Loan with Family Tie an Issue for Popular

Popular Inc. lent money two years ago to a development firm controlled by Jose Vizcarrondo, whose uncle, Richard Carrion, is the company's chief executive, according to a March proxy filing.

Vizcarrondo's company used the cash to buy a residential project in Puerto Rico that had defaulted on an earlier debt to Popular, the filing shows.

Pouring more money into the project has not worked out: Popular said it wrote off more than half the $15.7 million.

Vizcarrondo is also a Popular director who until two months ago helped set Carrion's pay.

This demonstrates conflicts of interest and potential weaknesses in the bank's governance, said James Post, a professor at Boston University.

"This deal does smell like rotten fish," Post said.

The debt of Vizcarrondo's firm was included in a $500 million package of mostly distressed loans put up for sale in January, according to Popular.

Regulators have not accused the company, Carrion or Vizcarrondo of wrongdoing, and Vizcarrondo left Popular's compensation committee after the debt soured, according to the proxy. Carrion has been Popular's CEO since 1994 and a director of the Federal Reserve Bank of New York since 2008.

"We maintain internal procedures that require that all related-party transactions be reviewed and approved by our audit committee, which is composed entirely of independent directors," Ignacio Alvarez, Popular's chief legal officer, said in an emailed statement.

There's no blanket prohibition on such deals, which sometimes "may be in the best interest of the corporation and its shareholders," he said.

Carrion, Vizcarrondo and the New York Fed declined to comment.

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