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Banking Criminal Practices in Puerto Rico

Federal & State Actions

 

against

 

BANCO POPULAR DE PUERTO RICO

First BanCorp, Santurce, Puerto Rico

Doral Financial Corporation, San Juan, Puerto Rico

http://newyork.fbi.gov/dojpressrel/pressrel08/securitiesfraud030608.pdf

http://www.justice.gov/usao/nys/pressreleases/March08/levisindictmentpr.pdf

http://www.justice.gov/usao/nys/pressreleases/April10/levismarioverdictpr.pdf

R&G Financial Corporation, Hato Rey, San Juan, Puerto Rico

Freddie Mac and Fannie Mae

 

 

 

 

U.S. Department of Justice

 

FOR IMMEDIATE RELEASE
THURSDAY, JANUARY 16, 2003
WWW.USDOJ.GOV

 

CRM
(202) 514-2008
TDD (202) 514-1888

 

BANCO POPULAR DE PUERTO RICO ENTERS INTO

DEFERRED PROSECUTION AGREEMENT WITH U.S. DEPARTMENT OF JUSTICE

 

WASHINGTON, D.C. – Assistant Attorney General Michael Chertoff of the Justice Department's Criminal Division, U.S. Customs Commissioner Robert C. Bonner, David Palmer, Chief, Criminal Investigation, Internal Revenue Service, James Sloan, director of the Financial Crimes Enforcement Network (FinCEN), and Jennifer J. Johnson, secretary for the Board of Governors of the Federal Reserve System, announced today that Banco Popular de Puerto Rico will forfeit $21.6 million to the United States as part of a deferred prosecution agreement on charges of failing to report suspicious financial activity.

 

A criminal information filed today at U.S. District Court in the District of Puerto Rico charges Banco Popular with one count of failing to file Suspicious Activity Reports (SARs) in violation of Title 31 USC 5318(g)(1) and 5322(a). Banco Popular waived indictment, agreed to the filing of the information, and accepted and acknowledged responsibility for its behavior in a factual statement accompanying the information. The company will forfeit $21.6 million to the United States to settle any and all civil claims held by the government. In light of the bank's remedial actions to date and its willingness to acknowledge responsibility for its actions, the government will recommend to the court that any prosecution of the bank on the criminal charge be deferred for 12 months, and eventually dismissed with prejudice if the bank fully complies with its obligations. Concurrently, FinCEN has assessed a $20 million civil money penalty for violations of the Bank Secrecy Act against Banco Popular for its conduct, which will be deemed satisfied by the payment of the $21.6 million forfeiture.

 

"Banks are our first line of defense against money launderers, drug dealers and even terrorists who would attempt to abuse our financial institutions," said Assistant Attorney General Chertoff. "Banks that disregard their duty to conduct adequate due diligence and report suspicious financial activities allow themselves to be exploited for criminal purposes. Today's agreement recognizes that Banco Popular has been forthright in accepting its responsibility."

 

The charges and the deferred prosecution agreement filed today arose out of transactions conducted by and through Banco Popular between June 1995 and June 2000. During this time, several unusual or suspicious transactions were conducted in connection with certain accounts at Banco Popular. Although the bank filed Suspicious Activity Reports (SARs) on these accounts, they were untimely or, in some cases, inaccurate.

 

In one series of transactions, Roberto Ferrario Pozzi deposited approximately $20 million in cash into a Banco Popular account from June 1995 to March 1998. Deposits were made to the account by Ferrario and employees of Phone Home – a phone card, long distance and money transmission service – often in paper bags or gym bags filled with small-denomination bills. Despite the suspicious nature of the deposits, the bank did not investigate and file timely and complete SARs reporting the activity. These untimely filings, the absence of supplementary SARs and the errors in the SARs that the bank did file hindered law enforcement's ability to initiate investigations on these accounts in a timely manner, resulting in the laundering of millions of dollars of drug proceeds through these accounts. Ferrario was indicted in December 1998 for money laundering in connection with certain deposits to Banco Popular and was sentenced to 97 months imprisonment in 2002.

 

Under the Bank Secrecy Act, banks are required to have comprehensive anti-money laundering programs that enable them to identify and report suspicious financial transactions to the U.S. Treasury Department's Financial Crimes Enforcement Network. As part of their anti-money laundering programs, banks must report suspicious activities through the filing of SARs. Since April 1, 1996, banks have been required to submit SARs to FinCEN in all instances in which one or more transactions aggregate $5,000 or more, and the bank knows or suspects the transaction involves, or is conducted to conceal, funds derived from illegal activities or may be used to evade a law or a reporting requirement. The SARs are a critical tool in law enforcement's efforts to investigate and prosecute cases.

 

"The lengthy U.S. Customs/IRS investigation into Banco Popular de Puerto Rico established that millions of dollars worth of drug proceeds were laundered through this bank over a period of several years," Customs Commissioner Bonner said. "In some cases, gym bags full of cash were literally brought into the bank for deposit by money launderers. Despite its legal obligation to report these suspicious transactions to the government in a timely manner, Banco Popular, in some cases, chose not to report these transactions until years after the fact – and did so only after learning about the U.S. Customs/IRS investigation into the bank."

 

David Palmer, Chief, Criminial Investigation, IRS, stated: "The information filed today should send a clear message that financial institutions who serve as a conduit for criminal activity will be pursued. Money laundering is a serious crime that affects not only those persons directly involved, but the economy as a whole."

 

James Sloan, director of FinCEN, noted that the BSA is designed to help prevent criminals from using the financial system to perpetrate criminal activity and to alert law enforcement when attempts are made to abuse the system.

 

"Most banks and other financial institutions throughout the United States have excellent programs in place to help ensure that they are not vulnerable to illegal exploitation and their record of BSA compliance is extremely good," Sloan said. "However, the American people have a right to expect that when an institution violated the trust of its account holders and its responsibility to preserve the integrity of its operations, it will face public scrutiny and severe penalties."

