• We found over ~25 new lawsuits (complaints and Excel) against Triple-S (largely filed in November / December 2019) – the suits add up to almost $100 million in additional damages, meaning documented claims against Triple-S Propiedad are now well in excess of $1 billion – more than enough to wipe out the ~$450 million of book value across all GTS subsidiaries
  • As a result of Act 247, the statute of limitations was effectively extended past September 20, 2019 on Maria claims – in light of these new lawsuits, we are fully convinced that Triple-S continues to hide enormous unpaid claims from the market and that our docket runs thus far are not a complete picture of unpaid claims
  • There is already evidence that the lawsuits are meritorious (e.g. Coco Beach Resort) – Triple-S rapidly settled a large resort claim that went to court ($18MM+ demanded) – but as with all things Triple-S, even this quick settlement is highly suspect – Triple-S just so happens to be a major sponsor of the upcoming February 2020 Puerto Rico Golf Open that is played at the resort
  • Based on our review of 10b-18 Safe Harbor rules, we question whether Triple-S’s repurchase plan (facilitated via Wells Fargo) itself constitutes securities fraud and market manipulation
  • The CEO and certain Board members have made token inside purchases in recent weeks that look to us like the foundation for future defenses in securities fraud litigation
  • The company is also yet again embroiled in a contract award scandal that was recently halted in court – this time with respect to a PREPA contract which Triple-S was initially awarded despite being >10% more expensive than the next competitor
  • 2020 is an election year in Puerto Rico – we wonder whether the Puerto Rican government will continue to protect Triple-S executives when they have brazenly siphoned off money that should have gone to Puerto Rico and instead diverted it to their friends on Wall Street

PLEASE READ: IMPORTANT LEGAL DISCLAIMER

The author is short shares of GTS (“the issuer”).  The author of this report also has derivatives positions in the issuer.  Use of this report is limited by the Terms of Use on https://friendlybearresearch.com/terms-of-service/.  You should carefully review the Terms of Service prior to reading this report. All information for this article was derived from publicly available information. Investors are encouraged to conduct their own due diligence into these factors. This article represents the opinion of the author as of the date of this article. The information set forth in this article does not constitute a recommendation to buy or sell any security. This article contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” “outlook,” “forecast,” “plan” and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This article is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. This article reflects the author’s opinion at the time of publication. The author makes no representation as to the accuracy or completeness of the information set forth in this article and undertakes no duty to update its contents. The author may also cover his/her short position at any point in time without providing notice. The author may also transact in equity options of the issuer at any point in time without providing notice.  The author encourages all readers to do their own due diligence. 

We wish all of our readers a very happy and prosperous new year.

To the executives at Triple-S reading this story– do the right thing for Puerto Rico in 2020 – end the Propiedad solvency charade, come to market with a capital raise, pay off your debts, and be a responsible corporate citizen in Puerto Rico. We have faith that all is not lost and that you may find your moral compass in 2020.

The lawsuits against Triple-S keep piling up even after the 2-year statute of limitations from Hurricane Maria, and as promised we are keeping the market updated on the volume of litigation facing Triple-S Propiedad. Click here for an Excel tabulation of new suits we found, and here for copies of the suits. Despite being filed in Puerto Rico, many of these suits are in English.

It is noteworthy that so many new lawsuits of significant size continue to be filed against Triple-S well after the purported September 20, 2019 Maria statute of limitations (the new lawsuits we pulled were largely filed in November and December 2019). The reality – as can be gleamed from these lawsuits – is that Puerto Rico passed legislation that effectively indefinitely extended the statute of limitations on Maria claims in 2018 – meaning that there are likely many potential lawsuits against Triple-S that will continue to materialize as policyholders who have not yet sued realize that Triple-S has no intention – or ability – to pay outstanding claims. Given that the claims against Triple-S Propiedad far exceed the ~$450 million book value available across GTS subsidiaries, Triple-S has an obligation to provide the market with timely updates. Instead, it is hiding behind a Section 10b-18 share repurchase plan.

