Pay Dirt is a weekly foray into the pigpen of political funding. Subscribe here to get it in your inbox every Thursday.
Sen. Michael Bennet (D-CO) has advocated for greater transparency in Washington, especially when it comes to lawmakers trading in stocks. But some of his own investments show just how hard it is to navigate that policy—and the optics that come along with doing the right thing.
According to Bennet’s most recent financial disclosure, the Democrat is worth between $7 million and about $31.2 million. He keeps millions of it in entities connected to two notorious offshore tax havens, with one of those entities being a “vulture fund” that invested in junk bonds of Puerto Rican debt.
ADVERTISEMENT
Sounds shady, right? Bennet is actually trying to do the right thing. He doesn’t exercise control over his investments, according to his campaign spokesperson, but instead has put his assets in a trust, which is independently managed and allows him no direct oversight. (The campaign would not clarify whether this was a blind trust.)
So what happens when he profits from bad things—like, say, Puerto Rico going bankrupt?
The Puerto Rican debt crisis has dragged on for more than seven years. But in its early stages, the risk of default sparked a feeding frenzy for “vulture funds” who swooped in to buy up billions of dollars in cheap government bonds, bet against the island, and made off with massive profits when bankruptcy struck three years later.
Bennet appears to have profited. According to his 2017 financial disclosure, one of his hedge fund investments—which is tied in business and court filings to Puerto Rican debt claims—yielded between $100,000 and $1 million in income that year. The fund had never returned more than $1,000 annually on his reports dating back to the initial purchase, in 2014.
Today, Bennet’s original investment is worth between $1 million and $5 million, financial records show. Last year, he clocked between $15,000 and $50,000 from the fund. (Financial disclosures only provide dollar amounts in increasingly wide ranges.)
Andrew Morriss, international finance expert and professor of law at Texas A&M University, told The Daily Beast it appeared that Bennet profited from Puerto Rico’s collapse.
“Sounds like they were anticipating the bonds would drop, and had a strategy to capitalize when the price fell, and made quite a bit of money off of that,” Morriss said of the hedge fund involved. “They made the correct bet on the Puerto Rican bonds, which is a bet against Puerto Rico. They accumulated stuff and waited for something bad to happen. And when it did, the fund made a whole bunch of money.”
Morriss added this strategy was a standard thing in financial markets, “but it certainly doesn’t look good if you’re a man of the people to be involved in these kinds of strategies.”
Bennet really does advocate for greater transparency in government, and has for more than a decade—including fighting to ban lawmakers from becoming lobbyists, accepting corporate PAC money, running “zombie” campaigns, and making stock trades.
In a July interview with Bloomberg Government about a new campaign ad touting that record, Bennet said the spot was “an acknowledgment that there’s a lot of self-serving behavior here.”
Bennet says his money sits in a trust operated by an independent manager, and he has no direction over his trades. Still, he made a good chunk of change while Puerto Rico spun into financial ruin.
(Bennet’s opponent, Republican businessman Joe O’Dea, has recently seen his own private sector career come under scrutiny)
The debate over a trading ban cuts across party lines as well as within them. Democrats have criticized other Democratic proposals, with some complaining that a blind trust requirement would be cumbersome and expensive for most lawmakers, and others raising alarms at loopholes that they argue renders some legislative solutions ineffective.
This summer, the gridlock got sticky enough to stall an expected vote on one House bill, even though it would almost certainly get the backing of a majority of Democrats. Even former President Donald Trump got in on the action, needling House Speaker Nancy Pelosi earlier this month for failing to deliver on a proposal which, according to a recent Data for Progress poll, enjoys the support of 77 percent of Americans—including 75 percent of Republicans.
Bennet himself is a sophisticated investor and financial architect. At an approximate $15 million net worth, he’s among the wealthiest Democratic Senators, having cut his teeth in the business world working under GOP megadonor Philip Anschutz, Forbes reported. (In one deal, Bennet helped restructure $3 billion in debt, a feat that earned him a seat on the board of Regal Entertainment Group and $5 million in securities, according to Forbes.)
Here is the tragic story behind Bennet’s blind Puerto Rican investment. (Bennett’s interests don’t end there—they also show a $1 million to $5 million stake in another Cayman-connected hedge fund, as well as between $250,000 and $500,000 in a holding company based in the island nation of Mauritius; that company owns part of a major Indian grocery chain.)
It’s a hedge fund, though. So it gets tricky.
In July 2014, Bennet put between $500,000 and $1 million into a hedge fund called Canyon Capital Balanced Fund LP, according to his financial disclosure report. That fund is run by Canyon Capital Advisors, a major wealth manager that jumped on Puerto Rico’s junk bond offering about three months before Bennet’s investment.
The specific fund Bennet invested in was a “feeder” fund for an even bigger, “master” fund run by the same group, but stationed in the Cayman Islands. That master fund—Canyon Balanced Master Fund LTD—pools money from investors all over the world, and performs the actual trades. It’s also listed alongside Canyon Capital Advisors in Puerto Rico bankruptcy court records.
Canyon Capital appears to have pulled what’s known as a “short,” Morriss said, buying up assets and then betting they would fail. And they were right: Puerto Rico failed, big time.
For decades, the island government suffered from chronic corruption and poor leadership. It tried to cover losses by borrowing money, but it lost control, and in 2014, Puerto Rican debt bonds were downgraded to junk.
But despite Puerto Rico’s faults, it had a nudge—from investors looking to capitalize on the moment.
“Wall Street kept pushing the Puerto Rican government’s loans even as the island teetered on default, with a zeal that bank insiders are now describing with words like ‘unethical’ and ‘immoral,’” NPR reported in a 2018 retrospective on the crisis.
Cue the “vulture funds.” Sensing the impending crash, hedge funds and other entities scooped up a combined $3 billion in debt in March 2014, which the government was selling as a lifeline. Some of those investors “shorted” the debt.
A little over a year later, Puerto Rico announced it couldn’t afford to pay its debt. Many Puerto Ricans lost their savings, and retirement plans and pensions evaporated. The government didn’t have money for infrastructure projects and other fundamentals, and was even forced to close some hospitals.
Congress, with Bennet’s vote, created an oversight board in 2016 to help restructure the debt—$70 billion in public debt, and another $50 billion in pension liabilities. The following year, Puerto Rico declared bankruptcy—and the investors behind Bennet’s fund made money. All told, Canyon Capital Advisers claimed north of $680,000,000 in debt holdings.
It couldn’t have happened at a worse time. Months later, Hurricane Maria ravaged the island, causing billions of dollars in damage and causing between 3,000 and 4,600 deaths. It took a year to get the final house reconnected to the power grid.
Since then, Bennet has banked between $230,000 and $1.3 million from his Canyon Balanced Fund, according to his annual disclosures. It returned nothing more than $1,000 a year until bankruptcy, and the hurricane, struck.
“Puerto Rico had plenty of problems, which is interesting because in part, the tax incentives from the federal government kind of make it an ‘offshore door’ into the United States,” Morriss observed. “When the U.S. complains about offshore jurisdictions, those jurisdictions often point to Puerto Rico and say, ‘Well, pot meet kettle.’”
But the irony gets even thicker.
Canyon Capital Advisors themselves fought against the federal oversight board to help Puerto Rico recover. Their financial interests were at odds with Bennet’s voted. So were his—and he couldn’t do anything about it.
