–Z, which acted as underwriters, underwriting 

syndicate member, selling group manager, selling group member, broker and/or dealer, 

financial advisor, or in any other capacity in relation to the Puerto Rico Debt Securities, 

as defined hereinafter, the name and principal office addresses of which are unknown. 

These Securities firms aided and abetted the GDB in the design, underwriting, offer, 

sale, distribution of the Puerto Rico Debt Securities offered and sold to Cooperatives 

and in the drafting of documents, analysis and sales materials regarding said 

instruments. This Adversary Complaint will be amended upon discovery of the identity 

of these parties to provide all their pertinent information.

31. Law firms and counsel who acted as advisors and/or legal 

representatives to defendants identified in the preceding paragraphs and/or to issuers of 

Puerto Rico Debt Securities, with respect to said Puerto Rico Debt Securities and/or

with regards to policy actions and omissions related thereto, the name and principal 

office addresses of which are unknown. These Law firms and counsels aided and 

abetted the GDB in the design, underwriting, offer, sale, distribution of the Puerto Rico 

Debt Securities offered and sold to Cooperatives and in the drafting of documents and 

analysis regarding said instruments. This Adversary Complaint will be amended upon 

discovery of the identity of these parties to provide all their pertinent and relevant 

information.

32. Accounting and/or auditing firms which made audits or financial 

analysis or reports, or that acted in any other capacity in relation to the Puerto Rico 

Debt Securities, as defined hereinafter, the name and principal office addresses of 

which are unknown. These accounting and/or auditing firms aided and abetted the 

GDB in the design, underwriting, offer, sale, distribution of the Puerto Rico Debt 

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Securities offered and sold to Cooperatives and in the drafting of documents, analysis 

and financial statements and reports regarding said instruments. This Adversary 

Complaint will be amended upon discovery of the identity of these parties to provide all 

their pertinent and relevant information.

33. Insurance Companies A–Z have issued insurance policies for any, some 

or all Defendants covering the claims raised in this Adversary Complaint. The true 

names and capacities, whether individual, corporate, associate, or otherwise, of 

defendants Insurance Companies A through Z, who issued insurance policies to one or 

more Defendants, are unknown at this time. This Adversary Complaint will be amended 

upon discovery of the identity of these insurance companies to provide all their pertinent 

information.

JURISDICTION AND VENUE

34. This Honorable Court has jurisdiction over this action pursuant to 48 

U.S.C. § 2166. Further, this Court has jurisdiction under Section 306(a), which grants 

this Court original and exclusive jurisdiction over all cases under Title III of PROMESA 

and original jurisdiction over all civil proceedings arising under Title III of PROMESA or 

arising in or related to cases under Title III of PROMESA. Id. § 2166(a)(2).

35. This Court has personal jurisdiction over all of the Defendants pursuant to 

Section 306(c) of PROMESA. 48 U.S.C. § 2166(c). It also has supplemental jurisdiction 

to entertain all state law claims pursuant to 28 U.S.C. § 1367.

36. Venue is proper in this District under 28 U.S.C. § 1391 because all or a 

substantial part of the events giving rise to these claims occurred in this District. Venue 

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is also proper under 48 U.S.C. § 2167 because this adversary proceeding is brought in 

a Title III proceeding.

FACTUAL BACKGROUND

I. Plaintiffs are depository institutions which are part of a Cooperative 

Financial System

37. Plaintiffs are depository institutions subject to governmental supervision

and regulation as established and implemented by the Commonwealth through 

COSSEC. COSSEC also insures the shares and deposits held by members and 

depositors up to $250,000. In this respect, COSSEC has duties and obligations similar 

to those of the National Credit Union Administration (“NCUA”), the federal entity that

supervises and insures credit union shares and deposits pursuant to the Federal Credit 

Union Act (12 U.S.C. §1751 et seq.), and similar to the Federal Deposit Insurance 

Corporation (“FDIC”), which insures bank deposits. Under Act 114, all of COSSEC's 

capital and income––including the Shares and Deposit Insurance Fund––is provided by 

the Cooperatives through mandatory capital contributions, assessments, insurance 

premiums, examination fees, among others.

38. Pursuant to the statutory framework, the Commonwealth’s duties as 

regulator and supervisor of the Cooperative Financial System are heightened by the 

fiduciary duties inherent to the governance structure of COSSEC, as adopted and 

implemented by the Commonwealth. 

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39. Based on data published by COSSEC, as of December 31, 2017, Plaintiffs 

had $1,451,973,831.63 total assets, 139,621 members, approximately 35,000 

nonmember depositors, 384 full-time employees, and branches located in 15

municipalities of Puerto Rico.7

40. Plaintiffs are part of a Cooperative Financial System comprised of 116 

Cooperatives with total assets of $8,713,887,210.79, with 988,086 members and 

300,000 non-member depositors, 2,921 full-time employees and 120 branches in all 

municipalities of the Commonwealth.8

41. The Cooperatives are interconnected through significant inter-cooperative 

deposits, which as of December 31, 2017 amount to $ 764,673,755.77, as reported by 

COSSEC. This system serves over 1.2 million members and depositors, the majority of 

whom are middle and low-income savers and elderly persons (vulnerable populations 

that need to be protected).

42. Cooperatives are primary lenders and providers of cost-effective financial 

services. In addition to their role of financing economic activity, for many decades the 

Cooperative Financial System has also served as a market driven price regulator for 

retail financial services. This role has become ever more important considering the 

increased concentration of Puerto Rico's banking market after the failure of 3 

commercial banks in 2010 and another in 2014. Market concentration is measured by 

the Federal Department of Justice and by federal banking regulators through the 

Herfindahl-Hirschman Index (“HHI”).9 HHI for Puerto Rico's depository institutions 

 

7

See Exhibit A for a breakdown by individual Plaintiff, as reported by COSSEC.

8

See Exhibit B for a list of all cooperatives, as reported by COSSEC.

9 Horizontal Merger Guidelines § 5.2 (2010), The United States Department of Justice U.S. Department of Justice & 

FTC, Horizontal Merger Guidelines § 5.2 (2010), available at (https://www.justice.gov/atr/horizontal-mergerCase:17-03283-LTS Doc#:2783 Filed:03/22/18 Entered:03/22/18 11:39:35 Desc: Main

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currently exceeds 2,800 points, which indicates a highly-concentrated market. This 

information was submitted to the FOMB on November 15, 2016.

II. Cooperatives have shown a safe and sound financial condition even 

through the years of the Financial Crisis

43. Cooperatives have safe and sound operations, as acknowledged and 

stated by COSSEC, FAFAA and the FOMB in pages 7 to 10 of COSSEC’s Fiscal 

Plan.10

44. Furthermore, during the recent financial crisis, Cooperatives have shown growth 

in members and assets, as opposed to reduction and losses suffered by commercial banks, as 

shown by the following data:

11

2008–2016 Cooperatives Commercial Banks

Members Growth: 17.84% N/A

Asset Growth 31.0% (40.83%)

June 2016 Cooperatives Commercial Banks

ROA 1.06% 0.40%

45. This financial soundness has allowed Cooperatives to address, through 

their own capitalization and funding of COSSEC, the Puerto Rico financial crisis without 

requiring the expenditure of government funds.

III. Improper and Targeted sale of unsound Puerto Rico Debt Securities to 

Cooperatives

 

guidelines-08192010#5c). See also Herfindahl-Hirschman Index (2015), The United States Department of Justice, 

available at https://www.justice.gov/atr/herfindahl-hirschman-index.

10 See pages 7–10 of COSSEC’s Fiscal Plan presented by COSSEC and certified by the FOMB on August 4, 2017. 

Exhibit C.