Triple-S has been actively repurchasing shares since November 2019, through a repurchase program administered by Wells Fargo. We estimate based on analyzing trading flows (via Bloomberg) that Wells Fargo is buying ~10-15% of average daily volume in Triple-S on behalf of the company. We think there is a high likelihood that the Triple-S repurchase will not fall under the Safe Harbor protections afforded to issuers via Section 10b-18.

According to the SEC (see below), Rule 10b-18 confers no immunity from possible Rule 10b-5 liability where the issuer repurchases while in the possession of material, non-public information concerning its securities, or where purchases are part of a plan or scheme to evade federal securities laws.

Here, we believe both prongs of the above test fail. On the MNPI front, it is clear that with the statute of limitations on Maria claims being effectively rendered moot due to Act 247, Triple-S is undeniably in possession of undisclosed and materially negative information regarding the outstanding claims against Triple-S Propiedad.

Second, on the market manipulation front, we believe that the repurchase plan makes absolutely no sense in light of the fact that Triple-S is sitting on an insolvent Propiedad subsidiary. In fact, if anything, Triple-S should have been in the market raising capital rather than buying back stock. The repurchase plan appears to only serve the purpose of a) manipulating the price of GTS ahead of a negative news announcement with respect to Propiedad, and b) lowering the share count of GTS to attempt to inflate EPS.

There is simply no sound logic to repurchasing stock ahead of publicly disclosing a subsidiary’s insolvency.

While Triple-S continues to hide material information from the market, the company’s Wall Street shareholders are pocketing money that rightfully belongs to Puerto Ricans.

We view this as a broader pattern of reprehensible and unethical conduct from Triple-S executives.

Triple-S executives have consistently acted as if they are above the law – for example, paying Elias Sanchez to “assist” with government contracts, refusing to pay legitimate medical claims, completely disregarding legitimate P&C claims and then covering up the truth from the public market, and of course the brazen decision to pad the pockets of their friends on Wall Street instead of fulfilling P&C obligations.

Even when Triple-s has finally coughed up the money for claims, there is evidence of “cronyism”. For example, Triple-S was sued in April 2019 for $18MM+ of unpaid claims owed to a golf resort in (Coco Beach Resort). Triple-S promptly settled the case in November 2019. This appears to be the first large lawsuit that the company settled. Given the speed of settlement, we presume the outcome was favorable to the well-funded and well-represented plaintiff.

We’re sure that rapid settlement had nothing to do with the CFO’s apparent love of golf (see below). We’re also sure that it’s a complete coincidence that Triple-S decided to pay Coco Resort off just months before a major golf tournament hosted at the resort…

Triple-S just so happens to be a major sponsor of the tournament…might have been a tad bit awkward if the property was still waiting on insurance claims while Triple-S had its sponsorship logo splashed all over the tournament…

Source: rafacamposgolf Instagram / Twitter

We are confident that the regulatory environment in Puerto Rico is rapidly changing, particularly as it relates to the healthcare industry. As a result, we believe Triple-S’s days of skirting the law are coming to an end. The Trump Administration recently instituted strict audits and monitors of Medicaid funding to Puerto Rico. Puerto Rico only got a 2-year Medicaid plan (versus the initial expectation for a 5 year plan), with President Trump himself reportedly intervening ahead of approving Medicaid funding to Puerto Rico. It is therefore clear that the Trump Administration and President Trump himself continue to view healthcare corruption in Puerto Rico as a major topic of interest. It is no secret that Triple-S consistently finds itself at the center of Puerto Rican healthcare corruption allegations.

“This administration remains committed to properly prioritizing U.S. taxpayer dollars…With the historical waste we have faced in Puerto Rico, additional funding was not needed or fiscally responsible,”

Chase Jennings, a spokesperson for the White House Office of Management and Budget

We therefore believe these new audits and measures will severely constrain Triple-S’s ability to a) rig contracts, and b) refuse to pay claims.

And with 2020 being an election year in Puerto Rico and populist spirit on the rise, we think that Triple-S’s reprehensible conduct is likely to be a major topic of interest for Puerto Rican politicians.

Therefore, as we look towards 2020, we view it as a year when Triple-S’s reign of corruption will finally be brought to an end.