Are you referring to this "one bad loan?" Shareholders of failed banks often continue to believe the fiction that their bank was sound.
Typical bank shareholder welfare. In other nations this banks wold have been shutterd far earlier.
Former star banker guilty of $20M fraud
Miami Herald -- May 11, 2006 -- Jane Bussey
Once one of Miami's most prominent bankers, Eduardo A. Masferrer was found guilty Wednesday of masterminding a $20 million bank fraud and then weaving a web of lies to conceal it.
After only a few hours of deliberation, 12 jurors averted their eyes as they filed into federal court in Miami and then sat stone-faced as the court deputy read 16 guilty counts against Masferrer, the former chairman and CEO of Hamilton Bank.
It was a stunning reversal for Masferrer, who was once the toast of Miami banking and charitable circles. During his first trial, the jury deadlocked, resulting in a mistrial last December.
Masferrer faces up to 10 to 12 years under federal sentencing guidelines, plus substantial fines and restitution.
U.S. District Judge K. Michael Moore will sentence him on July 26.
Masferrer, a former banker in Panama who moved to Miami and took control of Hamilton Bank in 1989, built it into one of South Florida's top trade finance banks. He was known for his charitable largess as well as the loans the bank gave to many Cuban-American-owned start-up companies and larger businesses whose fortunes were linked to the 1990s trade boom.
DETAINED
After the verdicts were read Wednesday, Masferrer stood with his wife, Maura Acosta, and hugged his son Eduardo, who had participated in his defense, as he waited for U.S. marshals to escort him to the Federal Detention Center near the downtown Miami courthouse.
His defense attorneys, Howard and Scott Srebnick, said they would appeal and were preparing a new bond motion for Masferrer's release.
The three prosecutors, Peter Outerbridge, Benjamin Greenberg and Andrew Levi, all assistant U.S. attorneys, left the courtroom without comment.
But Alicia Valle, special counsel to the U.S. attorney, said, ``We are satisfied with the jury's decision.''
As his banking star rose, Masferrer's generosity earned him friends -- including Miami Dade College President Eduardo Padrón, who attended the first trial and was present for closing arguments Tuesday. Masferrer endowed a teaching chair at the college and many scholarships and made large contributions to other local institutions.
Problems began brewing at the bank after Masferrer began dabbling in high-yield securities in risky developing countries.
LOAN SCHEME
The case centered on the sale of problematic Russian loans through a swapping process that concealed the bank's financial losses.
Meanwhile, Masferrer collected a $1 million bonus and Hamilton continued to deliver glowing profit reports to shareholders.
The Office of the Comptroller of the Currency, however, was growing suspicious, and federal agents seized the bank and shut it down in 2002.
Its deposits were transferred to other banks, but losses from the debacle totaled $160 million and almost nothing went to shareholders.
Masferrer was indicted on fraud and conspiracy charges in 2004 along with former bank President Juan Carlos Bernacé and the former chief financial officer, John M.R. Jacobs.
Both Bernacé and Jacobs pleaded guilty to lesser charges and testified against their former boss at both trials. They are awaiting sentencing.
Retired merchant banker Frederic Z. ''Rick'' Haller was later added to the indictment. He has declared his innocence and has not been tried.
During his trials, Masferrer's defense contended that the sales of loans from Russia's Gazprombank, the city of Moscow, Vneshtorgbank and Mezhcombank to West Merchant Bank and Standard Bank of London were unrelated sales -- and therefore there was no attempt to conceal the nature of the transactions from regulators by lying to bank examiners.
But prosecutors presented a series of witnesses who testified that the loan swaps were indeed related.
In his closing argument Tuesday, Assistant U.S. Attorney Levi said Masferrer's denials that it was a tit-for-tat swap and his assertion that he forgot the details were not credible.
''To this day Mr. Masferrer is the only person in the world who said these were not related transactions,'' Levi said.
APPEAL
Howard Srebnick said the grounds for appeal would center on testimony that wasn't allowed in the second trial.
''The second trial was very different from the first trial; we were not allowed to present the evidence that we presented at the first trial,'' Srebnick said.