11 This information was submitted to COSSEC, FAFAA and the FOMB in letters of November 15, 2016 and December 

29, 2016.

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46. As reported in official statistics published by COSSEC in its web page, 

total investments by Cooperatives in Negotiable Securities began a marked increase in 

2009, as shown in the following tables and graphic:

Total Investment in Negotiable Securities ($000)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

413.19 399.16 379.97 401.82 562.85 820.24 1,223.78 1,475.02 1,565.24 1,621.95 1,493.32 1,389.30

Total Assets ($000)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

6,238.91 6,289.58 6,488.78 6,699.08 7,166.11 7,524.19 7,886.73 8,218.12 8,349.18 8,557.57 8,505.48 8,566.96

Ratio of Investments to Total Assets

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

6.62% 6.35% 5.86% 6.00% 7.85% 10.90% 15.52% 17.95% 18.75% 18.95% 17.56% 16.22%

$413.19 $399.16 $379.97 $401.82 

$562.85 

$820.24 

$1,223.78 

$1,475.02 

$1,565.24 $1,621.95 

$1,493.32 

$1,389.30 

 $-

 $200.00

 $400.00

 $600.00

 $800.00

 $1,000.00

 $1,200.00

 $1,400.00

 $1,600.00

 $1,800.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Investment in Negotiable Securities ($000)

Total Investment in Negotiable Securities ($000)

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6.62% 6.35% 5.86% 6.00%

7.85%

10.90%

15.52%

17.95% 18.75% 18.95%

17.56%

16.22%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Ratio of Investments to Total Assets

Ratio of Investments to Total Assets

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47. The Cooperatives acquired essentially all of their holdings in Puerto Rico 

Debt Securities at par value or near par value.

48. As acknowledged by COSSEC, FAFAA and the FOMB in page 11 of 

COSSEC’s Fiscal Plan,12 the Cooperatives are heavily invested in securities issued by 

the Puerto Rico government and its instrumentalities. Upon submittal and approval of 

said Fiscal Plan, COSSEC, FAFFA and the FOMB stated as follows:

 PR Government securities ($976 MM) account for approximately 65% of the 

Cooperatives’ total investment portfolio ($1.5bn).

 The majority of Cooperatives purchase PR Government bonds at issuance 

and, due to regulatory accounting treatment, carry all of these “special 

investments” on their books at par value, even those bonds that trade well 

below par value.

 GDB’s bonds, which comprise approximately 44% of the Cooperatives’

exposure to government securities, trade at a roughly 84% discount to par 

value; GO bonds, the Cooperatives’ second largest governmental exposure, 

are trading at a roughly 41% discount.

 Taken as a whole, the aggregate Cooperative investment in government 

bonds has a market value roughly 49% below the par.

 Regulatory accounting treatment allows the Cooperatives to amortize losses 

on special investments over a 15-year period; However, this will only benefit 

the Cooperatives from an accounting standpoint, as they will still suffer 

reductions in cash flow due to the likely restructuring of Government debt.

 

12 See Exhibit C.

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49. Pursuant to the statutory framework adopted by the Commonwealth, the 

GDB, acting on behalf of and as fiscal agent to the Commonwealth and its 

instrumentalities and Related Issuers, designed, oversaw, controlled and was in charge 

of all bond and debt issued by the Commonwealth and its instrumentalities, including 

the issuance of the Puerto Rico Debt Securities that were offered and sold to Plaintiffs.

More specifically, prior to the issuance, sale or exchange of said debt instruments, the 

GDB was required to prepare and submit to the Secretary of the Treasury of Puerto 

Rico a report as to the feasibility of such financing procedures.

13

50. Pursuant to Act 114, COSSEC's Board of Directors is comprised of four 

(4) governmental officials (the Commissioner of Cooperative Development, the 

Commissioner of Financial Institutions, the Secretary of the Treasury [or his/her 

representative] and the President of the Government Development Bank [or his/her 

representative], four (4) representatives elected by cooperatives and one representative 

of the Public Interest. By law, the Board is chaired by the Commissioner of Cooperative 

Development. All government representatives are political appointees of the Governor 

or designated by such political appointees. COSSEC's management is headed by an 

Executive President, appointed by COSSEC's Board of Directors. COSSEC has been 

without a duly confirmed Executive President since February 2017. The appointment of 

COSSEC's Executive Presidents has been under direct influence of the Governor's 

Office. Actual control of COSSEC and its operations has been exerted by its Chairmen 

and Executive Presidents, and more recently by FAFAA.

 

13 See Exhibit D: 7 LPRA §§ 583-588 - GDB’s Organic Law defining GDB’s powers and responsibilities as the exclusive 

financial advisor, reporting agency and payment agent of the Commonwealth and its instrumentalities. 

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51. Inherent to its role as insurer of the shares and deposits of the 

Cooperatives, COSSEC evaluates the levels of risk of the insured financial institutions 

to define the adequate reserves and the corresponding premiums and/or assessments 

to be required from the Cooperatives.

52. Since 2013, the GDB also controlled and was in charge of efforts to 

restructure Puerto Rico's debt. 

53. Since 1990 the GDB has always had an ex officio seat at COSSEC's 

Board of Directors (and in the Board of Directors of COSSEC's predecessor, PROSAD), 

through which the GDB exerted significant influence in COSSEC's decision-making 

processes. That influence was based on the GDB's expertise and direct knowledge 

regarding the Commonwealth's finances, its participation in the municipal and capital 

markets and its statutory duties as Fiscal Agent. During the period between 2009 and 

2014, the following were GDB Presidents:

a. Carlos M. García, January 2, 2009 – March 1, 2011;

14

b. Juan Carlos Batlle, March 2, 2011– December 31, 2012;

15

c. Javier Ferrer, January 1, 2013 – December 31, 2013;

d. José Pagán, January 1, 2014 – December 31, 2014;

e. Melba Acosta, January 1, 2015 – December 31, 2016.

54. Pursuant to actions and omissions of defendants Commonwealth, GDB

and COSSEC, Puerto Rico Debt Securities were offered and sold to Plaintiffs in 

 

14 Currently, a member of the FOMB.

15 Currently, Mr. Batlle is one of the principals of Ankura Consulting, which was awarded a contract to “manage the 

GDB restructuring” for the amount of $2.965 million for a period of 11 months (August 1, 2017 through June 30, 

2018).

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violation of statutory, fiduciary and regulatory duties. These actions and omissions 

caused and continue to cause material losses to Plaintiffs.

55. The accelerated increase in Puerto Rico Debt Securities sold to 

Cooperatives beginning in 2009 and the foreseeable increase in risk concentration was 

the result of a targeted and concerted effort on the part of the Commonwealth, the GDB 

and COSSEC to take and use the liquid reserves of the Cooperatives.

56. The concerted efforts of the Commonwealth and the GDB to improperly 

avail themselves of the assets of the Cooperatives through the sale of ever increasing 

concentrations of Puerto Rico Debt Securities were carried out through an undue use of 

COSSEC’s regulatory power and in disregard of the government’s ministerial, statutory 

and fiduciary duties. These actions and omissions included:

a. Issuance of circular letter 09-03, issued June 22, 2009 to expressly 

authorize the purchase of Puerto Rico Debt Securities being offered at that time, 

highlighting those issued by the GDB. Moreover, the circular letter extolled the alleged 

virtues of such debt instruments, with statements such as: “... backed by the 

Government, which guarantees 100% of interest and principal payments, as provided in 

the bonds.” and “These bonds are excellent guarantees, which allows investors to apply 

for loans against their investment.”16 This circular letter was issued by CPA José A. 

