United States Attorney
Southern District of New York
NOVEMBER 16, 2010 ELLEN DAVIS,
PREET BHARARA, the United States Attorney for the
Southern District of New York, announced that MARIO S. LEVIS,
a/k/a “Sammy Levis,” was sentenced today to 60 months in prison
by U.S. District Judge THOMAS P. GRIESA. After a five-week jury
trial in March and April 2010, LEVIS was found guilty on
securities and wire fraud charges for his role in a scheme to
defraud investors and potential investors in the stock of Puerto
Rico-based Doral Financial Corporation (“Doral”), which took
place while LEVIS was the Treasurer and Senior Executive Vice
President of Doral. The scheme, occurring between 2001 and 2005,
involved misrepresentations that LEVIS made regarding certain
core assets of Doral. An aggregate decline in shareholder value
of approximately $4 billion followed the unraveling of the
scheme.
Manhattan U.S. Attorney PREET BHARARA stated: “Senior
executives of publicly traded companies like Mario Levis who
victimize investors and damage public confidence in our financial
markets through misrepresentations and outright lies will pay a
big price for their actions. This Office, working with the SEC
and the FBI, will continue to police market participants to
ensure that the playing field is level, that insiders do not take
advantage of their positions of trust, and that investors have
access to the truthful and accurate information to which they are
entitled.”
According to the Superseding Indictment, the evidence
presented at trial, and statements made at the sentencing
proceeding:
Doral, with mortgage banking operations in Puerto Rico
and New York City, was a leading residential mortgage lender in
Puerto Rico. Between 2001 and 2005, LEVIS corrupted the process
by which Doral determined the publicly reported value of certain
non-cash assets carried on Doral’s financial books called
“interest-only strips” (“IOs”). Doral represented to the public
in its annual financial statements that the aggregate value of
its IOs, and company earnings associated with those IOs, were
increasing substantially year after year. By the beginning of
2005, Doral publicly announced a streak of 28 quarters of “record
earnings” based in significant part on the stated value of its
IOs.
During the same time, Doral’s stock price steadily
increased from approximately $10 per share in early 2000 to
almost $50 at the end of 2004. Also during this time frame,
LEVIS and other members of his family were substantial holders of
Doral securities. Between 2001 and 2004, the value of LEVIS’s
stock in Doral tripled to over $60 million.
In its public filings with the U.S. Securities and
Exchange Commission (“SEC”), Doral represented that the value of
its IOs was based, in part, on two “outside” and “independent”
expert valuations provided to Doral on a quarterly basis.
According to Doral’s filings with the SEC and representations by
LEVIS to investors, these outside independent valuators were
performing the valuation using their own economic and portfolio
assumptions.
In truth and in fact, however, LEVIS corrupted those
valuations. For example, the valuation provided by a Morgan
Stanley trader involved the trader merely recopying numbers
provided by LEVIS without any other work whatsoever, and then
subsequent attempts by LEVIS to conceal that fact from Doral’s
auditors and lawyers. The other valuation from Popular
Securities (“Popular”) involved LEVIS dictating key assumptions
for Popular to use in performing its valuation analysis. In both
cases, LEVIS failed to inform the valuators that Doral was
treating their valuations as independent or citing their work in
Doral’s SEC filings.
LEVIS also materially misrepresented to the investing
public – in direct communications with investors, investor
representatives, and market analysts – certain specific
characteristics of the Doral IO portfolio. Specifically, among
other things, LEVIS falsely claimed that Doral’s loan-sale
agreements contained a provision called “caps,” which would
purportedly function to prevent substantial write-downs of the
IOs if interest rates continued to rise.
Beginning in mid-January 2005, when Doral announced an
approximate $97.5 million write-down of the stated value of its
IOs attributed to rising interest rates, and LEVIS’ scheme
concerning the IO valuations began to unravel, the market price
of Doral’s common stock began to drop steadily from its high of
almost $50 per share. By the time LEVIS resigned from Doral in
late August 2005, the price of Doral’s shares had fallen more
than 70 percent to approximately $14.13 per share. In total, the
company’s shareholders had suffered an aggregate decline in
shareholder value of approximately $4 billion.
* * *
After trial, LEVIS was found guilty of one count of
securities fraud and two counts of wire fraud. In addition to
the prison term imposed today, Judge GRISEA ordered LEVIS to
forfeit the proceeds of his crimes and further ordered him to pay
restitution, the amount of which will be determined within 90
days.
Mr. BHARARA praised the work of the Federal Bureau of
Investigation. He also thanked the SEC for its assistance in the
case.
This case was brought in coordination with President
BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which
Mr. BHARARA serves as a Co-Chair of the Securities and
Commodities Fraud Working Group. President OBAMA established the
interagency Financial Fraud Enforcement Task Force to wage an
aggressive, coordinated, and proactive effort to investigate and
prosecute financial crimes. The task force includes
representatives from a broad range of federal agencies,
regulatory authorities, inspectors general, and state and local
law enforcement who, working together, bring to bear a powerful
array of criminal and civil enforcement resources. The task
force is working to improve efforts across the federal executive
branch, and with state and local partners, to investigate and
prosecute significant financial crimes, ensure just and effective
punishment for those who perpetrate financial crimes, combat
discrimination in the lending and financial markets, and recover
proceeds for victims of financial crimes.
The case is being prosecuted by the Securities and
Commodities Fraud Task Force of the U.S. Attorney’s Office.
Assistant U.S. Attorneys MARC LITT and DAVID I. MILLER, along
with Special Assistant U.S. Attorney JASON M. ANTHONY, are in
charge of the prosecution.
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