 

Chertoff, the head of the Criminal Division, praised the investigative efforts of the Internal Revenue Service and the U.S. Customs Service, which spanned more than four years. He also thanked the Board of Governors of the Federal Reserve System for their support and assistance. The case was prosecuted by the Criminal Division's Asset Forfeiture and Money Laundering Section – Chief John Roth, Deputy Chief Michael Davitt, and trial attorneys Stephen May, Cynthia Stone and Robert Boyer.

 

Approximately two years ago, the city of San Juan, Puerto Rico, was designated as one of four "High Intensity Financial Crimes Areas" nationwide. This designation resulted in the formation of a multi-agency task force that investigates financial crimes, mainly those dealing with SARs that are filed by financial institutions in Puerto Rico and the U.S. Virgin Islands.

 

http://www.usdoj.gov/opa/pr/2003/January/03_crm_024.htm

 

Former Doral Senior Executive Convicted for Securities Fraud Scheme That Caused $4 Billion Decline in Shareholder Value

 

http://www.prnewswire.com/news-releases/former-doral-senior-executive-convicted-for-securities-fraud-scheme-that-caused-4-billion-decline-in-shareholder-value-92454294.html

 

NEW YORK, April 29 /PRNewswire-USNewswire/ -- Mario S. Levis, aka "Sammy Levis," was found guilty on securities and wire fraud charges after a five-week jury trial before U.S. District Judge Thomas P. Griesa for his role in a scheme to defraud investors and potential investors in the stock of Puerto Rico-based Doral Financial Corporation (Doral) that took place while he was the Treasurer and Senior Executive Vice President of Doral, Preet Bharara, the U.S. Attorney for the Southern District ofNew York, announced today. 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.

According to the superseding indictment and the evidence at trial:

Doral, with mortgage banking operations in Puerto Rico and New York City, was a leading residential mortgage lender inPuerto 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 fact, however, Levis thoroughly corrupted those valuations. For example, the valuation provided by a Morgan Stanley trader in fact 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) actually 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.

In March 2005, when an executive at Popular directly asked Levis whether Popular's valuation was being used as an independent valuation, Levis denied that Popular was one of the independent valuations. Later, when investors pressed Levis to identify the sources of the independent valuations described in Doral's SEC filings, he falsely told investors that he could not identify the sources due to confidentiality agreements.

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 provision in Doral's loan-sale agreements 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 lateAugust 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.

Levis was found guilty of one count of securities fraud (Count One) and two counts of wire fraud (Counts Three and Five). The jury found Levis not guilty of one count of wire fraud (Count Four), and the Court dismissed an additional count of wire fraud (Count Two). Levis faces a maximum sentence of 20 years in prison on the securities fraud count and a fine of the greatest of$5 million or twice the gross gain or loss from the offense. For each of the wire fraud counts on which he was found guilty, Levis faces a maximum sentence of 20 years in prison and a fine of the greatest of $250,000 or twice the gross gain or loss from the offense.

Levis, 46, of San Juan, P.R., is scheduled to be sentenced by Judge Griesa on Sept. 14, 2010.

U.S. Attorney Preet Bharara stated: "Senior executives of publicly traded companies have to tell the investing public the truth, even when it hurts. It's that simple. Today, a Manhattan jury found that Mario Levis of Doral intentionally flouted this bedrock principle, causing a colossal $4 billion loss to his company's shareholders. Our office, working more closely than ever with the FBI and the SEC, will continue to pursue corrupt professionals in the financial services industry whose greed-driven misconduct hurts honest investors and threatens our markets."

U.S. Attorney Bharara praised the work of the FBI and 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 William J. Stellmach and Daniel A. Braun and Special Assistant U.S. Attorney Jason M. Anthony, are in charge of the prosecution.

SOURCE U.S. Department of Justice

RELATED LINKS
http://www.justice.gov

 

U.S. Securities and Exchange Commission

First Bancorp Settles SEC Financial Fraud Charges Involving "Non-Conforming" Mortgages

Bank Holding Company to Pay $8.5 Million Civil Penalty

FOR IMMEDIATE RELEASE
2007-161

Washington D.C., Aug. 7, 2007 — The Securities and Exchange Commission today filed financial fraud charges against First BanCorp, alleging that former senior management of the NYSE-listed, Puerto Rico-based bank holding company concealed the true nature of more than $4 billion worth of transactions involving "non-conforming" residential mortgages. Non-conforming mortgages have income verification and credit history standards that are generally more flexible than those required for sale or exchange under Fannie Mae and Freddie Mac programs and can constitute "subprime" mortgages.

Without admitting or denying the Commission's charges, First BanCorp consented to being permanently enjoined from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws and paying an $8.5 million civil penalty.

Linda Chatman Thomsen, Director of the Division of Enforcement, said, "Today's action against First BanCorp demonstrates that when misconduct in the mortgage industry impacts our securities markets and harms investors, the SEC will be there to take action. Investors deserve accurate disclosure and responsible accounting in all sectors of the marketplace."

Cheryl J. Scarboro, an Associate Director in the Division of Enforcement, stated, "The SEC's Division of Enforcement has focused significant resources on disclosure and accounting issues relating to the mortgage industry, and we encourage market participants who believe they have securities-related issues in this area to contact us as soon as possible."

The Commission's complaint charges First BanCorp with aiding and abetting violations of the federal securities laws by Doral Financial Corporation, another NYSE-listed, Puerto Rico-based bank holding company. Doral Financial previously consented to the entry of a court order enjoining it from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws and ordering that it pay a $25 million civil penalty [LR-19837, Sept. 19, 2006].