González Torres in his capacity as Executive President of COSSEC. Presently, CPA 

González Torres plays an active role in the current proposed restructuring of the GDB 

Bonds that Cooperatives acquired relying in said circular letter issued by him in 2009.17

 

16 See Exhibit E, including its translation.

17 See Exhibit F: GDB-RSA, Section 20, page 22.

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b. Issuance of circular letter 2012-02, increasing the ratio of permitted 

investments, thus allowing for a higher concentration of risk in Puerto Rico Debt 

Securities.

18

c. Threats and “warnings” of possible revocation of the tax-exempt status of 

Cooperatives, which has been in effect since the 1940s.

d. The selective use of regulatory power based on the "alignment" of 

Cooperatives to the policies of the Administration, as reported by the Puerto Rico House 

of Representatives' Commission on Cooperatives after its investigation regarding 

COSSEC.

57. Through the reckless actions and omissions of defendants 

Commonwealth, GDB and COSSEC, the Commonwealth sought to take the liquid funds 

of Cooperatives through: (a) the targeted offer and sale of Puerto Rico Debt Securities 

issued by the Commonwealth, COFINA and the other Related Issuers such as:

codefendants and Title III Debtors Puerto Rico Highway and Transportation Authority, 

Employee Retirement System of the Government of the Commonwealth of Puerto Rico 

and Puerto Rico Electric Power Authority, and (b) by funding the GDB through the 

targeted offer and sale of GDB Bonds and Notes to Cooperatives, intending to allow the

GDB to finance the operations of the agencies and instrumentalities of the 

Commonwealth through loans that did not have adequate sources of repayment. 

58. In doing so, defendants Commonwealth, GDB and COSSEC actively 

sought funds from the Cooperatives while the GDB was insolvent or while driving it into 

insolvency. 

 

18 See Exhibit G, including its translation.

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59. The unsound nature of the GDB’s lending activity is evidenced in the 

GDB’s Fiscal Plan, which acknowledges the scale of the GDB’s non-performing assets. 

This conduct was contrary to the mission of the GDB, as quoted in page 45 of the 

GDB’s amended Fiscal Plan:

GDB’s Mission: To safeguard the fiscal stability of Puerto Rico and 

promote its competitiveness in order to transform our economy into one of 

the most developed economies in the world, hence, fostering the social 

and economic enhancement of our people. We serve as a bank, fiscal 

agent and financial advisor for the Government of Puerto Rico, and its 

instrumentalities.

60. The unsound nature of the loans obtained by the Commonwealth from the 

GDB is confirmed by the adoption of Puerto Rico Act 74 of July 20, 2016, the Statement 

of Motives of which reads as follows:

Since its founding in 1942, the GDB consistently served the country, not only in the 

management of debt issuance in financial markets to sustain the government work of 

different government administrations, but also in its function as a state bank. In this 

function, the GDB has supported the Government's public investment for decades by 

granting financing provided with the institution’s own capital and through the use of 

ordinary banking mechanisms to increase its lending capacity so that it could finance 

projects, works, and necessary programs for the country.

While it is true that the GDB contributed positively to the economic development of 

Puerto Rico, through the Bank itself and its various subsidiaries, it is also true that the 

lax practices of the past for the granting of loans have placed the GDB in a difficult fiscal 

situation, where its liquidity has greatly decreased. These lax practices caused the GDB 

to grant a large amount of loans and financing to government entities that did not have 

the capacity to repay them, such as those of the Highway and Transportation Authority, 

and also loans payable from legislative appropriations, and because of the 

Government’s situation, the GDB has not received the required payments according to 

various laws passed when the loans were granted. As a consequence of this lack of 

payment, and due to the difficulty that the Government and its public corporations have 

had in accessing the market to issue debt and repay the GDB, as well as due to the 

government's well-known fiscal conditions, the GDB has been unable to continue with

its banking roles, among others, that of being able to honor the deposits of depositors.

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61. Pursuant to the symbiotic relationship between the GDB and the 

Commonwealth, the Commonwealth’s actions and omissions with respect to the 

Cooperatives were carried out through the GDB and through COSSEC by 

Commonwealth’s representatives in the Board of Directors of said entities. Said 

directors acted on behalf of and in the name of Commonwealth agencies and 

instrumentalities that knew or should have known the risks entailed by the increased 

exposure to Puerto Rico Debt Securities and in violation of their statutory, ministerial 

and fiduciary duties to ensure safe and sound financial and fiscal policies.19

62. This is the case of the directors representing:

a. the Puerto Rico Treasury Department, which: (i) oversaw and controlled 

government revenues, government liquidity and the payment of public debt; (ii) whose 

Secretary of the Treasury was a member of the GDB's Board of Directors and, in many 

instances, its chairman; (iii) was required by law to receive from the GDB a report as to 

the feasibility of any governmental financing procedures prior to the issuance, sale or 

exchange of Puerto Rico Debt Securities,

20 (iv) whose Secretary of the Treasury was 

entrusted by law to determine the state of solvency or insolvency of the GDB,

21 and (v) 

always had an ex officio seat in COSSEC’s Board of Directors.22

b. The GDB, which: (i) in its capacity as Fiscal Agent, advised COSSEC 

regarding fiscal and financial matters pertaining COSSEC and the Cooperatives, and 

 

19 The symbiotic relationship between the GDB and the Commonwealth is acknowledged by the GDB, FAFAA and 

the FOMB as they state that “[a]s the Government, its instrumentalities, and public corporations required 

increased liquidity and financing support from GDB, their financial health became interrelated.” (See page 45 of 

GDB’s Amended Fiscal Plan as certified by the FOMB.

20 7 L.P.R.A. §585.

21 7 L.P.R.A. §588

22 7 L.P.R.A. §1334(c)

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simultaneously, (ii) oversaw and managed Puerto Rico's debt and liquidity, whose debt 

securities were being marketed to Cooperatives.

c. The Office of the Commissioner of Financial Institutions, which supervised 

and examined the GDB, as well as all the commercial banks. Pursuant to the

examination of commercial banks, the Commissioner had knowledge of how said banks 

had reduced their exposure to Puerto Rico Debt Securities during the same period of 

heightened sale of said securities to Cooperatives.

63. Based on general information and belief, none of these Commonwealth 

agencies raised concerns or objections as part of their fiduciary duties as members of

COSSEC’s Board of Directors, in spite of the knowledge and information handled by 

said agencies regarding the condition of the public finances. Furthermore, in 

discharging their duties in COSSEC’s Board of Directors, none of these government 

agencies called for prudence regarding the offer and sale of Puerto Rico Debt Securities

to Cooperatives or regarding the undue concentration and lack of diversification 

resulting from said process. Instead, they fostered the wrong and imprudent policy of 

increased concentration and lack of diversification.

64. A similar reckless disregard was shown by COSSEC in its internal 

actuarial and accounting analysis by ignoring the material and highly concentrated and 

undiversified portfolio of Puerto Rico Debt Securities placed by the government in the 

Cooperatives––the existence of which was clearly indicated in the statistics and reports 

publicly disclosed by COSSEC in its own website. This lack of attention to a material 

risk was a major omission on the part of COSSEC's management and directors.

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VI. Systemic scope of risk, losses and damages

65. The undue concentration of financial risk and losses resulting from the 

actions and omissions of defendants Commonwealth, GDB and COSSEC are material 

and significant at the level of each individual Cooperative, but also go beyond these 

individual institutions to become systemic in nature. 

66. The systemic scope of these risks and damages is evidenced in the 

holdings of Puerto Rico Debt Securities by approximately 90 of the total 116 

Cooperatives. Moreover, the Cooperatives are intertwined through cross deposits 

within the system which amount to over $760MM.23 Although mutual support between 

cooperative institutions is internationally acknowledged as a governing principle of 

cooperatives24 and as a source of strength through mutual support amongst them, this 

interconnectedness also allows for fast transmission or contagion of financial risks and 

losses.

