June 22, 2004 – LAWFUEL – Marcos Daniel Jiménez, United States Attorney for the Southern District of Florida; Thomas C. McDade, Special Agent in Charge, Federal Deposit Insurance Corporation Office of Inspector General (“FDIC-OIG”); and Dennis S. Schindel, Acting Inspector General of the U.S. Department of the Treasury Office of Inspector General (“Treasury-OIG”), announced today the return of a 42-count indictment for conspiracy, wire fraud, securities fraud, false filings with the Securities and Exchange Commission (“SEC”), false statements to accountants, obstruction of examination of a financial institution, and making false statements to the Office of the Comptroller of the Currency (“OCC”) against three former senior executive officers of Hamilton Bancorp and Hamilton Bank. The named defendants are Eduardo A. Masferrer, chairman of the board and chief executive officer; Juan Carlos Bernace, president and director; and John M.R. Jacobs, senior vice president and chief financial officer. Masferrer also was charged with insider trading.
The Indictment alleges that in 1998 and 1999, Masferrer, Bernace, and Jacobs 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 unjustly enrich and benefit themselves through higher salaries, bonuses, and stock options, and would facilitate an upcoming registered securities offering to the investing public. Masferrer made nearly $2 million in bonuses, and Bernace and Jacobs each made more than $100,000 in bonuses while the fraud was concealed.
Hamilton Bancorp, a publicly-traded company 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 in Miami-Dade County. In September 1999, during the annual bank examination of Hamilton Bank, bank examiners from the OCC discovered questionable transactions in Hamilton Bank’s books regarding the bank’s 1998 swap transaction involving the sale of the Russian loans and the bank’s purchase of 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. As a result of the Bank’s closure, the FDIC lost approximately $160 million.
The Indictment, which was a result of a two-year criminal investigation by the FDIC-OIG and the Treasury-OIG, alleges that Masferrer, Bernace, and Jacobs participated in a fraudulent scheme whereby they falsely inflated the results of operations and financial condition of Hamilton Bancorp in the 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 Indictment charges that in 1998 and 1999, Masferrer, Bernace, and Jacobs 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 Indictment revealed internal tape-recordings in which Masferrer, Bernace, and Jacobs openly discussed the transactions as swaps. In addition, the 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. During 1998, Hamilton Bancorp had a market capitalization of more than $300 million.
If convicted of wire fraud, the defendants face a statutory maximum term of imprisonment of thirty (30) years and a fine of up to $1 million for each wire fraud count. If convicted of securities fraud, the defendants face a statutory maximum term of ten (10) years’ imprisonment and a fine of $1 million for each such count. If convicted of conspiracy, obstruction of examination of a financial institution, or making a false statement, the defendants face a statutory maximum term of five (5) years’ imprisonment and a fine of up to $250,000 for each such count.
U.S. Attorney Marcos Daniel Jiménez said: “This prosecution demonstrates our vigorous efforts to prosecute corporate fraud schemes designed to defraud the investing public and regulators regarding the financial condition of publicly-traded companies. Prosecuting corporate frauds is one of this Office’s highest priorities. Officers and directors of publicly-traded companies have the duty to disclose truthfully the financial condition of their companies, and if they fail to do that, they will be criminally prosecuted.”
Mr. Jiménez commended the investigative efforts of the FDIC – OIG and the Department of the Treasury – OIG. This case is being prosecuted by Assistant United States Attorneys Richard Hong and Kurt R. Erskine, with assistance from AUSA William Healy on the asset forfeiture charges of the case.