Hedge Paper No. 65: Insured to Profit: Conflicts of interests in the career of José Carrión III

PDF of Hedge Paper No.65 – English
PDF of Hedge Paper No.65 – Spanish

It has been two years since the approval of the PROMESA Act and the establishment of the Financial Oversight and Management Board (the Oversight Board) in Puerto Rico. The austerity measures implemented have been catastrophic for millions of people in the Caribbean archipelago. Dramatic cuts have been approved for many essential services, including healthcare and education. Hurricane María only exacerbated what was already a deep social crisis.

As chair of the Oversight Board, José Carrión III – an insurance executive from the Carrión family banking dynasty – has played a central role in designing and approving policy decisions that prioritize Wall Street profits over the well-being of Puerto Ricans. Carrión is well connected with the Republican Party. He has been an active donor since 2002, and he served as the state network coordinator and chairman of the American territories leadership team for the 2012 presidential campaign of Rick Perry, the former governor of Texas and current Secretary of Energy (it’s worth noting that Perry now oversees the Puerto Rico Electric Power Authority, or PREPA).[1] Recently, he’s been a significant donor to House Speaker Paul Ryan, who appointed him to the Oversight Board, and to Rob Bishop, chair of the House Committee on Natural Resources, which is authorized to oversee the Oversight Board.

Carrión’s other connections – through his insurance firm, Carrión, Laffitte & Casellas (since 2012, Hub International’s Puerto Rico branch), and his family’s role at Popular, where his father was a member of its board of directors – are well known. What is less known, and what this reports elaborates on, is that Carrión appears to have used his close ties to key government regulatory agencies to benefit his business partner. Furthermore, former colleagues at his insurance firm sat on the board of the Government Development Bank (GDB) during a key period of debt creation – and as chair of the Oversight Board, he has authority over what forms of legal releases they are granted as former GDB officials.

Key findings of this report include:

  • Carrión’s wife approved a lucrative government contract that benefited a private equity firm where Carrión served as an advisor. Carrión’s wife, Gloria Benítez, was director of the Health Insurance Administration (known by its Spanish acronym, ASES). ASES is the agency in charge of designing and overseeing the bidding process for Puerto Rico’s block-grant Medicaid and Children’s Health Insurance Program (jointly known as Mi Salud or Reforma de Salud), a nearly $3 billion program which provides managed health care and pharmaceutical services to low income residents. In August 2010, while Benítez was serving on the ASES board, the agency awarded an $800 million contract to a health insurance company named Medical Card System (MCS). Since 1998, Advent Morro Equity Partners, one of the biggest private equity firms in Puerto Rico, has been a principal shareholder of MCS. Carrión joined the board of advisors of Advent Morro in “approximately” January 2010, according to his financial disclosure, and Benítez was at the meeting where the contract was approved by unanimous decision, and did not recuse herself. She did not file an ethics waiver. As an ASES board member, she had access to privileged information about the contract’s bidding process. Carrión’s position on Advent Morro’s advisory board does not appear to have been publicly known until 2017, when it was listed in the financial disclosure he was required to file as an oversight board member. He no longer lists the Advent Morro advisory position on his disclosure form, though he is still listed on its website.

  • Two employees from Carrión’s insurance brokerage firm were appointed to the board of directors of the Government Development Bank during a key period of debt creation. Two employees – Agnes Suárez and Eduardo Emanuelli – from Carrión’s insurance brokerage firm, Carrión, Laffitte & Casellas, were named by former Governor Luis Fortuño to the board of directors of the Government Development Bank. During their term, Suárez and Emanuelli participated in matters related to bond issuances involving GDB, and one of them served on the board during Oversight Board member Carlos García’s tenure as GDB president. The GDB debt restructuring agreement will release them from significant potential legal claims, as detailed in a recent Hedge Clippers report on the GDB deal, and was approved by the Oversight Board, which Carrión chairs.[2] The Oversight Board recently moved to put forward a narrower interpretation of releases provided by government entities, but the extent to which former GDB officials will be protected from claims by private parties remains unclear. Additionally, a comprehensive audit would put the actions of two of Carrión’s close associates under a microscope, and Carrión has been against the audit of the debt, calling it “a waste of time.”

The MCS contract and GDB relationships – and all of Carrión’s actions as a simultaneous insurance executive, private equity advisor, and government official – deserve a full investigation, given his powerful role on the Oversight Board and the potential for ethics violations that protect his colleagues at the expense of Puerto Ricans.