67. As in any system of depository institutions, these systemic risks, losses 

and damages generate reputational damages, erode public confidence and have 

generated cycles of withdrawals and loss of liquidity. These circumstances increase the 

risks of systemic failure. 

68. This scenario hovers over all Cooperatives, including those that do not 

hold Puerto Rico Debt Securities. Furthermore, the insufficiencies of COSSEC’s Fiscal 

Plan to address systemwide needs exposes the system to a “bank holiday” that would 

limit access to funds.

 

23 As reported by COSSEC as of December 31, 2017.

24 Sixth Cooperative Principle: Co-operation among Co-operatives - Co-operatives serve their members most 

effectively and strengthen the co-operative movement by working together through local, national, regional and 

international structures. See International Co-operative Alliance, available at https://ica.coop/en/what-cooperative.

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69. The adjustments and sacrifices required for Puerto Rico’s fiscal recovery 

must be carried out while protecting the most vulnerable populations, which include the 

elderly, pensioners, middle and low-income persons, and students. These populations 

(to which we can add public employees) comprise the bulk of the members and 

depositors of the Cooperative Financial System. As per public expressions of the 

FOMB, implementation of the Fiscal Plans will have direct adverse impacts upon 

pensioners, public employees and students.

70. Disregard for these systemic risks exposes these same vulnerable 

populations to restrictions in the access to funds precisely when they will need them 

most: (a) to balance reductions of income, (b) to address increases in health and 

education expenses pursuant to Fiscal Plans required and/or certified by the FOMB, 

and (c) to overcome the hardships caused by Hurricanes Irma and María.

IV. Policy failures and neglect of regulatory duty

71. By failing to comply with statutory mandates and with ministerial and 

fiduciary duties, neither the Commonwealth, nor the GDB, nor COSSEC took any 

measures to address the increasing risk posed by the concentrated portfolio of Puerto 

Rico Debt Securities in the Cooperatives in the context of Puerto Rico's deepening fiscal 

crisis––a risk originated and caused by defendants Commonwealth’s, GDB’s and

COSSEC’s efforts to place ever increasing amounts of Puerto Rico Debt Securities in 

the portfolios of Cooperatives.

72. In contrast to the statutory mandates to safeguard the Cooperative 

Financial System, the Commonwealth, the GDB and COSSEC remained passive and 

oblivious to the mounting challenges, limiting themselves to merely measuring and 

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quantifying the portfolios of Puerto Rico Debt Securities held by Cooperatives. Actions 

beyond the mere measuring of these investments were only taken during the second 

half of 2015 at the instance of leading cooperatives, including a majority of Plaintiffs, 

which undertook to draft and propose concrete alternatives to provide stability to the 

system. Plaintiffs’ legislative proposal was adopted as Act 220 of December 15, 2015.

73. Ironically, while defendants Commonwealth, GDB and COSSEC had no 

qualms in taking affirmative actions to foster the acquisition of Puerto Rico Debt 

Securities by Cooperatives, they then opted to abstain from devising and implementing 

policy measures to mitigate the mounting risks posed by the deepening Fiscal Crisis. 

74. The scope of said crisis was under the direct purview and knowledge of 

the Puerto Rico Treasury (a constitutional Department of the Commonwealth) and the 

GDB (the Commonwealth’s and COSSEC’s Fiscal Agent), both of which were 

represented in and were members of COSSEC's Board of Directors.

75. The financial condition of the GDB was under the direct purview of the 

Office of the Commissioner of Financial Institutions (a Cabinet level agency of the 

Commonwealth), also a member of COSSEC’s Board of Directors.

76. The imprudent lack of institutional good faith was furthered by COSSEC's 

failed and incompetent actuarial analysis, which did not account for these risks. All this

amounts to not less than willful blindness by the government’s members of COSSEC’s 

Board of Directors.

VI. Lack of good faith discussions, and lack of due attention to systemic risks

77. Prior to the enactment of PROMESA and the designation of the FOMB, 

Plaintiffs accepted invitations from the Government to hold discussions regarding 

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Puerto Rico's debt. To do so, Plaintiffs signed confidentiality agreements on July 17th, 

2015 with the GDB as per its requirements and undertook several good faith efforts to 

reach an agreement to restructure their holdings of Puerto Rico Debt Securities. 

78. The GDB publicly acknowledged “the continuing contribution of the 

cooperatives in the ongoing discussions regarding Puerto Rico’s Fiscal and Economic 

Growth Plan. Those discussions have focused on the terms of the restructuring and the 

key role the cooperatives play in promoting social and economic development on the 

Island.”25 These contributions included submittal of proposals as early as September

2015. 

79. Plaintiffs also shared their concerns and proposals with Congress, the US 

Treasury, and the National Credit Union Administration. 

80. Plaintiffs' good faith proposals were ignored by the Commonwealth, the 

GDB, and COSSEC, and subsequently by the FAFAA and the Oversight Board.

81. Defendants’ reckless failure to comply with their duties to safeguard the 

Cooperatives and the Cooperative Financial System is also shown in their actions and 

omissions regarding the proposed Title VI restructuring of the GDB, as provided for in 

the GDB-RSA of May 15, 2017.

82. After the lapse of nearly one year following its announcement, 

presentation of that restructuring to bondholders in a “Solicitation” process as required 

by Title VI of PROMESA is still pending.

83. Implementation of the GDB-RSA implies the materialization of significant 

losses, which in the case of the Cooperatives erodes their regulatory capital and 

heightens systemic risks. In spite of having been informed of these circumstances, 

 

25 See the GDB Press release of February 1, 2016

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Defendants advanced the GDB-RSA without taking any measures to counter these 

damages and thus comply with Defendants’ public, statutory, fiduciary and ministerial 

duties to safeguard the safety and soundness of the Cooperatives.

84. The Commonwealth, the GDB, COSSEC, the FAFAA, and the FOMB

have disregarded their legal, ministerial and fiduciary public duties and obligations to 

safeguard the Cooperative Financial System and to protect its members and depositors. 

In contrast, Plaintiffs sought to mitigate the resulting risks, losses and damages by 

actively studying, designing and proposing policy actions and financial mechanisms 

similar to those undertaken by the federal financial regulators to forestall the 2008 

financial crisis. Plaintiffs’ efforts were met with continued inaction by Defendants.

VII. Defendant’s failure to comply with statutory, ministerial, fiduciary and 

equitable obligations

85. The statutory, ministerial, fiduciary and equitable duties of defendants

Commonwealth, GDB, COSSEC, FAFAA, and FOMB regarding the Cooperatives and 

the Cooperative Financial System stem from the special nature and roles of 

Cooperatives as depository financial institutions, a situation which the Cooperatives 

share with other credit unions and commercial banks.

86. This special nature is well explained by the Federal Reserve Bank of 

Chicago in its Working Paper 2006-01, as follows:26

Why Treat Banks Differently?

Banks are exempted from the general corporate bankruptcy code and subject to special 

 

26 Bliss, Robert R., Kaufman, George G., U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison 

and Evaluation, Federal Reserve Bank of Chicago, Working Paper, No. 2006-01, 2006, 10 January 2006. Available 

at https://www.chicagofed.org/publications/working-papers/2006/wp-01.

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provisions because they are frequently viewed as “special” and different from other firms both in 

their importance to the aggregate economy and in their financial fragility and vulnerability. 

Rightly or wrongly, banks are perceived by many to be more important to the efficient 

functioning of the macro economy than most other firms for a number of reasons including:

• Banks are among broadest of financial institutions and some are individually large relative to 

GDP.