Among the evidence that was barred at one or both trials was the value of the Russian loans, which were discounted as Russia descended into financial chaos in summer 1998.
Srebnick said the defense also was not allowed to present evidence of Masferrer's gifts to charity to counter charges that his greed motivated him to conceal bank losses to collect a large bonus.
query.nytimes.com
3 at Hamilton Bancorp Charged With Fraud
New York Times Published: September 27, 2003
The Securities and Exchange Commission charged three Hamilton Bancorp Inc. officers with securities fraud on Thursday, saying they hid 'tremendous losses' at the company's Hamilton Bank unit before bank regulators shut it down last year.
The S.E.C. accused Bancorp's chairman, Eduardo Masferrer, the executive vice president, Juan Carlos Bernace, and the senior vice president, John M. R. Jacobs, of making manipulative trades with other banks to hide the losses. As a result, the agency said, Hamilton Bancorp overstated its income in S.E.C. filings and in news releases.
Federal bank regulators shut Hamilton Bank in January 2002, saying that it concealed information from them and failed to comply with prior enforcement actions. A lawyer, Bernardo Burstein of Miami, who has represented Mr. Masferrer, Mr. Bernace and the bank, declined comment. Mr. Jacobs' lawyer, Leonard Bloom, did not return a call.
Seized Miami bank gave millions in suspect loans
Miami Herald -- BY JANE BUSSEY -- Mon, Mar. 11, 2002
moneylaundering.com
Miami's Hamilton Bank made some $80 million in questionable loans and was awash in several billion dollars in suspicious funds before federal regulators seized the bank recently.
Information about those loans is found in recently unsealed court documents, which also disclose that during bank regulators' yearly examination of the bank in 2000, nearly $2 billion in deposits arrived in sealed pouches from Latin America. The bank had no procedures for dealing with the huge influx of money, bank regulators alleged.
According to documents filed in court by the Office of the Comptroller of the Currency, about $28 million in loans and wire transfers was funneled to a Mexican construction and real estate businessman, and the loans ``appeared to have no legitimate business purposes.''
The OCC claims the moves were part of a patchwork of lending intended to wipe bad loans off the books by issuing new loans.
''The bank's records concealed the true nature of many multimillion-dollar loans, which were often originated in the names of shell companies to pay off or finance the purchase of other delinquent or poorly underwritten loans and thereby disguise the true financial conditions of the bank,'' the OCC said.
BITTER BATTLE
The court filings are part of a lengthy and bitter battle with the OCC, in which Hamilton Bank dug in its heels over implementing credit and money-laundering controls.
Last year, Hamilton Bank sued the OCC in federal District Court in Washington, asking that the court stop the OCC from placing more stringent controls over the bank.
The bank's complaint was denied in April, but the information in the case was under seal because Hamilton Bank insisted that its disclosure would generate negative publicity.
Then on Jan. 11 of this year regulators took over the bank, citing ''unsafe and unsound'' practices, turning it over to the Federal Deposit Insurance Corp. About half of the insured deposits in the bank were assumed by the Israel Discount Bank, which reopened three branches under the IDC name. The other half is being liquidated by the FDIC.
This is the first time the details of the alleged violations have been made public. A federal district judge in Washington lifted a seal on the documents after The Herald and the comptroller went to court to request access.
The OCC said the seal prevented it from using documents in the case to defend itself against a lawsuit Hamilton filed in District Court in Miami in December. That suit, which is still pending, accuses bank regulators of racial profiling and harassment of the Hispanic-owned bank.
The documents unsealed in Washington show bank regulators raising numerous questions about loans made by Hamilton.
''There are a plethora of unmonitored suspicious activities suggestive of money laundering that are being conducted through accounts at the bank and with the active participation of bank employees,'' bank examiners wrote.
There are no allegations in the documents that the recipients of loans engaged in illegal activity.
Nonetheless, the loan activity ''is unbelievable,'' said Charles Intriago, a former federal prosecutor who has published the Money Laundering Alert newsletter for 13 years and examined some of the comptroller's reports.
'When examiners see something that in their bureaucratic lingo says `suggestive of money laundering,' or when I see this phrase, 'no legitimate business purposes,' it's the exact language in the suspicious-activity rules,'' Intriago said. Banks are required by law to report suspicious activity whether on the deposit or lending side.
