UPDATE 1-Massachusetts opens probe into sales of Puerto Rican muni debt
BOSTON, Oct 9 (Reuters) - Massachusetts securities regulators are investigating the sale of municipal bond funds loaded with Puerto Rico debt, marking the latest fallout to the Caribbean island's fiscal crisis.
William Galvin, the state's Secretary of the Commonwealth, said he is investigating some of the largest U.S. fund managers, including Fidelity Investments, OppenheimerFunds, a unit of MassMutual Life Insurance Co. and UBS Financial Services . Those companies, which were not immediately available to comment, were the first to receive inquiry letters from Galvin's office.
The investigation centers on determining the extent Massachusetts' investors were adequately made aware of the risks associated with their investments, Galvin said in a press release. The debt obligations were sold through a mutual fund or other investment vehicle more often than not, or sold directly to an investor, he said.
"Puerto Rico is currently on the verge of insolvency and many of its obligations are at or near junk rating, thus the risks associated with its municipal debt obligation are disproportionately high," Galvin said in a statement.
S&P Municipal Bond Puerto Rico Index is down 19 percent in 2013. The index is badly underperforming the S&P National AMT-Free Municipal Bond Index, which is down only 3.6 percent this year.
Puerto Rican bonds are exempt from federal, state and local income taxes in all U.S. states making them particularly attractive to mutual fund managers across the country
Galvin's office is also investigating whether the bonds were priced properly.