• Bank deposits (debt) are held by a large proportion of the population, including those of limited 

financial means and expertise, and in a wide range of denominations, including very small 

amounts.

• Bank deposits collectively comprise the largest share of the country’s money supply and are the 

primary medium of exchange.

• Banks have a large proportion of their liabilities in very short-term debt that can easily be 

withdrawn (run).

• Bank deposits represent a significant portion of the public’s most liquid assets.

• Banks are major providers of credit to households, business firms, and governments.

• Banks are central to the operation of the payments system.

• Bank assets are widely perceived to be more opaque than assets of most non-bank firms.

• Bank assets can be transferred quickly.

• Banks are closely interconnected through inter-bank deposits and loans.

Evidence clearly demonstrates that the financial health of the banking industry as a 

whole is vital to the efficient performance of the macro economy. Furthermore, individual bank 

failures, and particularly large bank failures, are widely perceived to be more damaging to the 

economy than the failure of other firms of comparable size and to generate particularly 

significant negative externalities. It is therefore argued that banks require special handling to 

reduce the societal cost of insolvency.

27

 The potential disruptions from bank failures may be 

reduced by tailoring the resolution process to the unique features that make their failures 

particularly costly. In particular, bank insolvency procedures attempt to reduce both credit and 

liquidity losses to depositors and other creditors by permitting–though not necessarily 

guaranteeing–early, quick, broad, and decisive actions by the delegated government regulator 

both when insolvency threatens and after the bank is declared insolvent.

28

87. In its adoption of COSSEC's Organic Law, Act 114, the Commonwealth 

acknowledges this special nature of the Cooperatives, adopts the corresponding 

regulatory framework and stipulates the inherently public duties and obligations of 

 

27 Footnote 3 of cited document: See inter alia Corrigan (1983) and Hüpke (2000). The “banks are special” 

argument focuses primarily on the banking system as whole and individual large systemically important banks. 

Less of a case has been articulated for the special importance of individual small banks.

28 Footnote 4 of cited document: As discussed below, a bank need not be insolvent to be closed by regulators 

though insolvency is one possible reason for closure. We will use the term “insolvency resolution” for the process 

that follows the involuntary closing of a bank for any reason.

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safeguarding and protecting the solvency of the Cooperatives and the rights and 

financial interests of their members.29

88. Sections 7(e) and (f) of the Organic Law of COSSEC also state that 

COSSEC’s Board of Directors shall have the following faculties and powers, in addition 

to any others established in this chapter:

(e) Adopt the preventive or remedial measures needed to reduce the potential 

of loss of the insured cooperatives and minimize the losses of the Corporation 

[COSSEC], including the granting of financial aid in cash or through exchange of 

financial obligations. When the exchange of obligations is used, those issued by 

the Corporation shall be considered as capital for the insured cooperative and 

interest shall be paid over the same, as agreed on by the parties.

(f) Ensure that the Corporation [COSSEC] effectively complies with its duty to 

watch over the financial solvency of the cooperatives.

89. Furthermore, Section 31 of Act 114 expressly authorizes COSSEC to 

borrow from the Department of the Treasury of Puerto Rico, and the Secretary of the 

Treasury is authorized and instructed to loan to COSSEC the funds that from time to 

time are requested by COSSEC to honor its obligations pursuant to the shares and 

deposit insurance that COSSEC must provide pursuant to law. No action by any of the 

Defendants have been taken in compliance with this section.

90. After the global financial crisis of 2007–2008, Congress adopted the 

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which created a 

new mechanism for responding to extraordinary circumstances were the failure of 

financial institutions would otherwise cause severe adverse effects on financial 

stability—for example, triggering runs, contagion and panic. Under the Dodd-Frank Act, 

triggering such mechanism requires the US Treasury and the federal banking regulators 

 

29 See Articles 4 and 7 of Act 114 (7 L.P.R.A. 1334b and 1334e).

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to issue written recommendations regarding certain factors to determine if a systemic 

risk determination is warranted. These factors include: (a) the effect that the default of 

the financial company would have on financial stability in the United States, and (b) the 

effect that the default of the financial company would have on economic conditions or 

financial stability for low-income, minority or underserved communities.

91. The scope of this framework is well explained by the Director of the 

Banking Supervision and Regulation Division of the Federal Reserve, in his testimony 

before Congress, regarding systemically important financial institutions and the DoddFrank Act:30

The recent financial crisis showed that some financial companies, including 

nonbank financial companies not historically subject to consolidated prudential 

supervision, had grown so large, leveraged, and interconnected that their 

failure could pose a threat to overall financial stability. The sudden collapses 

or near-collapses of major financial companies, and in particular major 

nonbank financial companies, were among the most destabilizing events of the 

crisis. ... .

As a result of the imprudent risk-taking of major financial companies and the 

perceived severe consequences to the financial system and the economy 

associated with their disorderly failure, the U.S. government (and many foreign 

governments) intervened to reduce the impact of, or prevent, the failure of 

these companies.

92. These principles were incorporated into Commonwealth law by Act 40, of 

May 6th, 2016, which legislative intent expressly states that:

This Legislative Assembly considers that it is extremely important to 

incorporate into Law 21-2016 principles similar to those adopted in the 

Dodd-Frank Act to adopt safeguards against systemic risk, to preserve 

 

30 Testimony of Michael S. Gibson, Director, Division of Banking Supervision and Regulation, before the 

Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, U.S. House of 

Representatives, Washington, D.C., regarding Systemically important financial institutions and the Dodd-Frank Act. 

May 16, 2012. Available at https://www.federalreserve.gov/newsevents/testimony/gibson20120516a.htm.

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the capacity of depository entities to maintain lending activity and to 

protect depositors of low and moderate resources. (Emphasis added).

93. Consideration of these principles has become necessary due to the 

interconnection between the GDB and the Cooperatives resulting from the concentrated 

amounts of GDB Securities sold to the Cooperatives. In that context, the GDB’s failure 

poses a threat to the overall financial stability of the Cooperative Financial System.

94. In addition to their statutory recognition and inclusion in the organic law of 

the GDB, these principles constitute a benchmark of diligence in the exercise of the 

regulatory and public duties of the defendants Commonwealth, GDB, COSSEC, 

FAFAA, and FOMB to safeguard the stability of the Cooperatives and of the 

Cooperative Financial System. Furthermore, application of federal standards is 

consistent with decades of administrative practice by the Commonwealth’s financial 

regulatory agencies.

95. The statutory framework adopted by the Commonwealth to regulate and 

supervise Cooperatives imposes public, legal, fiduciary, equitable and statutory 

obligations over Defendants to safeguard the Cooperatives and the Cooperative 

Financial System. 

96. Cooperatives can only exist and operate pursuant to that statutory 

framework. That is, Plaintiffs cannot exist and operate outside of said framework. 

97. In this compulsory context, through their actions and omissions, 

defendants Commonwealth, GDB and COSSEC misused that same statutory 

framework to take material and ever-increasing amounts of the Cooperatives’ moneys 

to use in governmental spending with no source or ability of repayment. 

98. These actions and omissions of Defendants:

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a. Were and continue to be in violation of their obligations to act in good faith 

to safeguard the financial stability of the cooperatives;

b. Were and continue to be in violation of Puerto Rico laws, including but not 

limited to Act 114 and the GDB Organic Act; 

c. Were and continue to be in violation of federal and Commonwealth 

securities laws; and

d. Constitute a taking of Plaintiffs’ capital and of their liquidity reserves.

99. The governmental taking of Plaintiffs’ moneys––and, thus, the taking of 

the savings of Plaintiffs’ members and depositors––is further advanced by defendants

Commonwealth, GDB, COSSEC, FAFAA, and FOMB’s proposals to charge the losses 

resulting from the government’s default against the capital and liquid reserves of 

Cooperatives and against the assets and capital compulsorily provided by the 

Cooperatives to capitalize and fund COSSEC and the Share and Deposit Insurance

Fund. 

