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SEC probes Morgan Stanley, Barclays bankers on Puerto Rico bonds

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

The regulator's staff recommended that the agency file an enforcement action against Barclays' Luis Alfaro and James Henn for alleged violation of fair dealing rules for their roles in the island's debt sales, according to brokerage records filed with FINRA.

The staff also suggested sanctioning Morgan Stanley's Charles Visconsi, the co-head of public finance, and his former colleague Jorge Irizarry, in connection with disclosures Puerto Rico made in documents circulated to investors, according to FINRA records. That inquiry centers on whether Morgan Stanley adequately reviewed the island's representations.

Puerto Rico Capitol building in San Juan, on Saturday, May 13, 2017 Bloomberg News
13 May 2017. Puerto Rico Flags of Puerto Rico and United States in the Capitol of Puerto Rico, on Saturday, May 13, 2017. The governor of Puerto Rico announced the American territory would declare a type of bankruptcy, as allowed under the Puerto Rico Oversight, Management, Economy Stability Act (PROMESA), to deal with is more $70 billion in public debt. Xavier Garcia for Bloomberg

Barclays and Morgan Stanley were both underwriters of Puerto Rico's $3.5 billion bond sale in March 2014, its last major borrowing, with Barclays serving as lead manager. A little more than a year later, then-Governor Alejandro Garcia Padilla said the island couldn't pay its debt, steering it into a series of defaults that culminated in Puerto Rico's bankruptcy last month.

SEC staff hasn't suggested that Visconsi, Irizarry or anyone else at Morgan Stanley engaged in intentionally wrongful conduct, according to the filing. Visconsi is still employed at Morgan Stanley, said Mark Lake, a firm spokesman. Brian Wynne is taking over as sole head of public finance while Visconsi finds another role at the firm, according to a person familiar with the matter. Mark Lane, a Barclays spokesman, didn't immediately respond to an emailed request for comment.

"Morgan Stanley and Mr. Visconsi are confident that they satisfied their underwriter obligation," the FINRA filing says. "Mr. Visconsi intends to vigorously defend himself in the event the staff in fact recommends, and the Commission approves, an action against him."

Messages were left on voice mail for Henn, Alfaro and Visconsi; Irizarry's listed phone did not pick up or get sent into voice mail.