According to today's complaint, First BanCorp, which purportedly purchased the non-conforming mortgages from Doral Financial, profited from the transactions by earning more than $100 million in net interest income. Doral Financial, which purportedly sold the mortgages to First BanCorp, improperly recognized income on the transactions. According to the Commission, the mortgage-related transactions were not true sales under generally accepted accounting principles because senior management of Doral Financial agreed orally and in emails to extend the recourse provision from the 24-month period included in the written agreements to full recourse for the duration of the mortgages.

The Commission's complaint filed in the U.S. District Court for the Southern District of New York charges First BanCorp with aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20 13a-1 and 13a-13.

The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Company.

The Commission's investigation is continuing.

For further information, contact:

Cheryl J. Scarboro
Associate Director, SEC Division of Enforcement
202-551-4403

http://www.sec.gov/news/press/2007/2007-161.htm

U.S. Securities and Exchange Commission

Litigation Release No. 20227 / August 7, 2007

Accounting and Auditing Enforcement Release No. 2664 / August 7, 2007

Securities and Exchange Commission v. First BanCorp, 07-CV-7039 (Crotty, J.) (S.D.N.Y. filed August 7, 2007)

First BanCorp Settles Financial Fraud Charges With SEC and Agrees to Pay $8.5 Million Penalty

The Securities and Exchange Commission today filed financial fraud charges against First BanCorp, alleging that former senior management of the NYSE-listed, Puerto Rico-based bank holding company concealed the true nature of more than $4 billion worth of transactions involving “non-conforming” mortgages from 2000 until 2005. Non-conforming mortgages have income verification and credit history standards that are generally more flexible than those required for sale or exchange under Fannie Mae and Freddie Mac programs and can constitute “subprime” mortgages.

The Commission’s complaint charges First BanCorp with aiding and abetting violations of the federal securities laws by Doral Financial Corporation, another NYSE-listed, Puerto Rico-based bank holding company. Doral Financial previously consented to the entry of a court order enjoining it from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws and ordering that it pay a $25 million civil penalty [LR-19837 (Sept. 19, 2006)].

According to today’s complaint, First BanCorp, which purportedly purchased the non-conforming mortgages from Doral Financial, profited from the transactions by earning more than $100 million in net interest income at little or no risk. Doral Financial, which purportedly sold the mortgages to First BanCorp, improperly recognized income on the transactions. According to the Commission, the mortgage-related transactions were not true sales under generally accepted accounting principles because senior management of Doral Financial agreed orally and in emails to extend the recourse provision beyond the 24-month period included in the written agreements to recourse for the duration of the mortgages.

The Commission’s complaint, which was filed in the United States District Court for the Southern District of New York, charges First BanCorp with aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 13a-1 and 13a-13. Without admitting or denying the Commission’s charges, First BanCorp consented to being permanently enjoined from violating those antifraud, reporting, books and records and internal control provisions of the federal securities laws and to paying an $8.5 million civil penalty.

The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Company.

The Commission’s investigation is continuing.

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/2007/lr20227.htm

U.S. Securities and Exchange Commission

Litigation Release No. 19837 / September 19, 2006

Securities and Exchange Commission v. Doral Financial Corporation,

Case No. 06-CIV- 07158 (JES)(S.D.N.Y. filed September 19, 2006)

Doral Financial Settles Financial Fraud Charges with SEC and Agrees to Pay $25 Million Penalty

The Securities and Exchange Commission today filed financial fraud charges against Doral Financial Corporation, a NYSE-listed Puerto Rican bank holding company. The Commission alleges that Doral Financial overstated income by approximately $921 million or 100 percent on a pre-tax, cumulative basis between 2000 and 2004. The Commission further alleges that accounting irregularities enabled the company to report an apparent 28-quarter streak of "record earnings" and facilitated the placement of over $1 billion of debt and equity. Since Doral Financial's accounting and disclosure problems began to surface in early 2005, the market price of the company's common stock plummeted from almost $50 to under $10, thereby reducing equity market value by over $4 billion.

According to the Commission's complaint, Doral Financial improperly accounted for the purported sale of non-conforming mortgage loans to other Puerto Rican financial institutions in two respects. First, Doral Financial improperly recognized gain on sales of approximately $3.9 billion in mortgages to FirstBank Puerto Rico, a wholly owned banking subsidiary of First BanCorp. These transactions were not true sales under generally accepted accounting standards because of oral agreements or understandings between Doral Financial's former treasurer and former director emeritus and FirstBank senior management providing recourse beyond the limited recourse established in the written contracts. Second, Doral Financial senior management significantly overvalued interest-only strips retained by the company in its mortgage loan sale transactions. The Commission further alleges that Doral Financial managed earnings through a series of contemporaneous purchase and sale transactions with other Puerto Rican financial institutions totaling approximately $847 million.

The Commission's complaint, which was filed in the United States District Court for the Southern District of New York, charges Doral Financial with violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 13a-1 and 13a-13. Without admitting or denying the Commission's allegations, Doral Financial has consented to the entry of a court order enjoining it from violating those antifraud, reporting, books and records and internal control provisions of the federal securities laws and ordering that it pay a $25 million civil penalty.

The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Company.

The Commission's investigation is continuing.

SEC Complaint in this matter

 

U.S. Board of Governors of the Federal Reserve System

 

 

Release Date: March 17, 2006

 

For immediate release

The Federal Reserve Board on Friday announced the issuance of a consent Cease and Desist Order against Doral Financial Corporation, San Juan, Puerto Rico, a registered bank holding company that owns and controls Doral Bank, San Juan, Puerto Rico, a state nonmember bank, and indirectly owns and controls Doral Bank, FSB, New York, New York, a federal savings bank.

In a separate, coordinated action, the Federal Deposit Insurance Corporation contemporaneously issued a consent Cease and Desist Order against Doral Bank, San Juan, Puerto Rico.

A copy of the Board's Cease and Desist Order is attached.

