Peru Sold $3 billion of Debt in 2015 Based Upon “Materially Misleading” Prospectuses

John C. Coffee, Noted Columbia Law School Securities Law Professor, Renders Opinion on Peru’s Debt Prospectuses

MIAMI--()--The Land Reform Bondholders Association (ABDA) announced that Peru sold approximately $3 billion of debt in 2015 based upon “materially misleading” prospectuses, according to Professor John C. Coffee, one of the leading experts in U.S. securities law. Professor Coffee was retained by one of ABDA’s members to provide his opinion on whether The Republic of Peru had violated U.S. securities law by omitting material information and making material misstatements in prospectuses filed with the U.S. Securities and Exchange Commission (SEC).

Professor Coffee reviewed all three of Peru’s 2015 prospectuses used to sell approximately $3 billion of debt to global investors during 2015. He concluded that the prospectuses were “materially misleading” because, among other things, Peru failed to disclose its ongoing default on an estimated $5 billion sovereign obligation, the Peruvian Land Reform Bonds, the related lawsuits and disputes with creditors, and criminal investigations into fraudulent documents in the most recent court ruling impacting the bonds. Professor Coffee also took issue with Peru’s assertions that (1) the Supreme Decree updates the value of the Land Reform Bonds, and (2) it does not have any disputes with its internal or external creditors.

In his letter, which was sent to ABDA from one of its members, Professor Coffee detailed his findings, which include:

  • “…in my judgment, the disclosures Peru has made (and the necessary disclosures that it has omitted to state) seriously mislead and fail to adequately inform reasonable investors with respect to both the quality of Peru’s debt securities and the ability of investors to enforce their legal rights in Peru with regards to its debt securities.”
  • “…these statements are materially misleading and, as a result, the prospectuses not only fail minimum SEC disclosure standards, but also subject Peru to civil liability, both in private actions by bond purchasers and actions brought by the SEC, which could seek an injunction or take administrative steps to halt trading in these bonds.”
  • “Put bluntly, although other sovereign issuers have defaulted, I am aware of no instance in which they have done so in quite this lurid, covert and seemingly unlawful fashion [regarding the Land Bonds]. These developments raise the strong possibility that the judicial process in Peru is subject to political pressure and manipulation, at least when legal decisions are politically controversial.”
  • “Peru appears prepared to discriminate against foreign creditors and creditors who purchased in the secondary market…If full and fair disclosure were made in this respect, it would chill the willingness of investors to buy Peruvian debt in the secondary market. In turn, this would predictably dry up the secondary market.”

In addition to rendering his opinion on Peru’s prospectuses, Professor Coffee explained several potential remedies:

  • “The SEC can, itself, sue for a material misstatement or omission with respect to Peru’s offerings in 2014 and 2015…all that must be shown by the SEC is the materiality of the misstatement or omission.”
  • “The SEC is authorized under Section 8(d) of the Securities Act of 1933 to enter a ‘stop order’ that suspends the effectiveness of a registration statement.”
  • “Alternatively, the Commission could bring a cease-and-desist proceeding against an issuer that has made a material misstatement or omission in a registration statement (or otherwise violated the federal securities laws), and this proceeding could impose monetary penalties on an issuer or require disgorgement and future compliance with the securities laws.”

Ramon Remolina, president of ABDA, stated:

“We are incredibly disappointed that the Humala administration is willing to violate U.S. securities law, deceive international investors and damage its reputation in the global financial community, all to try to hide the Land Bond issue. It is shocking that this administration would say in documents used to sell new bonds to international investors that it was not in default on the Land Bonds and that it had no disputes with creditors. Even a simple Google search reveals these issues. This embarrassment for Peru follows the recent criminal investigation into fraud in the Constitutional Tribunal’s ruling on the Land Bonds, where white out was used to alter a justice’s signature.

“We urge this administration to do what it should have done a long time ago – meet with creditors and negotiate an acceptable solution that works for everyone. This is what responsible countries do. Every country in our region that had Land Bonds has resolved them except ours. We understand that Peru is planning to sell more than $2 billion in new debt in 2016. If Peru plans to keep issuing new debt, it should take meaningful steps to resolve its defaulted debt.”

Professor Coffee’s letter in its entirety can be found at: http://perubonds.org/resource/analysis-of-perus-bond-prospectuses-filed-with-the-u-s-securities-and-exchange-commission-sec

About Professor John Coffee:

Professor John C. Coffee, Jr. is the Adolf A. Berle Professor of Law at Columbia University Law School and Director of its Center on Corporate Governance. He is a Fellow at the American Academy of Arts and Sciences and has been repeatedly listed by the National Law Journal as among its “100 Most Influential Lawyers in America.”

Professor Coffee has been a member of the Legal Advisory Board to the New York Stock Exchange, the Legal Advisory Board of the NASD, the Market Regulation Committee of the NASD, and the Economic Advisory Board to Nasdaq. He served as a Reporter to the American Law Institute for its PRINCIPLES OF CORPORATE GOVERNANCE: Analysis and Recommendations, was a member of the SEC’s Advisory Committee on the Capital Formation and Regulatory Processes, and served as chairperson of the Section on Business Associations of the Association of American Law Schools. In 2005, Canada also appointed Professor Coffee to a twelve member “Task Force on Modernizing Securities Regulation” (he was the only non-Canadian appointed).

Professor Coffee is the author or editor of several widely used casebooks on corporations, securities regulation, takeovers, and business organization and finance, including Coffee and Seligman, Cases and Materials on Securities Regulation (9th ed. 2003), Choper, Coffee and Gilson, Case and Materials on Corporations (6th ed. 2004), Klein and Coffee, Business Organization and Finance (9th ed. 2004), and Coffee, Lowenstein, and Rose-Ackerman, Knights, Raiders and Targets: The Impact of the Hostile Takeover (Oxford University Press 1988). Professor Coffee has also been a visiting professor of law at Harvard, Stanford, Michigan and Virginia law schools and at several foreign law schools and began his teaching career at Georgetown University Law Center. According to a recent survey of law review citations, Coffee is the most cited law professor in law reviews in the combined corporate, commercial, and business law field. Before entering academia, he practiced corporate law as an associate with the firm of Cravath, Swaine & Moore in New York City. He is a graduate of the Yale Law School and Amherst College.

Contacts

Llorente & Cuenca
Martin León, +51-1-222-9491
mleon@llorenteycuenca.com
or
Nami Cárdenas, +51-1-222-9491
ncardenas@llorenteycuenca.com

Release Summary

The Land Reform Bondholders Association (ABDA) announced that Peru sold approximately $3 billion of debt in 2015 based upon “materially misleading” prospectuses, according to Professor John C. Coffee.

Contacts

Llorente & Cuenca
Martin León, +51-1-222-9491
mleon@llorenteycuenca.com
or
Nami Cárdenas, +51-1-222-9491
ncardenas@llorenteycuenca.com