Carrión’s wife approved a lucrative health insurance contract to a company owned by the private equity firm he advised

In 2008, life was going well for José Carrión III, the current chair of the Oversight Board of Puerto Rico. His firm Carrión, Laffitte & Casellas was expanding, consolidating its position in the insurance market.[3] Carrión was also rising in the Republican Party of Puerto Rico. He was moving in increasingly powerful circles in the GOP and making thousands of dollars in campaign donations.[4] But in November he reached a new echelon of power, when his close associate, Luis Fortuño Burset, was elected governor of Puerto Rico.

Fortuño’s landslide election was the start of an aggressive austerity offensive. Its most notorious act was the implementation of Act 7, which led to the firing of thousands of public sector workers. But for Carrión, it was a different story. Fortuño appointed him and his wife to seats on the boards of several public agencies. Carrión was made a director of the State Insurance Fund Corporation (Corporación del Fondo del Seguro del Estado, CFSE), and served as its president for four years.[5] CFSE is in charge of workers compensation – that is, insurance providing wage replacement and medical benefits to workers injured at work. All employers are required by law to insure their workers with CFSE. Carrión was also appointed to the board of directors of the Automobile Accident Compensation Administration (Administración de Compensaciones por Accidentes de Automóviles, ACAA). The Administration is a public corporation that manages a health and compensation insurance fund for victims of automobile accidents.

In addition to Carrión’s appointments, his wife was also selected to direct three other agencies. Gloria Benítez was appointed to the board of directors of the Conservatory of Music, the Public Broadcasting Corporation, and the Health Insurance Administration (Administración de Seguros de Salud, ASES).[6] ASES is the public corporation in charge of managing the contracts of the health insurance companies that provide health coverage under the so-called Health Reform (Reforma de Salud), a government-run program which provides health services to low income residents. It manages nearly $3 billion dollars a year, the majority of which are federal funds from Medicaid and Children’s Health Insurance Program (CHIP).

Benítez also hails from the insurance industry. Along with members of her family, she has been involved with several companies as a shareholder and director, including Colonial Insurance Agency[7] and QBE Optima Insurance Company.[8] She’s also a significant donor to the Republican Party, according to data from the  Center for Responsive Politics.[9]

In sum, Carrión and Benítez, both veterans of the insurance industry, were put in positions to directly influence the decisions of three insurance-related public agencies.

One sign that they leveraged these positions for private gain came to light when the Oversight Board published Carrión’s first financial disclosure report in February 28, 2017.[10]Among other things, Carrión stated in the form that he served on the advisory board of Advent Morro Equity Partners since “approximately January 2010.” Advent Morro is a private equity firm that has invested in over 50 companies, including Centennial, Codigo Entertainment, ICPR Junior College, and Hotel El Convento.[11] Advent Morro was founded by Cyril L. Meduña, a Chilean living in Puerto Rico and named by ex-President of Chile Michelle Bachelet as Honorary Consul.[12] Meduña is a director of various companies that Advent Morro has invested in. Meduña is also the husband of María L. Ferré Rangel, part of the powerful Ferré Rangel family,  owner and director of GFR Media (El Nuevo Día, Primera Hora) and a member of the board of directors of Popular Inc. (the bank run by Carrión’s cousin, Richard Carrión).

Advent Morro is a principal shareholder of Medical Card System (MCS), one of the biggest health insurance companies in Puerto Rico. It first invested in MCS in 1998.[13] Cyril Meduña is a member of the board of directors of MCS and all of its subsidiaries. In 2000, MCS entered the business of providing insurance under the Health Reform, the privatized health system under which private insurers manage largely publicly-funded healthcare coverage. For private health insurance firms, it is a big market where contracts run into the hundreds of millions and profit margins can be substantial. ASES, as stated before, is the agency in charge of managing these contracts.

As part of ASES, Gloria Benítez participated in the selection process of choosing a health insurance provider to low income families that ultimately awarded MCS an $800 million contract in August 2010.[14] Her role in the approval of this contract award to MCS was made while her husband was a member of the board of advisors of Advent Morro – a principal shareholder of MCS, as mentioned. Despite this conflict of interest, she did not request a waiver from the Office of Government Ethics. According to a review of documents found in an official registry of ethics waivers granted by the State Department, Benítez requested two waivers to allow her husband (through Carrión, Laffitte & Casellas) to approve contracts with the Treasury Department and the University of Puerto Rico Retirement System. There is no evidence that Benítez requested waivers for the MCS relationship.[15]