Attachment (535 KB PDF)

2006 Enforcement actions


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____________________________________________________________________

 

Release Date: March 17, 2006

 

For immediate release

The Federal Reserve Board on Friday announced the issuance of a consent Cease and Desist Order against First BanCorp, Santurce, Puerto Rico, a registered bank holding company that owns and controls FirstBank Puerto Rico, San Juan, Puerto Rico, a state nonmember bank, and indirectly owns and controls FirstBank Florida, Miami, Florida, a federal savings and loan association.

In a separate, coordinated action, the Federal Deposit Insurance Corporation contemporaneously issued a consent Cease and Desist Order against FirstBank Puerto Rico, San Juan, Puerto Rico.

A copy of the Board's Cease and Desist Order is attached.

Attachment (536 KB PDF)

2006 Enforcement actions


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____________________________________________________________________

 

Release Date: March 17, 2006

 

For immediate release

The Federal Reserve Board on Friday announced the issuance of a consent Cease and Desist Order against R&G Financial Corporation, Hato Rey, San Juan, Puerto Rico, a registered bank holding company that owns and controls R-G Premier Bank of Puerto Rico, Hato Rey, San Juan, Puerto Rico, a state nonmember bank, and indirectly owns and controls R-G Crown Bank, Casselberry, Florida, a federal savings bank.

In a separate, coordinated action, the Federal Deposit Insurance Corporation contemporaneously issued a consent Cease and Desist Order against R-G Premier Bank of Puerto Rico, Hato Rey, Puerto Rico.

A copy of the Board's Cease and Desist Order is attached.

Attachment (530 KB PDF)

2006 Enforcement actions


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FDIC Enforcement Decisions and Orders


 

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2008 CEASE AND DESIST ORDER

 

In the Matter of Doral Bank, Catano, Puerto Rico

 

http://www.fdic.gov/bank/individual/enforcement/2008-02-08.pdf

 

http://newyork.fbi.gov/dojpressrel/pressrel08/securitiesfraud030608.pdf

 

______________________________________________________________________________



2006 CEASE AND DESIST ORDER

 

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[¶12,544] In the Matter of Doral Bank, Catano, Puerto Rico, Docket No. 06-043b (3-16-06).

A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.

[.1] Mortgage—Independent Consultant to Review Mortgage Loans

[.2] Mortgage—Written Plan Required

[.3] Mortgage—Identify Reclassified Loans
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[.4] Bank Operations—Written Progress Report Required

[.5] Capital Plan—Minimum Requirements Specified

[.6] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required

[.7] Bank Operations—Advance Notice of Change in Capital Debt

[.8] Dividends—Dividends Restricted

[.9] Transactions—Restricted

[.10] Regulatory Reporting—Required

[.11] Regulatory Reporting—Review Procedure for Preparation of Reports

[.12] Progress Report—Written Report Required

In the Matter of
DORAL BANK
CATANO,
PUERTO RICO
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-06-043b

DORAL BANK, CATANO. PUERTO RICO ("Insured Institution"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices alleged to have been committed by the Insured Institution and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated March 16, 2006, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices the Insured Institution consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.

The FDIC considered the matter and determined that it had reason to believe that the Insured Institution failed to properly account for and document certain mortgage loan transactions and thereby had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

IT IS HEREBY ORDERED that the Insured Institution, its directors, officers, employees, agents, and other institution-affiliated parties (as that term is defined in Section 3(u) of the Act, 12 U.S.C. §1813(u)), and its successors and assigns cease and desist from operating in contravention of certain provisions of the Interagency Guidelines Establishing Standards for Safety and Soundness set forth at Appendix A to Part 364 of the FDIC's Rules and Regulations, 12 C.F.R. Part 364, Appendix A.

IT IS FURTHER ORDERED that the Insured Institution, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:

Mortgage Portfolios

[.1] 1. Within 30 days of this ORDER, the Insured Institution's board of directors shall engage an independent consultant acceptable to the Regional Director of the FDIC's New York Regional Office ("Regional Director") to conduct a review of the (i) mortgage loans on the balance sheet of the Insured Institution as of the effective date of this ORDER; (ii) mortgage loans sold by the Insured Institution with recourse, if any, as of the effective date of this ORDER, except for conforming loans sold to FNMA, FHLMC, and GNMA; and (iii) any mortgage loans that, as a result of a change in the accounting treatment of the Insured Institution's mortgage sale transactions with other financial institutions or entities, are subsequently included as assets on the balance sheet of the Insured Institution (collectively, the "Mortgage Portfolio"); and to prepare a written report that includes findings and recommendations (the "Mortgage Portfolio Review"). Prior to the commencement of the Mortgage Portfolio Review, the Insured Institution shall submit an engagement letter with the independent consultant to the Regional Director for approval. The terms of the engagement letter shall provide that the independent consultant will submit its written
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report within 60 days of its engagement and will provide a copy of its report to the Regional Director at the same time that it is provided to the Insured Institution.

[.2] 2. Within 30 days after the Insured Institution's receipt of the Mortgage Portfolio Review report, the Insured Institution shall submit an acceptable written plan to the Regional Director describing specific actions that the board of directors proposes to take, with timeframes for completion, to fully address the findings and recommendations of the Mortgage Portfolio Review report.

[.3] 3. The Insured Institution shall identify any mortgage portfolio transaction with another financial institution or entity that was originally accounted for as a purchase of the mortgage portfolio by the Insured Institution and was subsequently reclassified as a commercial loan to the other financial institution or entity (for which the mortgage portfolio serves as collateral). With respect to each such mortgage portfolio transaction, the Insured Institution shall submit to the Regional Director a report that:

(a) Demonstrates that the Insured Institution possesses complete, accurate and legally enforceable documentation that describes in detail the true nature of the underlying transactions (including the Insured Institution's or entity's legal claim to the underlying collateral;

(b) Includes an assessment of the overall asset quality of the underlying collateral; and

(c) Explains the expected cash flows associated with the reclassified transactions (including servicing fees and repayments of principal on the mortgages in the mortgage portfolio).