ALLEGATIONS ON LOANS
Documents allege that Hamilton lent to companies that had no means of repayment and insufficient collateral. It also lent to Metrobank International in Vanuatu -- a Pacific island that, according to Intriago, has a reputation as a money-laundering center. That loan was made immediately after Metrobank's incorporation, meaning that Hamilton likely had no time to carry out any due diligence, Intriago said.
Loans to several different companies were funneled to different firms instead, the OCC said. Or new loans were used to wipe bad loans off Hamilton's books -- thereby making the bank's bottom line look better than it was. Other loans went to a series of companies, known as the Alexander H Companies, which shared Hamilton's logo and had some of the same shareholders, according to court documents.
''It sounds like Enron -- having all these affiliated companies and overlapping directors,'' said Alexandria, Va., banking consultant Bert Ely.
The loans detailed in court documents by the comptroller totaled some $80 million, a large part of the bank's $120 million in capital when it was closed. And although the bank, which was headed by prominent Cuban-American banker Eduardo Masferrer, said its business was trade finance, few of the loans appeared to have anything to do with trade.
Instead, bank examiners found that a series of loans was used to purchase financial assets from failing banks in Ecuador and El Salvador, to fund a highway construction company in Panama and for other undisclosed purposes. Banking regulations say that a loan must be used for the purpose stated in loan documentation.
Neither Masferrer nor his attorney had any comments about the documents that were part of the lengthy litigation. The lawyers who filed the harassment complaint against the OCC on behalf of Hamilton Bank did not return a phone call made by The Herald.
But Hamilton's court documents contended that the comptroller's case was ''built on a network of misrepresentation and omissions'' and insisted that it was being required to operate under ``an unfair, unfounded and unduly restrictive order.''
Among other problems outlined by the OCC:
• The bank had no procedures or controls in place for receiving deposits from Latin America in sealed pouches, which often arrived with sequentially numbered money orders all made out to the same person. Banking sources said that the amount of these deposits -- $1.9 billion -- was a very large amount of money for such a small bank.
• The bank failed to file accurate call reports, which are quarterly financial statements, omitting millions of dollars lost in lawsuits and funds set aside for bad loans.
• The bank was forbidden to carry out transactions with 33 companies or persons. That included the consul general of Panama in Miami, Manuel Cohen, who controlled or signed for 26 different accounts at the bank. Cohen was managing director and president of the Alexander H Cos. before being named to his diplomatic post.
• The comptroller also prohibited new transactions with Máximo Haddad, a Mexican who owns the construction firm PYCSA that built a private toll road in Panama, and controls two offshore companies -- Perpetual International Holdings and Alderly Management -- that were the recipients of some $25.6 million in loans and wire transfers.
''The numerous transactions involving Perpetual, Alexander H Finance Co., PYCSA, Metrobank Panama and Metrobank International (Vanuatu), which appear to have no legitimate business purpose, and for which the bank has supplied no legitimate explanation, reflect a lack of transparency of the books and records of the Bank,'' the OCC documents said.
Haddad, who owns a $6.4 million Palm Beach mansion, said in a phone interview that there was nothing unusual about the loans.
He said the $10 million to PYCSA had been repaid, and he asserts that Alderly and Perpetual never received loans from Hamilton.
''The fact that they [the OCC] put me on a [black] list bothers me very much,'' Haddad said. ``The origin of my money is clear.''
''I was a victim,'' Haddad said, adding that his deposits of $1 million in Hamilton have not been returned since they exceed the $100,000 federal deposit insurance limit.
Cohen also said that all his transactions with Hamilton Bank were aboveboard.
EXPLANATION OFFERED
The two dozen different accounts at Hamilton were all family accounts that were separated in order to stay within the $100,000 deposit insurance limit, he said. Cohen said that the Alexander H Cos. were in precarious financial condition and that Hamilton had claimed all its deposits in the bank as loan repayments.
As for any possible links between Hamilton and Alexander H, Cohen said: ``If there were founding shareholders of a company that had a relation with Hamilton and if there was a link between one and another, I don't know.''
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