Advisory board members play important roles in many investment firms. They bring valuable information, expertise, and relationships that help the firm make investment decisions. Often they are compensated for their services and sometimes they are offered shares in the company as part of the agreement. Interestingly, in an interview in 2005, Meduña made it clear that Advent Morro’s advisory board is a key component of its business: “According to Meduña, the company depends on a very knowledgeable group of entrepreneurs and business people who serve on its advisory board and board of directors to provide in-depth information about the island’s business community. ’One of the most important things they do is evaluate the primary aspect of the businesses we are looking to invest in, such as its people. They help us weed out people who may be too complicated to deal with.’”[16]

Benítez’s first ASES board meeting was on August 14, 2009. She was there as the official representative of the insurance companies. She was confirmed by the Senate in November 17, 2009.[17] Her last ASES board meeting was on May 13, 2011. During that period, ASES discussed and approved all matters related to the contracts of the Mi Salud program, the health program that Fortuño was establishing. Five months into her service, her husband started advising Advent Morro.

The negotiations with the health insurance companies are complex, secretive, and consequential, since there are hundreds of millions of dollars involved. Most of the funding is provided by Medicaid. The fact that one of ASES’s directors was the wife of a member of the advisory board of a firm that had significant investments in one of the insurers competing for the contract raises red flags, since ASES’s board of directors has privileged and confidential information about the entire bidding process, from the elaboration of the requests for proposals to the approval of the contract.

In August 30, 2010 the board of directors approved the contract for MCS-HMO (Health Management Options), one of MCS’s subsidiaries, for the coverage of “physical health” in 5 of the 8 ASES’s administrative regions. The contract was approved by unanimous decision. Since Benítez was in the meeting, apparently she voted for its approval.[18]

Of course, this was a very positive development for Advent Morro and its investments in the healthcare insurance market. MCS’s achievements were hailed by Wall Street. For example, The Deal, a financial news magazine, published an article one month after the approval of the contract about the profits MCS was producing for JLL Partners, a New York-based private equity firm that invested in MCS in 2004, becoming its biggest shareholder.[19] Apart from highlighting JLL profits, the article also notes: “MCS’ other stakeholders, which include Puerto Rico’s Advent Morro Equity Partners, have pocketed an additional $100 million or so of payouts”.[20]

But problems started right away for MCS and its contract.[21] MCS wasn’t able to comply with all the requirements of the contract. In fact, things got so bad that ASES fined MCS in November 2010.[22] Health and insurance professionals pointed out that MCS did not comply with ASES’s bidding process guidelines – specifically, its requirements of financial solvency.[23] ASES required a 7 to 1 premium to surplus ratio; apparently MCS had a 64 to 1 ratio. Additional fines were soon levied.[24]

Finally, nine months after it began providing services, the government announced the cancellation of MCS’s ASES contract in July 2011.[25] Approximately 800,000 people were covered by MCS. The cancellation came 4 months after MCS-HMO’s president resigned,[26] and just two months after Benítez’s last meeting on the ASES board of directors.

In its press releases, the government said that MCS’s contract was cancelled. Nevertheless, a simple revision of the contract contradicts this: the termination date was on June 30, 2011, meaning that the contract was for nine months and that they just did not renew it.[27]

According to his June 27, 2018 financial disclosure form, Carrión appears to have left his position advising Advent Morro, though he is still listed on the firm’s website.[28] Nevertheless, he reported investments in FFI Holdings, publicly known as La Familia Pawn and Jewelry.[29] La Familia is a pawnshop with facilities in Puerto Rico and Florida. Advent Morro has been invested in La Familia since at least 2011.[30]

Two of Carrión’s employees were on the GDB board as it created the debt crisis – and now Carrión can protect them from scrutiny

Carrión has looked askance at efforts to bring transparency and accountability to Puerto Rico’s debt, telling the press that an audit of Puerto Rico’s debt would be “a waste of time.”[31] He also said that there were already mechanisms created by the PROMESA Act to evaluate the debt – for example, through the Title III court process overseen by judge Laura Taylor Swain. Notably, however, the Oversight Board’s representatives in the Title III cases have continually obstructed the requests of documents and motions soliciting independent investigations, particularly from the Unsecured Creditors Committee.