The Insured Institution shall submit a report for each reclassified mortgage portfolio to the Regional Director within 15 days of this ORDER or within 15 days after the reclassification of such mortgage portfolio, whichever occurs later. With respect to the information called for in subparagraph (b) the report shall be supplemented within 30 days after submission of the initial report with any additional information received from the owner or servicer of the mortgage portfolio, which the Insured Institution has promptly and diligently requested.

Policies and Procedures Report

[.4] 4. Within 30 days of this ORDER, the Insured Institution shall submit to the Regional Director a report summarizing recommendations made by independent consultants or counsel or by internal audit since June 2004 to revise the Insured Institution's policies, procedures, plans, and programs. The report shall, at a minimum, indicate the status of recommended policies, procedures, plans, and programs, including but not limited to, approval by the Insured Institution's board of directors, plans for approval by the Insured Institution's board of directors, implementation, schedule for implementation, and, if applicable, the basis for rejecting any recommendations by management or the board of directors.

Capital Plan

[.5] 5. Within 45 days of this ORDER, the Insured Institution shall submit to the Regional Director an acceptable written capital plan. The plan shall be designed to ensure that an adequate capital position is maintained by the Insured Institution in light of the reclassification of any mortgage portfolio. The plan shall, at a minimum, address, consider, and include:

(a) The Insured Institution's current and future capital requirements, including compliance with the Capital Maintenance Requirement set forth in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, and the Statement of Policy on Risk-Based Capital as set forth in Appendix A to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, Appendix A;

(b) The adequacy of capital at the Insured Institution, taking into account the volume of adversely classified credits, concentrations of credit, adequacy of loan loss reserves, current and projected growth of assets, and projected retained earnings;

(c) The volume of problem or volatile assets held by the Insured Institution that could require the maintenance of higher capital levels;

d) The source and timing of additional funds to fulfill the Insured Institution's future capital requirements;

(e) Procedures for the Insured Institution to notify the Regional Director, in writing, within ten (10) days of the end of any calendar quarter that the Insured Institution's


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capital ratios (Tier 1 leverage, Tier 1 risk-based, or total risk based) fall below the plan's minimum capital requirements and to submit to the Regional Director an acceptable written plan that details the steps the Insured Institution will take to increase its capital ratios above the plan's minimum capital requirements within thirty (30) days of such calendar quarter-end date.

(f) The Insured Institution may comply with the requirements of this Paragraph 5 by submitting a copy of a capital plan prepared by its parent holding company for the consolidated enterprise provided that the plan includes a separate and distinct plan for the Insured Institution.

Liquidity Contingency Plan

[.6] 6. Within 45 days of this ORDER, the Insured Institution shall submit to the Regional Director an acceptable, updated written plan to provide for the maintenance of an adequate liquidity position. The plan shall, at a minimum, address, consider, and include:

(a) Maintenance of sufficient liquidity to meet current contractual liability maturities without incurring any additional unsecured debt and to meet unanticipated demands;

(b) Appropriate measures for monitoring the Insured Institution's liquidity position, including quantitative guidelines to establish adequate coverage of volatile liabilities by liquid assets; and

(c) Submission to the board of directors of periodic written reports documenting the Insured Institution's progress in complying with the plan; such reports shall include, but not be limited to, (i) a complete review of the Insured Institution's then-current position in meeting targeted liquidity thresholds; (ii) a schedule of anticipated sources and uses of funds projected for the future; (iii) an analysis of strategies or steps taken during the reporting period to address deviations from the plan; and (iv) a discussion of contingency plans if actual sources or uses of funds vary materially from projections.

Debt and Stock Redemption

[.7] 7. (a) The Insured Institution shall provide advance informational notice to the Regional Director before the Insured Institution directly or indirectly increases, restructures, or repurchases its unsecured capital debt, if any, including but not limited to its senior notes or bonds, if any. All notices shall contain, but not be limited to, a written statement regarding the purpose of the debt or other transaction, the terms of the transaction, the planned source(s) for repayment, and an analysis of the cash flow resources available to meet repayment obligations. Notices shall be provided as soon as practicable, but not less than 10 days prior to the transaction.

(b) The Insured Institution shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Regional Director pursuant to Section 18(i) of the Act, 12 U.S.C. §1828(i).

Dividend Payment

[.8] 8. (a) While this ORDER is in effect, the Insured Institution shall not declare or pay dividends or any other form of payment representing a reduction in capital without the prior written approval of the Regional Director. All requests for prior approval shall be received at least 30 days prior to the proposed dividend declaration date (at least 5 days with respect to any request filed within the first 30 days after the date of this Order) and shall contain, but not be limited to, an analysis of the impact such dividend or other payment would have on the Insured Institution's capital position, cash flow, concentrations of credit, asset quality and allowance for loan and lease loss needs. The Regional Director will approve a dividend or any other form of payment representing a reduction in capital provided that the Regional Director determines that such dividend or payment will not have an unacceptable impact on the Insured Institution's capital position, cash flow, concentrations of credit, asset quality and allowance for loan and lease loss needs.

(b) During the term of this ORDER, the Insured Institution shall not make any distributions of interest, principal or other sums on subordinated debentures, if any, without the prior written approval of the Regional Director.

