San Juan, Puerto Rico – Investments totaling $80 million made by the Puerto Rico’s State Insurance Fund Corporation (CFSE) in The Phoenix Fund (TPF) and PUC Holding were considered “high risk,” according to Johnny Román Flores, the corporation’s auxiliary administrator of Finance and Administration. The revelation comes as the CFSE pursues legal action to recover nearly $100 million in unpaid loans and mounting interest, raising questions about due diligence and risk assessment in public investment strategies.
The CFSE filed a lawsuit in February 2026 against The Phoenix Fund LLC and PUC Holdings LLC, seeking no less than $99.5 million related to two loans disbursed in 2019 and 2021. The corporation alleges that these loans remain outstanding and unpaid, despite initial interest payments. This legal battle underscores the potential pitfalls of public funds venturing into potentially volatile investment opportunities, particularly those lacking a proven track record.
CFSE’s Investments and Subsequent Legal Action
The initial loan, for $40 million, was granted to The Phoenix Fund on December 27, 2019, carrying an annual interest rate of 7% with quarterly payments and a 1% penalty for late payment. According to the lawsuit filed in the Bayamón Superior Court, The Phoenix Fund made interest payments through the first three quarters of 2023, but defaulted in the fourth quarter. As of February 17, 2026, the CFSE claims the outstanding debt on this loan totals at least $45.6 million, comprising $40 million in principal and $5.6 million in accrued interest, which continues to accumulate. Metro Puerto Rico reported details of the lawsuit.
Two years later, in May 2021, the CFSE extended another $40 million loan to PUC Holdings LLC, an entity linked to The Phoenix Fund. This second loan mirrored the terms of the first: a 7% annual interest rate, periodic payments, and provisions allowing for the acceleration of the entire debt in the event of default. The Phoenix Fund also served as a corporate guarantor for this loan. As of February 17, 2026, the CFSE asserts that the debt under this second loan amounts to at least $53.9 million, including $40 million in principal and $13.9 million in accumulated interest.
“High Risk” Assessment and Prior Scrutiny
Román Flores’s assessment that the investments were “high risk” highlights a pre-existing awareness within the CFSE of the potential for loss. This admission raises questions about the rationale behind allocating public funds to these ventures, particularly given their lack of established investment history. The investments, categorized as “investment loans,” were made despite the inherent risks involved. El Nuevo Día reported on this assessment.
The CFSE’s investments in The Phoenix Fund have previously drawn scrutiny. In August 2025, the Office of the Comptroller of Puerto Rico (OCPR) initiated an investigation into the CFSE’s investment transactions with The Phoenix Fund, following the fund’s intervention. Pressreader details the comptroller’s investigation. This earlier investigation suggests a pattern of concern regarding the CFSE’s due diligence and oversight of its investments.
Lack of Justification for Investment
The corporation reportedly has not identified any documentation justifying how nearly $100 million was allocated to the two firms without a prior investment trajectory. This lack of supporting documentation further fuels concerns about the decision-making process and the potential for mismanagement of public funds. The absence of a clear rationale for these investments raises questions about whether proper procedures were followed and whether the CFSE adequately assessed the risks involved.
Implications and Future Outlook
The CFSE’s pursuit of legal action against The Phoenix Fund and PUC Holdings signals a determination to recover the substantial funds at stake. However, the outcome of the lawsuit remains uncertain, and the recovery of the full $99.5 million is not guaranteed. The case highlights the importance of robust risk management practices and thorough due diligence in public investment decisions.
The situation also raises broader questions about the oversight of public funds in Puerto Rico and the need for greater transparency and accountability in investment strategies. The ongoing investigation by the Office of the Comptroller suggests a commitment to addressing these concerns and ensuring that public funds are managed responsibly. The outcome of this legal dispute and the findings of the comptroller’s investigation could have significant implications for future public investments in Puerto Rico.
The legal proceedings are ongoing at the Bayamón Superior Court. The next scheduled hearing date has not yet been publicly announced, but updates will likely be provided by the CFSE and reported by local news outlets. Investors and stakeholders will be closely monitoring the case as it progresses, as it could set a precedent for future public investment practices in Puerto Rico.
This case serves as a cautionary tale for public investment funds worldwide, emphasizing the critical need for careful risk assessment, thorough due diligence, and transparent decision-making processes. The potential loss of $100 million underscores the importance of protecting public funds and ensuring that they are used in a responsible and accountable manner.
Key Takeaways:
- The CFSE is suing The Phoenix Fund and PUC Holdings for $99.5 million in unpaid loans and interest.
- Investments in these funds were considered “high risk” by a CFSE administrator.
- The Office of the Comptroller of Puerto Rico investigated the CFSE’s transactions with The Phoenix Fund in 2025.
- The CFSE has not identified documentation justifying the allocation of $100 million to these firms.
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