What has not been reported is that two employees from Carrión, Laffitte & Casellas, Agnes Suárez and Eduardo Emanuelli, were members of the board of directors of the Government Development Bank (GDB) under Fortuño’s administration. In other words, Carrión’s efforts to oppose inquiries into the origins of the debt are essentially protecting two of his employees. This is especially significant because the GDB restructuring agreement approved by creditors and the Oversight Board releases former GDB directors from significant forms of legal liability, as detailed in a previous Hedge Clippers report.[32] The Oversight Board and AAFAF recently moved to limit some aspects of these releases, though it appears that the releases provided by private parties to the agreement, such as credit unions, still apply to former GDB officials.[33]

Agnes Suárez was president of the Economic Development Bank under Pedro Rosselló’s administration.[34] In May 2001 she was designated as executive director of the San Juan Municipality under Mayor Jorge Santini.[35] After being in various financial positions in the private sector, in May 2006 she moved to Carrión, Laffitte & Casellas, where she became vice-president of financial lines for 12 years.[36] Suárez is a consistent donor to the PNP, as reported by the Electoral Comptroller.

Bond offering statements show that Suárez was a GDB director starting in July 2009.[37] She was also part of COFINA’s board.[38] It is unclear, from publicly-available documents, when her term ended. All of this coincided with her working at Carrión, Laffitte & Casellas under Carrión. Suárez is no longer at the firm as of 2018, when she joined AIG of Puerto Rico as its CEO.

The other Carrión employee who served on the GDB’s board is Eduardo Emanuelli, who works as broker for CLC.[39] Before joining the firm, Emanuelli was a longtime executive at Saldaña & Associates, one of the biggest insurance brokers in Puerto Rico.[40] Saldaña & Associates was acquired by Marsh Inc. in 2003, becoming Marsh Saldaña.[41] He stayed there until May 2010, when he resigned or was fired by the firm, suing them a year and a half later.[42]

It is unclear when Emanuelli started working at CLC, though a September 2011 press release from the Mitt Romney presidential campaign identifies him as an insurance broker at Carrión, Laffitte & Casellas, so he appears to have joined the company before then.[43] Emanuelli was appointed to the board of directors of the GDB in May 2011.[44] He was also on COFINA’s board.[45]

Emanuelli appears to have had his own undisclosed conflict of interest at the GDB. A May 2014 investigation by the Center for Investigative Journalism (Centro de Periodismo Investigativo, CPI) found significant irregularities in the GDB’s sale of the National Guard terrains in Hato Rey to Empresas Fonalledas.[46] The company is the owner of Plaza Las Américas, the biggest mall in Puerto Rico, and the land purchase was for the possible expansion of the mall. After several appraisals, Empresas Fonalledas acquired the property for $24 million, less than half of the original appraisal. The seller was the GDB, and the transaction was made during 2012, when Emanuelli served on the board, as reported by a requested list of all GDB board members from 2009 to 2017.[47]

What went unnoticed at the time was that Emanuelli, a GDB board member at the time of the sale, is the brother-in-law of Jaime Fonalledas Rubert, president of Empresas Fonalledas.[48] Jaime Fonalledas is the husband of Zoraida Ferraiuoli, an influential leader of the Republican Party in Puerto Rico. From the available registries of the waivers evaluated by the Office of Government Ethics, it appears that Emanuelli didn’t request a waiver in spite of this familial conflict of interest.[49]

These revolving door relationships, and the conflicts of interest that arise from them, are particularly pertinent background information now that Carrión is chair of the Oversight Board and charged with making many decisions related to the restructuring of the debt, including Government Development Bank debt. They deserve a full investigation given the players involved and the consequences for the Puerto Rican people.

[1] http://www.p2012.org/perry/perry102111prpr.html

[2] http://hedgeclippers.org/hedgepaper-no-61-the-golden-revolving-door/

[3] Founded as Carrión & Laffitte in August 2001. Later merged with Casellas Fernández & Olivencia Insurance Brokers to become Carrión, Laffitte & Casellas (CLC).

[4] As reported by the Center for Responsive Politics.

[5] Apparently, he was in CFSE’s board at least since February 15, 2009. See page 6: https://kipdf.com/nomina-de-la-fortaleza_5b0ff10f7f8b9ae6518b45f0.html


[7] http://ocs.pr.gov/ocspr/documents/asuntoslegales/auditoria/EX-2007-24.pdf

[8] http://ocs.pr.gov/ocspr/documents/asuntoslegales/auditoria/EX-2012-13.pdf

[9] https://www.opensecrets.org/search?q=gloria+benitez&type=donors

[10] https://drive.google.com/file/d/1EXhbYqtPL2KMWRtnKWggatxGc6FNhejf/view?usp=drivesdk

[11] http://adventmorro.com

[12] http://www.emol.com/noticias/nacional/2009/03/12/348482/chile-nombra-al-empresario-cyril-meduna-nuevo-consul-en-puerto-rico.html