Restricted Transactions

[.9] 9. (a) The Insured Institution shall not, directly or indirectly, enter into, participate, or in any other manner engage in any of the following transactions with any affiliate without the prior written approval of the Regional Director: (i) a loan or extension of
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credit to the affiliate; (ii) a purchase of or an investment in securities issued by the affiliate; (iii) a purchase of assets, including assets subject to an agreement to repurchase, from the affiliate; (iv) the acceptance of securities issued by the affiliate as collateral security for a loan or extension of credit to any person or company; (v) the issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of credit, on behalf of an affiliate; (vi) the sale of securities or other assets to an affiliate, including assets subject to an agreement to repurchase; (vii) the payment of money or furnishing of services to an affiliate under contract, lease or otherwise; (viii) any transaction in which an affiliate acts as agent or broker or receives a fee for its services to the Insured Institution; and (ix) any transaction or series of transactions with a third party (a) if an affiliate has a financial interest in the third party, or (b) an affiliate is a participant in such transaction or series of transactions. For purposes of this paragraph 9(a), any transaction by the Insured Institution with any person or entity shall be deemed to be a transaction with an affiliate of the Insured Institution if any of the proceeds of the transaction are used for the benefit of, or transferred to, such affiliate.

(b) Within ten (10) days following the end of each month, the Insured Institution shall submit a report to the Regional Director summarizing all transactions of the type described in subparagraph (a)(i)–(ix) above between and among the Insured Institution, its holding company, and any of its affiliates within the month.

(c) The Insured Institution shall not, directly or indirectly, enter into, participate, or in any other manner engage in any transaction with any Insider without the prior written approval of the Regional Director.

(d) For the purposes of this paragraph 9: (i) "affiliate" shall be defined as set forth in section 23A(b)(1) of the Federal Reserve Act (12 U.S.C. §371c(b)(1)); (ii) "Insider" shall include any of the Insured Institution's current or former executive officers, directors, principal shareholders, members of their immediate families, related interests thereof, or persons acting on their behalf; (iii) "immediate family" shall be defined as set forth in section 225.41(b)(3) of Regulation Y of the Board of Governors (12 C.F.R. 225.41(b)(3)); (iv) "related interest" shall be defined as set forth in section 215.2(n) of Regulation O of the Board of Governors (12 C.F.R. 215.2(n)); (v) "transaction" shall include, but not be limited to, the transfer or payment of cash, the transfer, contribution, sale or purchase of any other asset, the direct or indirect payment of any expense or obligation, the direct or indirect assumption of any liability, the provision of any service, the payment of a management or service fee of any nature, any extension of credit, any overdraft, or any advance; and (vi) "extension of credit" shall be defined as set forth in section 215.3 of Regulation O of the Board of Governors (12 C.F.R. 215.3). Notwithstanding the foregoing definition of "transaction," for the purposes of paragraph 9(c), "transaction" shall not include: (1) the payment of fees and salaries to directors and officers and the reimbursement of expenses, including but not limited to the expenses of legal counsel paid pursuant to approval by the Insured Institution's board of directors in accordance with the Insured Institution's bylaws and in compliance with 12 U.S.C. §1828k and 12 C.F.R. section 359.5, provided that similar types and amounts of payments and reimbursements have previously been made and fully documented in the Insured Institution's books and records; (2) the provision of any unpaid services to the Insured Institution by any officer, director, or employee of the Insured Institution; and (3) banking transactions between directors and officers and members of their immediate families on the one hand and the Insured Institution on the other hand which are in the normal course of business and are consistent with banking transactions offered by the Insured Institution to members of the general public.

(e) Any request for prior approval pursuant to paragraph 9(a) and (c) above shall be submitted in writing to the Regional Director at least fifteen (15) days prior to the proposed transaction, and shall include a complete and detailed description of the proposed transaction.

Regulatory Reports

[.10] 10. The Insured Institution shall continue to file regulatory reports and shall promptly file amended regulatory reports to correct any reports filed in 2002, 2003, 2004
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and 2005 that are determined to contain material errors. For purposes of this paragraph, "material" means a qualitative characteristic of accounting information which is defined in Financial Accounting Standards Board Concepts Statement No. 2 as "the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement." The Insured Institution shall maintain sufficient records to indicate how each report was prepared and shall retain such records for subsequent supervisory review.

[.11] 11. The Insured Institution shall take steps to ensure that all balance sheet and income statements and general ledger and subsidiary ledger accounts are reconciled on at least a monthly basis and that the Insured Institution's internal audit unit periodically reviews the Insured Institution's procedures for the preparation of regulatory reports to monitor adherence to the Insured Institution's policies, GAAP, and regulatory guidance.

Approval, Implementation, and Progress Reports

[.12] 12. (a) The Insured Institution shall submit an engagement letter and written plans, programs, policies, and procedures that are acceptable to the Regional Director within the applicable time periods set forth in paragraphs 1, 2, 5 and 6 of this ORDER. The Insured Institution shall adopt the approved plans, programs, policies, and procedures within 10 days of approval by the Regional Director. During the term of this ORDER, the approved plans, programs, policies, and procedures shall not be amended or rescinded without the prior written approval of the Regional Director.

(b) Once adopted, the Insured Institution shall take immediate steps to implement the approved plans, programs, policies, and procedures and thereafter shall continue to fully comply with the approved plans, programs, policies, and procedures.

13. Within 30 days after the end of each calendar quarter following the date of this ORDER, the board of directors shall furnish to the Regional Director written progress reports detailing the form and manner of all actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Insured Institution from making further reports.

Miscellaneous

The provisions of this ORDER shall be binding upon the Insured Institution, its directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Insured Institution.

The provisions of this ORDER shall not bar, stop or otherwise prevent the FDIC, or any other federal or state or commonwealth agency from taking any other action affecting the Insured Institution or any of their current or former institution-affiliated parties and their successors and assigns.

This ORDER shall become effective upon its issuance.

The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.

Pursuant to delegated authority.  Dated: March 16, 2006.

FDIC Enforcement Decisions and Orders


 

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[¶12,546] In the Matter of R-G Premier Bank of Puerto Rico, Hato Rey, Puerto Rico, Docket No. 06-045b (3-16-06).

A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.