100. This pretension is the equivalent of using the resources of COSSEC as a 

source of repayment of the obligations of the Commonwealth and of other governmental 

units, which is contrary to PROMESA.

101. Defendants’ proposals in connection with COSSEC’s fiscal plan include 

removing statutory safeguards adopted by Act 220 of December 15, 2015 which prevent 

penalizing the Cooperatives for the government’s default under the guise of regulatory 

non-compliance. These proposals epitomize defendants Commonwealth, GDB, 

COSSEC, FAFAA, and FOMB’s lack of good faith as they seek rigorous regulatory and 

financial compliance from the Cooperatives, while they totally disregarded complying 

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with the public duties imposed upon them by that same legal framework. Accordingly, 

these proposals are estopped by Defendants’ own unclean hands in this matter.

102. Statutory, ministerial, fiduciary and equitable duties of defendants

Commonwealth, GDB, COSSEC, FAFAA, and FOMB have required and continue to 

require from them due and timely actions to safeguard the safety and soundness of 

Cooperatives. Actions taken by the Federal Government during the financial crisis of 

2008 provide guidance as to the extent and nature of the required actions.

103. The statutory, ministerial, fiduciary and equitable duties of defendants

Commonwealth, GDB, COSSEC, and FAFAA, are heightened by their own nature as 

expert instrumentalities of the Commonwealth specifically created to carry out 

specialized financial functions, transactions, regulations and supervisory actions.

104. Not only have defendants Commonwealth, GDB, COSSEC, and FAFAA, 

recklessly failed to comply with these statutory, ministerial, fiduciary and equitable 

duties; their reckless actions and omissions are the cause for the losses, risks and 

damages that now require reparations to Plaintiffs.

105. The original cause for these losses, risks and damages––that is, the 

excessive concentration of Puerto Rico Debt Securities held by the Cooperatives, 

especially those of the GDB––have been and continue to be compounded by 

Defendants’ failure to discharge their statutory, ministerial, fiduciary and equitable duties 

to safeguard these financial depository institutions, thus generating systemic and 

contagion risks, which transmit the fiscal and financial difficulties of the government to 

the Cooperatives and to the Cooperative Financial System.

IX. Defendants’ actions and omissions caused damages to the Plaintiffs and 

the Cooperative Financial System

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106. Since July 2015, Plaintiffs have acted diligently and in good faith to 

present to the Commonwealth and its pertinent agencies and officials their claims, 

proposals, comments and recommendations. The same has been done with the FOMB 

since November 2016.

107. The specialized nature, functions and expertise of Defendants and of their 

officers, directors and internal and external advisors allow them an adequate and 

sufficient knowledge of the extent and nature of Plaintiffs’ holdings and of the financial 

consequences, risks, losses and damages resulting therefrom. 

108. With this understanding, defendants Commonwealth, GDB, COSSEC, 

FAFAA, and FOMB opted for inaction with respect to the risks, losses and damages 

caused by them to the Cooperatives.

109. The losses, damages and risks caused by the actions and omissions of 

Defendants contrast with the safe and sound condition of the Cooperatives that stem

from their core operations, as acknowledged by COSSEC, FAFAA and the FOMB in 

COSSEC’s Fiscal Plan.31

110. The actions and omissions of defendants Commonwealth, GDB, 

COSSEC, FAFAA, and FOMB include:

a. All the actions, omissions and reckless conduct alleged in paragraphs 1 to 

109;

b. Failure to comply with the legal, ministerial, public and fiduciary duties to 

safeguard Cooperatives and the Cooperative Financial System;

c. Failure to heed the good faith contractual and extra-contractual obligations 

imposed by applicable law; and

 

31 See Exhibit C.

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d. The actual default of various debt instruments, failing to pay both principal 

and interests thereunder.

111. As a result of Plaintiffs’ regulatory reporting to COSSEC, Defendants 

have had and continue to have full knowledge of Plaintiffs specific holdings of Puerto 

Rico Debt Securities, including their amounts and financial terms. That information was 

the basis for the fiscal plan presented by COSSEC and FAFAA (as fiscal agent of the 

Commonwealth) which was certified by the FOMB in August 2017. Accordingly, 

Defendants have had and continue to have full knowledge of:

a. The amounts of Puerto Rico Debt Securities held by each Plaintiff;

b. The amount of unpaid principal, interests, charges and any other due 

amounts under the Puerto Rico Debt Securities held by each Plaintiff;

c. The amount of market value loss pertaining the Puerto Rico Debt 

Securities held by each Plaintiff;

d. The amount of income lost pertaining the Puerto Rico Debt Securities held 

by each Plaintiff;

e. The amount of reserves, charge-offs and losses under amortization 

pertaining the Puerto Rico Debt Securities held by each Plaintiff;

f. The amount of losses resulting from the sale or disposition of Puerto Rico 

Debt Securities held by each Plaintiff;

g. The changes in assets, deposits, shares, number of members and nonmember depositors and income;

all of which amounts constitute the Monetary Damages suffered by Plaintiffs due 

to the reckless actions and omissions of defendants as alleged in this complaint. 

Plaintiffs will provide Defendants and the Court those documents and information 

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pertaining the specific Puerto Rico Debt Securities purchased by them since 

2009 pursuant to those safeguards established by the Court consistent with the 

safety and protection of the financial information of Plaintiffs as regulated

depository institutions.

112. The actions, omissions and reckless conduct of defendants

Commonwealth, GDB, COSSEC, FAFAA, and FOMB have caused and continue to 

cause damages, losses and risks, including:

a. Loss of income and principal,

b. Loss of capital and liquidity;

c. Loss of market value of their Puerto Rico Debt Securities;

d. Reputational damage

e. Loss of business, loss of members and depositors

f. Loss of income due to a reduction of lending in light of the need to 

increase liquidity reserves; and

g. Loss of COSSEC's reserves, which were built and contributed by the 

Cooperatives and which constitute part of their capital. 

113. Furthermore, the harm and damages caused by Defendants to Plaintiffs 

and to the Cooperative Financial System has serious adverse effects on the economy 

and, especially, on low income and underserved communities.

114. Plaintiffs submitted to the Commonwealth, the GDB, the FAFAA, 

COSSEC and the Related Issuers written claims regarding these damages and 

affirming not having waived or renounced any rights and remedies at law or equity, 

including:

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a. Rights and remedies under the applicable provisions of federal and state 

securities laws and regulations; and

b. Claims with regards to the contractual, extra-contractual, equitable, 

punitive and any other applicable claims.

115. All these losses and damages are of an ongoing nature and are subject to 

subsequent increases.

CLAIMS FOR RELIEF

Count One

EXCEPTION TO DISCHARGE PURSUANT TO 11 U.S.C. § 105

116. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 115

of the instant complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs. 

117. PROMESA incorporates several sections of the Bankruptcy Code, 

including 11 U.S.C. § 105 and 11 U.S.C. § 944. See 48 U.S.C. §2161.

118. Section 105 of the Bankruptcy Code empowers this Honorable Court to 

issue any order, process or judgment that is necessary or appropriate to carry out the 

provisions of the Bankruptcy Code.

119. Defendants GDB, COSSEC, and Commonwealth, acting in concert, 

willfully and maliciously plotted a scheme of false representations in order to appropriate 

funds from the Cooperatives. Codefendants COFINA, Puerto Rico Highway and 

Transportation Authority, Employee Retirement System of the Government of the 

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Commonwealth of Puerto Rico and Puerto Rico Electric Power Authority aided, abetted 

and benefited from such actions. This Honorable Court has powers both under 11 

U.S.C. § 105 and as an Article III Judge to deny discharge relating to a debt for money, 

to the extent obtained by false pretenses, a false representation, or actual fraud, and 

from obtaining benefit from such behavior.