[13] https://www.mcs.com.pr/es/Paginas/sobre-nosotros/perfil-corporativo.aspx

[14] As reported by the Comptroller’s Office. The contract officially started in October. Number of the contract: 2011-000040

[15] See page 27: https://www.documentcloud.org/documents/4911898-Registro-De-Dispensas-Evaluadas-Departamento-Del.html

[16] http://www.puertorico-herald.org/issues2/2005/vol09n17/CBEntrep.html

[17] See page 217: https://www.documentcloud.org/documents/4911885-Journal-of-the-Senate-November-17-2009.html

[18] https://www.documentcloud.org/documents/4911086-ACTA-295-Aprueban-Propuesta.html

[19] https://www.mcs.com.pr/es/Paginas/sobre-nosotros/perfil-corporativo.aspx

[20] https://www.scribd.com/document/60010801/TheDeal-Oct21-MCS

[21] https://www.elnuevodia.com/noticias/locales/nota/grietasenmisalud-826471/

[22] https://www.elnuevodia.com/noticias/locales/nota/asesmultaamcs-825466/

[23] https://www.elnuevodia.com/noticias/locales/nota/asesmultaamcs-825466/

[24] https://www.elnuevodia.com/noticias/locales/nota/mcspodriaenfrentarnuevassanciones-995038/

[25] http://newsismybusiness.com/mcs-health-dept-break-up-after-9-months-affecting-800000-beneficiaries/

[26] https://www.elnuevodia.com/noticias/locales/nota/cancelanelcontratodemcs-hmoconmisalud-1010411/

[27] See page 190: https://www.documentcloud.org/documents/4911711-Contrato-MCS-HMO.html

[28] https://drive.google.com/file/d/1E5q9MKbO9zJJ0HPNJ-nk0UOo2DShkSSj/view ; http://adventmorro.com/about-listed-team-2/

[29] http://lafamiliapawn.com

[30] http://adventmorro.com/advent-morro-invierte-en-industria-de-las-finanzas-personales/

[31] https://www.noticel.com/ahora/carrin-sobre-la-auditora-quotes-una-prdida-de-tiempoquot-video/609379956

[32] http://hedgeclippers.org/hedgepaper-no-61-the-golden-revolving-door/

[33] See Skeel’s comments: https://caribbeanbusiness.com/newly-created-claims-committee-has-little-time-to-decide-whether-puerto-rico-debt-should-be-rejected/ AAFAF’s clarification of releases to exclude former GDB officials from being covered appears to apply only to releases provided by government entities.

[34] https://iapconsulta.ocpr.gov.pr/OpenDoc.aspx?id=8ee84ef4-d8d6-4006-ad34-f2c15225b69c&nombre=CP-02-28

[35] https://www.legislaturasanjuan.pr/biblioteca/resoluciones/2000-2001-1/1018-r2000-01121/file

[36] https://www.linkedin.com/in/agnes-suarez-35596b5/

[37] http://www.gdb.pr.gov/investors_resources/documents/GDBFinalOS.pdf

[38] http://www.gdb.pr.gov/investors_resources/documents/2010-01-28-OS-PRSalesTaxFinCorp1-1823MM.pdf

[39] https://www.hubinternational.com/-/media/Puerto-Rico-Cell-Phones.ashx?la=en

[40] http://www.ocs.gobierno.pr/ocspr/documents/asuntoslegales/auditoria/E-97-467-Saldaña%20&%20Asociates,%20Inc-Informe%20de%20Examen%20Enmendado%20(Carmelo0.pdf

[41] http://www.ocs.gobierno.pr/ocspr/documents/asuntoslegales/auditoria/EX-2009-149.pdf

[42] Case number K PE2011-3769

[43] http://www.presidency.ucsb.edu/ws/index.php?pid=97835

[44] http://www.gdb.pr.gov/investors_resources/documents/2011-09-28-PR-GDB-SeniorNotes2011SeriesC-450MM-02.pdf

[45] http://www.gdb.pr.gov/investors_resources/documents/2011-11-16-PRCofina01b-FIN-734MM.pdf

[46] http://periodismoinvestigativo.com/2014/05/la-historia-secreta-de-la-expansion-de-plaza-las-americas/ , the buyout was through Fringe Area IV LLC, one of the Fonalledas multiples companies.

[47] Document issued by the staff of GDB/AAFAF: https://www.documentcloud.org/documents/4911060-Miembros-JD-BGF-2009-2017.html

[48] Note page 35 https://issuu.com/vocero.com/docs/v08282014

[49] https://www.documentcloud.org/documents/4911898-Registro-De-Dispensas-Evaluadas-Departamento-Del.html