[.1] Mortgage—Independent Consultant to Review Mortgage Loans

[.2] Mortgage—Written Plan Required

[.3] Mortgage—Identify Reclassified Loans

[.4] Bank Operations—Written Progress Report Required

[.5] Capital Plan—Minimum Requirements Specified
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[.6] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required

[.7] Bank Operations—Advance Notice of Change in Capital Debt

[.8] Dividends—Dividends Restricted

[.9] Transactions—Restricted

[.10] Regulatory Reporting—Required

[.11] Regulatory Reporting—Review Procedure for Preparation of Reports

[.12] Progress Report—Written Report Required

In the Matter of
R-G PREMIER BANK OF PUERTO RICO
HATO REY, PUERTO RICO
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-06-045b

R-G PREMIER OF PUERTO RICO, HATO REY, PUERTO RICO ("Insured Institution"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices alleged to have been committed by the Insured Institution and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated March 16, 2006, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices, the Insured Institution consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.

The FDIC considered the matter and determined that it had reason to believe that the Insured Institution failed to properly account for and document certain mortgage loan transactions and thereby had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

IT IS HEREBY ORDERED that the Insured Institution, its directors, officers, employees, agents, and other institution-affiliated parties (as that term is defined in Section 3(u) of the Act, 12 U.S.C. §1813(u)), and its successors and assigns cease and desist from operating in contravention of certain provisions of the Interagency Guidelines Establishing Standards for Safety and Soundness set forth at Appendix A to Part 364 of the FDIC's Rules and Regulations, 12 C.F.R. Part 364, Appendix A.

IT IS FURTHER ORDERED that the Insured Institution, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:

Mortgage Portfolios

[.1] 1. Within 30 days of this ORDER, the Insured Institution's board of directors shall engage an independent consultant acceptable to the Regional Director of the FDIC's New York Regional Office ("Regional Director") to conduct a review of the (i) mortgage loans on the balance sheet of the Insured Institution as of the effective date of this ORDER; (ii) mortgage loans sold by the Insured Institution with recourse, if any, as of the effective date of this ORDER, except for conforming loans sold to FNMA, FHLMC, and GNMA; and (iii) any mortgage loans that, as a result of a change in the accounting treatment of the Insured Institution's mortgage sale transactions with other financial institutions or entities, are subsequently included as assets on the balance sheet of the Insured Institution (collectively, the "Mortgage Portfolio"); and to prepare a written report that includes findings and recommendations (the "Mortgage Portfolio Review"). Prior to the commencement of the Mortgage Portfolio Review, the Insured Institution shall submit an engagement letter with the independent consultant to the Regional Director for approval. The terms of the engagement letter shall provide that the independent consultant will submit its written report within 60 days of its engagement and will provide a copy of its report to the Regional Director at the same time that it is provided to the Insured Institution.
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[.2] 2. Within 30 days after the Insured Institution's receipt of the Mortgage Portfolio Review report, the Insured Institution shall submit an acceptable written plan to the Regional Director describing specific actions that the board of directors proposes to take, with timeframes for completion, to fully address the findings and recommendations of the Mortgage Portfolio Review report.

[.3] 3. The Insured Institution shall identify any mortgage portfolio transaction with another financial institution or entity that was originally accounted for as a purchase of the mortgage portfolio by the Insured Institution and was subsequently reclassified as a commercial loan to the other financial institution or entity (for which the mortgage portfolio serves as collateral). With respect to each such mortgage portfolio transaction, the Insured Institution shall submit to the Regional Director a report that:

(a) Demonstrates that the Insured Institution possesses complete, accurate and legally enforceable documentation that describes in detail the true nature of the underlying transactions (including the Insured Institution's or entity's legal claim to the underlying collateral;

(b) Includes an assessment of the overall asset quality of the underlying collateral; and

(c) Explains the expected cash flows associated with the reclassified transactions (including servicing fees and repayments of principal on the mortgages in the mortgage portfolio).

The Insured Institution shall submit a report for each reclassified mortgage portfolio to the Regional Director within 15 days of this ORDER or within 15 days after the reclassification of such mortgage portfolio, whichever occurs later. With respect to the information called for in subparagraph (b), the report shall be supplemented within 30 days after submission of the initial report with any additional information received from the owner or servicer of the mortgage portfolio, which the Insured Institution has promptly and diligently requested.

Policies and Procedures Report

[.4] 4. Within 30 days of this ORDER, the Insured Institution shall submit to the Regional Director a report summarizing recommendations made by independent consultants or counsel or by internal audit since April 2005 to revise the Insured Institution's policies, procedures, plans, and programs. The report shall, at a minimum, indicate the status of recommended policies, procedures, plans, and programs, including but not limited to, approval by the Insured Institution's board of directors, plans for approval by the Insured Institution's board of directors, implementation, schedule for implementation, and, if applicable, the basis for rejecting any recommendations by management or the board of directors.

Capital Plan

[.5] 5. Within 45 days of this ORDER, the Insured Institution shall submit to the Regional Director an acceptable written capital plan. The plan shall be designed to ensure that an adequate capital position is maintained by the Insured Institution in light of the reclassification of any mortgage portfolio. The plan shall, at a minimum, address, consider, and include:

(a) The Insured Institution's current and future capital requirements, including compliance with the Capital Maintenance Requirement set forth in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, and the Statement of Policy on Risk-Based Capital as set forth in Appendix A to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, Appendix A;

(b) The adequacy of capital at the Insured Institution, taking into account the volume of adversely classified credits, concentrations of credit, adequacy of loan loss reserves, current and projected growth of assets, and projected retained earnings;

(c) The volume of problem or volatile assets held by the Insured Institution that could require the maintenance of higher capital levels;

(d) The source and timing of additional funds to fulfill the Insured Institution's future capital requirements;

(e) Procedures for the Insured Institution to notify the Regional Director, in writing, within ten (10) days of the end of any calendar quarter that the Insured Institution's capital ratios (Tier 1 leverage, Tier 1 risk-based, or total risk based) fall below the plan's minimum capital requirements and to submit to the Regional Director an acceptable written plan that details the steps the Insured Institution will


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take to increase its capital ratios above the plan's minimum capital requirements within thirty (30) days of such calendar quarter-end date.