120. Furthermore, this Honorable Court is also empowered to deny discharge 

relating to a debt for fraud and/or defalcation while acting in a fiduciary capacity, 

embezzlement or larceny. Therefore, Plaintiffs’ claims against the Commonwealth and 

the other Title III Debtors named herein are non-dischargeable.

121. Discharge of debts is available only to honest debtors. Codefendants 

Commonwealth and the other Title III Debtors named herein were not honest to 

Plaintiffs. Codefendants Commonwealth and the other Title III Debtors by themselves 

and through their agents GDB and COSSEC sold unsound Puerto Rico debt securities 

to Plaintiffs under false pretenses, false representations, misleading information, 

material omissions and, as stated above, committing actual fraud.

122. Defendants utilized their political and regulatory power to improperly avail 

of the Cooperatives assets by authorizing Plaintiffs to purchase unsound Puerto Rico 

debt securities. By doing so, Defendants also defalcated Plaintiffs while acting in their

fiduciary capacity.

123. Defendants offered and sold Plaintiffs unsafe Puerto Rico Debt Securities 

stating that payment of principal and interest of these debt instruments were 100% 

guaranteed by the government of Puerto Rico.

124. COSSEC, acting in concert with the GDB and the Commonwealth, and

exerting its authority as regulator of the Cooperatives, issued several circular letters to 

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expressly advance the offer and sale of unsound Puerto Rico Debt Securities with the 

intent to deceive Plaintiffs and other members of the Cooperative Financial System.

125. When investing and purchasing such bonds, Plaintiffs relied in these

expressions of COSSEC and the GDB, and in Defendants’ deceitful strategy to avail 

themselves of the Cooperatives’ assets. 

126. In light of such deceitful behavior, defendants Commonwealth of Puerto 

Rico and its instrumentalities are not entitled to obtain a discharge under the 

reorganization process within PROMESA.

127. Codefendants COFINA, Puerto Rico Highway and Transportation 

Authority, Employee Retirement System of the Government of the Commonwealth of 

Puerto Rico and Puerto Rico Electric Power Authority as beneficiaries of the scheme to 

sell unsound debt securities to Cooperatives are not entitled to obtain discharge under 

debt reduction and/or adjustment plans under PROMESA.

128. Plaintiffs hereby seek from this Honorable Court to enter an order and/or 

judgment excepting from discharge any and all claims Plaintiff have against Defendants 

and Related Issuers.

129. Plaintiffs hereby request from this Honorable Court to enter an order 

and/or judgment declaring Plaintiffs’ claims against Defendants under Title III to be 

exempted from the discharge that the confirmation of a Plan of Adjustment of Debts

under PROMESA might entail pursuant to 11 U.S.C. § 944.

130. Plaintiffs also request from this Honorable Court to enter an order and/or a 

judgment that their claims against Defendants under Title III be exempted from 

discharge in the order confirming their plans. See 11 U.S.C. § 944 (b) and (c).

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Count Two

DECLARATORY JUDGMENT AND EXCEPTION TO DISCHARGE PURSUANT TO 

PROMESA PROVISIONS

131. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 130

of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs.

132. Congress enacted the Puerto Rico Oversight, Management and Economic 

Stability Act (“PROMESA”) in 2016. 42 U.S.C. § 2121, et. seq. PROMESA is designed 

to assist Puerto Rico in achieving financial stability. See 48 U.S.C. § 2141(b)(1)(B). 

Congress was motivated to act based, in part, on its finding that “[a]s a result of its fiscal 

emergency, the Government of Puerto Rico has been unable to provide its citizens with 

effective services.” 48 U.S.C. § 2194(m)(2).

133. PROMESA provides a process for adjusting the debts of the 

Commonwealth under the supervision of a Court, 48 U.S.C. § 2161, et. seq., and

prohibits “the discharge of obligations under Federal police or regulatory laws, including 

laws relating to the environment, public health or safety, or territorial laws implementing 

such Federal legal provisions. This includes compliance obligations, requirements under 

consent decrees or judicial orders, and obligations to pay associated administrative, 

civil, or other penalties.” 48 U.S.C. § 2164(h).

134. In light of the special nature of Plaintiffs as depository institutions and of 

the unique circumstances under which the Commonwealth availed itself of Plaintiffs’

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assets, Plaintiffs hereby request from this Honorable Court declaratory, injunctive and 

equitable relief pursuant to the applicable provisions of PROMESA and the applicable 

provisions of the Bankruptcy Code, to the effect that:

a. For purposes of the eventual Plan of Adjustment of Debts of the 

Commonwealth and of any covered entity under PROMESA, Plaintiffs’ 

claims justify their designation as a separate class pursuant to the 

applicable provisions.

b. A discharge and/or impairment of the claims of Plaintiffs against the 

Commonwealth and against any covered entity under PROMESA is 

contrary to the purposes and policy of PROMESA and of the Bankruptcy 

Code.

c. For purposes of the proceedings under PROMESA, all amounts owed to 

Plaintiffs by the Commonwealth and any covered entity under PROMESA 

be declared to be non-dischargeable for purposes of the eventual Plan of 

Adjustment of Debts.

Count Three

BREACH OF CONTRACT AND WARRANTIES, PROMISSORY ESTOPPEL

135. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 134

of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs.

136. As herein described, defendants GDB, COSSEC, and Commonwealth, 

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acting in concert, willfully and maliciously breached the terms and conditions of their 

agreements with Plaintiffs, written and oral, express and implied. Plaintiffs suffered 

damages as a result of such breaches. Defendants are liable to Plaintiffs for the 

damages caused by all such breaches, according to the laws of Puerto Rico as well as 

any laws of the United States which may apply. 

137. As herein described, Defendants breached warranties owed to Plaintiffs, 

both express and implied. Plaintiffs suffered damages as a result of said breaches. As 

such, Defendants are liable to Plaintiffs for the damages caused by all such breaches. 

As herein described, Defendants made representations to Plaintiffs, upon which 

Plaintiffs relied to their detriment, and are therefore estopped to deny such 

representations.

Count Four

VIOLATION OF SECURITIES STATUTES

138. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 137

of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs.

139. As herein described, defendants GDB, COSSEC, and Commonwealth 

knew or should have known, or were reckless in not knowing that their actions and 

omissions constituted violations of the provisions of the Puerto Rico securities statutes, 

including 10 L.P.R.A. § 851, et seq., which entitles Plaintiffs to the damages described 

herein, including damages, interests, attorney’s fees, and costs of the transactions 

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described herein. Plaintiffs therefore seek all relief available under such legislation. 

140. Additionally, as herein described, Defendants and/or their current and 

former agents violated federal securities statutes and rules of the exchanges and SEC, 

including, inter alia, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), Rule 10b-5 

thereunder, 17 C.F.R. § 240.10-b-5., Section 15c2-12, 17 C.F.R. 240.15c2-12, and the 

rules of SRO organizations, such as FINRA. Plaintiffs therefore seek all relief available 

under such rules and legislations. 

141. By engaging in the conduct described above, Defendants, directly or 

indirectly, in connection with the offer, purchase or sale of securities, by use of the 

means or instrumentalities of interstate commerce, or the mails:

a. Employed devices, schemes, or artifices to defraud;

b. Made untrue statements of material facts or omitted to state material facts 

necessary in order to make the statements made, in light of the circumstances 

under which they were made, not misleading; and/or

c. Engaged in acts, practices or courses of business which operated or 

would operate as a fraud or deceit upon any person in connection with the 

purchase or sale of any security, in this case the Puerto Rico Debt Securities.

