10 February 2005 – LAWFUEL – The Law News Network – Thomas J. Mulvihill, Acting United States Attorney for the Southern District of
Florida; and Thomas C. McDade, Special Agent in Charge, Federal Deposit Insurance
Corporation Office of Inspector General (“FDIC-OIG”), announced today that
defendant, Juan Carlos Bernace, President and a Director of Hamilton Bancorp and
Hamilton Bank, pleaded guilty to two (2) counts of securities fraud before United
States District Court Judge James Lawrence King in Miami, Florida. Bernace faces a
maximum statutory term of imprisonment of ten (10) years on each count. He also
faces a maximum fine of $1,000,000, as well as restitution.
The Superseding Indictment, which was a result of a two-year criminal investigation
by the FDIC-OIG with the assistance of the U.S. Department of the Treasury Office
of Inspector General (“Treasury-OIG”), alleges that in 1998 and 1999, defendants,
Eduardo A. Masferrer, Bernace, and John M.R. Jacobs, former senior executive
officers of Hamilton Bancorp and Hamilton Bank, with the assistance of defendant,
Frederic Z. Haller, an investment banker and advisor to Hamilton Bancorp’s Board of
Directors, fraudulently inflated the reported results of operations and financial
condition of Hamilton Bancorp, and defrauded the investing public and the bank and
securities regulators, so that they would, among other things, unjustly enrich and
benefit themselves through higher salaries, bonuses, stock options, and by the
capital appreciation of their Hamilton Bancorp shares of common stock.
Hamilton Bancorp, a publicly-traded company which was located in Miami-Dade County,
Florida (listed on NASDAQ under the symbol “HABK”), was a bank holding company and
conducted operations principally through its wholly-owned subsidiary, Hamilton
Bank, N.A., which was a trade finance bank with branch offices in Miami-Dade County
and other locations. In September 1999, during the annual bank examination of
Hamilton Bank, bank examiners from the Office of the Comptroller of the Currency
(“OCC”) discovered questionable transactions in Hamilton Bank’s books regarding the
Bank’s1998 swap transaction involving the sale of certain Russian loans and the
Bank’s purchase of certain Latin American and other non-Russian securities during
the same time period. The OCC began to investigate, and, in January 2002, after
determining that Hamilton Bank had operated in an unsafe and unsound manner, the
OCC closed Hamilton Bank.
The Superseding Indictment alleges that Masferrer, Bernace, and Jacobs, with the
assistance of Haller, participated in a fraudulent scheme whereby they falsely
inflated the results of operations and financial condition of Hamilton Bancorp in
its SEC filings, obstructed OCC’s examination of Hamilton Bank, and lied to the
investing public, the bank and securities regulators, and their accountants
regarding the true financial health of Hamilton Bancorp and Hamilton Bank. The
Superseding Indictment charges that in 1998 and 1999, Masferrer, Bernace, and
Jacobs, with the assistance of Haller, engaged in swap transactions (or “adjusted
price trades”) to hide Hamilton Bank’s losses, including $22 million-plus losses in
1998, and falsely accounted for the transactions to make it appear that no losses
had been incurred. While Masferrer, Bernace and Jacobs falsely reported the nature
of the swap transactions to the investing public and the regulators, the
Superseding Indictment revealed internal tape-recordings in which Masferrer,
Bernace, Jacobs, and Haller openly discussed the transactions as swaps. In
addition, the Superseding Indictment charges that while the fraud was concealed,
Masferrer engaged in illegal insider trading in Hamilton Bancorp’s stock through
the use of trust accounts.
Mr. Mulvihill commended the investigative efforts of the FDIC-OIG. He also
commended the efforts provided by the Treasury-OIG, OCC, and Southeast Regional
Office of the United States Securities and Exchange Commission. This case is being
prosecuted by Assistant United States Attorneys Richard Hong and Benjamin
Greenberg.
A copy of this press release may be found on the website of the United States
Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls
. Related court documents and information may be
found on the website of the District Court for the Southern District of Florida at
www.flsd.uscourts.gov
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