Two private‑equity investments worth $80 million violated investment limits set by law
The commonwealth Comptroller has issued a sharply critical audit of the State Insurance Fund Corporation (CFSE), citing risky investments, deficient contracts, and weak controls over hundreds of millions in public assets.
The report, released August 4, 2026, covers the period from July 1, 2018 through June 30, 2024 and carries an adverse opinion supported by five audit findings, three additional observations, and two special comments. The CFSE is the entity responsible for paying workers for injuries suffered on the job.
A central finding is that two private-equity investments totaling $80 million were deemed by auditors incompatible with the types of instruments permitted under Puerto Rico’s Workers’ Accident Compensation Act of 1935. According to the audit, the CFSE’s governing board approved these investments through agreements that violated the corporation’s own policies, directing the funds to The Phoenix Fund and PUC Holding, entities controlled by Francisco José Rivera Fernández. Rivera Fernández also served as an investment adviser to the CFSE despite allegedly not being registered with the U.S. Securities and Exchange Commission, a requirement under federal and local regulations.
Auditors found insufficient analysis of risk, liquidity, and potential conflicts of interest related to these transactions. They also determined that the CFSE failed to document required oversight by its Finance Committee before approving five additional investments totaling $160 million. Several private-equity funds valued at more than $137 million generated zero or negative returns, and there was no evidence that the board took corrective action, according to a comptroller statement.
Contracting practices around investment advisers showed persistent irregularities. The CFSE paid Rivera Fernández $14,072 without a valid contract in place and formalized other contracts without mandatory documentation. Invoices were paid without service descriptions, conflict‑of‑interest statements, or certifications required by law and internal policy, the statement notes.
The audit identified severe deficiencies in administering investment contracts. Fourteen investments, valued at nearly $999 million, were executed without formal contracts with fund managers. Sixteen additional contracts tied to active investments, representing more than $737 million, had expired, some for more than seven years, underscoring long-standing failures in oversight and compliance.
Weaknesses in CFSE’s accounting records further compromised financial accuracy. Several investment‑related transactions were not recorded on time, including $6.8 million in interest receivable, a $740,606 loss, a $883,248 capital contribution, and a $1.48 million gain.
The Comptroller noted that the CFSE had not designated a public records administrator, a required position responsible for safeguarding official documents. The agency also repeatedly delayed contracting external auditors, finalizing agreements for fiscal years 2019‑20 through 2022‑23 between 136 and 450 days past the statutory deadline.
Governance lapses extended to board documentation. The CFSE was unable to provide 29 sets of minutes from board meetings held between 2019 and 2023, despite legal requirements to maintain records of decisions and deliberations.
A special comment in the report underscores that the CFSE has not corrected deficiencies previously identified by external auditors from fiscal years 2018‑19 through 2023‑24. Recurring issues include delayed accounting closings, untimely financial records, and adjustments made after information had already been submitted to auditors, requiring additional review.
The audit further found that the CFSE failed to submit 19 investment contracts totaling $780 million to the Financial Oversight and Management Board for Puerto Rico for prior review and approval, as required for agreements of $10 million or more. The investments were executed between 2019 and 2025 without completing the mandated oversight process.
Rivera Fernández did not answer requests for comment.
