Marianas Variety

IN a mad rush to arrive at an agreed-upon solution by all parties by the court-set June 15 deadline, a CNMI lawyer believes settlement remains a favorable solution to the Retirement Fund problem.

Michael Dotts

He told Variety that the “agreed upon solution” that Associate Judge Kenneth L. Govendo mentioned in his March 19 order refers to “settlement.”

“The Court wants the parties (the Fund and the Administration) to settle by June 15. The settlement must involve the Administration starting to pay the judgment and the settlement will possibly also involve seeking the approval of the retirees to reduce their benefits to prolong the life of the Fund,” said Dotts.

Citing the case of the Marianas Revitalization Corp. as an example, Dotts said the CNMI Supreme Court held that the Commonwealth courts have no power to enforce judgments against the CNMI government

Dotts said, “The judgment against the Commonwealth Government does not earn interest under the MRC decision. In short there is no other way than a settlement to get the Administration to pay a judgment and the judgment does not continue to grow while the Fund waits for the Administration to agree to pay.”

Variety learned that the MRC has yet to collect the $5.65 million judgment from the CNMI government, which MRC estimated to have ballooned to over $8.5 million.

Meanwhile, the Fund also stands to collect approximately $317 million based on 2010 adjustment of the judgment inclusive of interest.

Reiterating Govendo’s order, Dotts said failure between the Administration and the Fund to reach settlement by June 15, the court will then consider a receivership.

Dotts said, “A receivership is a process where the Court takes control over a corporation or similar entity through a person called a receiver.”

He said this was nothing new to the commonwealth with a couple of banks going under receivership.

“The receiver answers to the Court and generally has all the power of the Court to figure out how best to solve a problem,” he said.

Court-appointed receiver

Dotts believes that a local court-appointed receiver “will not probably be able to collect on the judgment or reduce benefits for the same reasons that the Court itself cannot do these things.”

He, however, said that what the receiver could do is “close down the Fund and distribute all of the assets to the retirees before the assets are all gone.”

“This is called dissolution,” he said.

In the case of dissolution, Dotts said benefit payments cease; however, retirees would be able to get something.

In lieu of dissolution, Dotts sees another alternative.

He said a receiver could negotiate to give U.S. Social Security the Fund’s remaining $250 million should Social Security agree to allowing all the Fund members to enroll in the federal program.

“Social Security might just agree and then our retirees will be safe,” he said.

Another possible alternative for the receiver to look into is setting up of individual retirement accounts for retirees with banks or mutual funds.

But for Dotts, benefits in this arrangement will not likely be as attractive. “Still, it is better than nothing.”

Dotts also sees appointment of a receiver in the federal court as a better alternative. “A receivership appointed by the federal court might be able to do more for the Fund.”

He explained that the federal court is not bound by the MRC decision and a federal receiver could possibly force the CNMI to sell assets to pay the judgment owed to the Fund.”

Selling land, bonds doesn’t cut it

Responding to the ideas floated previously regarding selling public lands and issuing pension obligation bonds, Dotts told Variety these proposals may not be realistic.

He reasoned that it would take time to offload enough lands and the Fund doesn’t have the luxury of time.

Aside from the difficulty of selling land, Dotts sees the depressed land prices as another stumbling block explaining that buyers know the CNMI government is desperate and in a rush to sell land.

“Selling land is not a good option to save the Fund,” he said.

As for selling bonds, Dotts said, “Bonds issued by the Fund or the CNMI will not be attractive to investors because they will be too unsafe.”

He explained that bonds have to be sold and these pay interest until they mature and then they can be cashed in for their face value.

“The people who buy bonds usually buy them because they are safer than stocks. Bonds generally sell for an amount less than their face value and it is the discount from the face value, plus the interest that they pay, and also because of some tax advantages bonds have over stocks, that investors buy them.”

In saying that CNMI-issued bonds are unattractive, he also said, “If the CNMI Government decides not to pay the interest or not to pay the face value on the bonds when they mature, our courts cannot enforce the bonds for the same reason that our courts cannot force the Administration to pay the judgments owed to Tony Pellegrino and the Fund.”

For Dotts, any bonds issued will be considered very risky and it is highly unlikely anyone will want to buy them.

No bankruptcy in the horizon?

Dotts acknowledged that he wasn’t sure if the Fund could file for bankruptcy.

He said the CNMI government can’t file for bankruptcy or it would do so to get out of paying judgments it owes.

Dotts said, “If the Fund did file bankruptcy that has to be done in the Federal Court and it is likely that a Trustee, similar to a receiver, will be appointed to assist the Fund in the bankruptcy. The Bankruptcy Trustee might be able to force the CNMI to pay the judgment owed to the Fund.”

New pension corporation

As to the recently revealed setting up of a Pension Holdings Corp. by the Retirement Fund on April 11, Dotts views this as “a real mystery.”

He said more light should be shed on the reason for a trustee subscribing for 10,000 shares and the possible conflict of interest that go with it.

“I also don’t understand why all the Fund attorneys are involved in this corporation or what the purpose of this corporation really is.”

For Dotts, the setting up of this corporation begs a full explanation.

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