Count Five

VIOLATIONS OF FAULT/NEGLIGENCE STATUTES

142. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 141

of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

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Plaintiffs.

143. As herein described, defendants GDB, COSSEC, and Commonwealth, 

acting in concert, violated the fault and negligence statutes of Puerto Rico, including 31 

L.P.R.A. § 5141, 31 L.P.R.A. § 3020, and 31 L.P.R.A. § 3021 et seq., which provide for 

civil recovery for the damages caused by any and all acts or omissions through the fault 

or negligence of another. Defendants GDB, COSSEC, and Commonwealth and their 

agents owed Plaintiffs ministerial and statutory duties, duties of good faith and duties of 

fair dealing and care. The damages suffered by Plaintiffs and described herein occurred 

as a result of the fault and/or negligence of Defendants. Plaintiffs therefore seek from 

Defendants all relief available under such legislation, including, but not limited to, 

rescission of all transactions under 31 L.P.R.A. § 3052.

Count Six

VIOLATION OF FIDUCIARY/OFFICIOUS MANAGER STATUTES

144. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 143

of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs.

145. Defendants GDB, COSSEC, and Commonwealth owed a fiduciary duty to 

Plaintiffs, also called a duty of officious manager. Such a duty required Defendants to 

place Plaintiffs’ interests above their own, and to operate in good faith and deal fairly 

with Plaintiffs in all their relationships. By civil statute, Defendants were obligated to 

“fulfill [their] charge with all the diligence of a good father of a family and indemnify for 

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injuries which, through [their] fault or negligence, may be caused to the owner of the 

property or business he may be managing.” 31 L.P.R.A. § 3052. 

146. Plaintiffs suffered injuries, which were caused by Defendants’ acts and 

omissions in violation of their fiduciary and officious manager duties to Plaintiffs.

Count Seven

VIOLATIONS OF FRAUD, MISREPRESENATION AND OMISSION STATUTES

147. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 146

of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs.

148. As herein described, defendants GDB, COSSEC, and Commonwealth, 

acting in concert, willfully and maliciously perpetrated a fraud on Plaintiffs, both by 

action and omission, and are liable to Plaintiffs for all losses resulting from that fraud in 

accordance with 31 L.P.R.A. § 3018, 31 L.P.R.A. § 3019 et seq., and other statutes of 

Puerto Rico outlawing fraudulent behavior and providing for the recovery of damages 

for losses incurred as a result of fraud or rescission of fraudulent transactions. Plaintiffs 

therefore seek from Defendants all relief available under such legislation, including 

damages for all losses and rescission of all transactions.

Count Eight

CLAIMS UNDER COMMON LAW

149. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 148

of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

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Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs.

150. As described above, defendants GDB, COSSEC, and Commonwealth, 

through the actions and omissions of their agents, are liable to Plaintiffs for their 

intentional and negligent misrepresentations and omissions of material fact, upon which 

they intended for Plaintiffs to rely, and Plaintiffs did rely, causing damages.

151. Through their wrongful acts and self-dealing, Defendants and their current 

and former agents were unjustly enriched by their receipt of profits, commissions, 

mark-ups, mark-downs, fees, and/or spreads and should be required to disgorge any 

profits from their wrongful conduct.

152. As described above, Defendants and their current and former agents were 

fiduciaries to Plaintiffs, and breached their fiduciary duties, as well as their duty to 

Plaintiffs of good faith and fair dealing.

153. As described above, Defendants and their current and former agents 

owed duties to Plaintiffs, breached those duties, and proximately and otherwise caused 

damages to Plaintiffs, including lost assets, lost opportunities, consequential losses, and 

injury to Plaintiffs’ reputation and property. Defendants are therefore liable to Plaintiffs 

under the laws of Puerto Rico and any other state of federal law for all such damages to 

Plaintiffs.

Count Nine

VICARIOUS AND JOINT AND SEVERABLE LIABILITY

154. Plaintiffs herein allege and incorporate by reference paragraphs 1 to 153

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of this Complaint. Each Plaintiff is a Cooperative and is part of the Cooperative 

Financial System. All allegations, pleadings and claims regarding actions and 

omissions of Defendants with respect to Cooperatives and the Cooperative Financial 

System are hereby specifically pled, alleged and claimed by each and every one of the 

Plaintiffs.

155. During the time of the acts of Defendants that harmed Plaintiffs, 

Defendants’ officers, representatives, advisors and agents, together with their 

supervisors and co-workers, were agents of, employed by, and had actual and apparent 

authority to represent Defendants. Therefore, Plaintiffs invoke the doctrines of agency 

liability, “respondeat superior” and vicarious responsibility for acts of the 

agents/employees of Defendants. 

156. Defendants and their current and former agents committed all or part of 

the above-described acts which caused harm to Plaintiffs. Defendants and their current 

and former agents benefited from all such acts. Defendants aided and abetted their 

agents in the commission of those acts, and Defendants conspired with their agents and 

each other to commit such acts. Therefore, as a matter of law, Defendants are liable for 

the wrongful actions of their current and former agents under federal legislation and 

under federal law and the laws of Puerto Rico and should be held liable for every act 

and for any and all damages produced in any manner to Plaintiffs.

PRAYER AND REQUEST FOR RELIEF

WHEREFORE, PREMISES CONSIDERED, Plaintiffs seek that an award be 

entered ordering Defendants to pay to Plaintiffs the Monetary Damages, as alleged in 

paragraph 111 of this complaint, exclusive of all consequential damages and statutory 

and/or punitive damages, plus interest and costs, including attorney’s fees, an amount 

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which Plaintiffs reserve the right to amend at any time. Plaintiffs also respectfully 

request as follows: 

1. The entry of an Order and/or Judgment declaring that Plaintiffs’ claims 

(including the claims for Monetary Damages) against all defendants under Title III of 

PROMESA are exempted from the discharge that the confirmation of a plan of 

adjustment of debts might entail pursuant to 11 U.S.C. § 944.

2. The entry of a specific provision in each of the orders confirming plans for 

each of the defendants under Title III of PROMESA declaring that Plaintiffs’ claims 

(including the claims for Monetary Damages) against Defendants as described herein 

are exempted from discharge.

3. The declaratory, injunctive and equitable reliefs requested in this 

complaint.

4. All sums lost in the value of the Puerto Rico Debt Securities acquired by 

the Cooperatives; plus, additionally or alternatively,

5. All lost opportunities incurred as a result of Defendants’ acts and/or 

omissions; plus, additionally or alternatively,

6. Rescission of any or all transactions as sought; plus, additionally or 

alternatively, 

7. Statutory damages as provided by applicable law; plus, additionally or 

alternatively, 

8. Punitive damages in an amount that the Court shall deem appropriate; 

plus, additionally or alternatively,

9. Pre-award and pre-judgment interest on all sums invested from the date 

deposited until the date of the judgment and until such sums are paid, all at the highest 

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rate allowed by law; plus, additionally or alternatively, 

10. Any and all other relief available to Plaintiffs, in law or equity or otherwise, 

which may be granted by this Honorable Court,

11. All costs of these proceedings and for recovery of damages incurred, 

including legal fees, including while on appeal, if any, and for collection.

Respectfully submitted.

In San Juan, Puerto Rico this 22nd day of March, 2018.

s/HARRY ANDUZE MONTAÑO-114910

s/JOSE A. MORALES BOSCIO-220614

1454 Fernández Juncos Avenue

San Juan PR 00909

Tel. (787) 723-7171

Fax (787) 723-7278

Email: handuze@microjuris.com

 jmoralesb@microjuris.com

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