(f) The Insured Institution may comply with the requirements of this Paragraph 5 by submitting a copy of a capital plan prepared by its parent holding company for the consolidated enterprise provided that the plan includes a separate and distinct plan for the Insured Institution.

Liquidity Contingency Plan

[.6] 6. Within 45 days of this ORDER, the Insured Institution shall submit to the Regional Director an acceptable, updated written plan to provide for the maintenance of an adequate liquidity position. The plan shall, at a minimum, address, consider, and include:

(a) Maintenance of sufficient liquidity to meet current contractual liability maturities without incurring any additional unsecured debt and to meet unanticipated demands;

(b) Appropriate measures for monitoring the Insured Institution's liquidity position, including quantitative guidelines to establish adequate coverage of volatile liabilities by liquid assets; and

(c) Submission to the board of directors of periodic written reports documenting the Insured Institution's progress in complying with the plan; such reports shall include, but not be limited to, (i) a complete review of the Insured Institution's then-current position in meeting targeted liquidity thresholds; (ii) a schedule of anticipated sources and uses of funds projected for the future; (iii) an analysis of strategies or steps taken during the reporting period to address deviations from the plan; and (iv) a discussion of contingency plans if actual sources or uses of funds vary materially from projections.

Debt and Stock Redemption

[.7] 7. (a) The Insured Institution shall provide advance informational notice to the Regional Director before the Insured Institution directly or indirectly increases, restructures, or repurchases its unsecured capital debt, if any, including but not limited to its senior notes or bonds, if any. All notices shall contain, but not be limited to, a written statement regarding the purpose of the debt or other transaction, the terms of the transaction, the planned source(s) for repayment, and an analysis of the cash flow resources available to meet repayment obligations. Notices shall be provided as soon as practicable, but not less than 10 days prior to the transaction.

(b) The Insured Institution shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Regional Director pursuant to Section 18(i) of the Act, 12 U.S.C. §1828(i).

Dividend Payment

[.8] 8. (a) While this ORDER is in effect, the Insured Institution shall not declare or pay dividends or any other form of payment representing a reduction in capital without the prior written approval of the Regional Director. All requests for prior approval shall be received at least 30 days prior to the proposed dividend declaration date (at least 5 days with respect to any request filed within the first 30 days after the date of this Order) and shall contain, but not be limited to, an analysis of the impact such dividend or other payment would have on the Insured Institution's capital position, cash flow, concentrations of credit, asset quality and allowance for loan and lease loss needs. The Regional Director will approve a dividend or any other form of payment representing a reduction in capital provided that the Regional Director determines that such dividend or payment will not have an unacceptable impact on the Insured Institution's capital position, cash flow, concentrations of credit, asset quality and allowance for loan and lease loss needs.

(b) During the term of this ORDER, the Insured Institution shall not make any distributions of interest, principal or other sums on subordinated debentures, if any, without the prior written approval of the Regional Director.

Restricted Transactions

[.9] 9. (a) The Insured Institution shall not, directly or indirectly, enter into, participate, or in any other manner engage in any of the following transactions with any affiliate without the prior written approval of the Regional Director: (i) a loan or extension of credit to the affiliate; (ii) a purchase of or an investment in securities issued by the affiliate; (iii) a purchase of assets, including assets subject to an agreement to repurchase, from the affiliate; (iv) the acceptance of securities issued by the affiliate as collateral
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security for a loan or extension of credit to any person or company; (v) the issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of credit, on behalf of an affiliate; (vi) the sale of securities or other assets to an affiliate, including assets subject to an agreement to repurchase; (vii) the payment of money or furnishing of services to an affiliate under contract, lease or otherwise; (viii) any transaction in which an affiliate acts as agent or broker or receives a fee for its services to the Insured Institution; and (ix) any transaction or series of transactions with a third party (a) if an affiliate has a financial interest in the third party, or (b) an affiliate is a participant in such transaction or series of transactions. For purposes of this paragraph 9(a), any transaction by the Insured Institution with any person or entity shall be deemed to be a transaction with an affiliate of the Insured Institution if any of the proceeds of the transaction are used for the benefit of, or transferred to such affiliate.

(b) Within ten (10) days following the end of each month, the Insured Institution shall submit a report to the Regional Director summarizing all transactions of the type described in subparagraph (a)(i)–(ix) above between and among the Insured Institution, its holding company, and any of its affiliates within the month.

(c) The Insured Institution shall not, directly or indirectly, enter into, participate, or in any other manner engage in any transaction with any Insider without the prior written approval of the Regional Director.

(d) For the purposes of this paragraph 9: (i) "affiliate" shall be defined as set forth in section 23A(b)(1) of the Federal Reserve Act (12 U.S.C. §371c(b)(1)); (ii) "Insider" shall include any of the Insured Institution's current or former executive officers, directors, principal shareholders, members of their immediate families, related interests thereof, or persons acting on their behalf; (iii) "immediate family" shall be defined as set forth in section 225.41(b)(3) of Regulation Y of the Board of Governors (12 C.F.R. 225.41(b)(3)); (iv) "related interest" shall be defined as set forth in section 215.2(n) of Regulation O of the Board of Governors (12 C.F.R. 215.2(n)); (v) "transaction" shall include, but not be limited to, the transfer or payment of cash, the transfer, contribution, sale or purchase of any other asset, the direct or indirect payment of any expense or obligation, the direct or indirect assumption of any liability, the provision of any service, the payment of a management or service fee of any nature, any extension of credit, any overdraft, or any advance; and (vi) "extension of credit" shall be defined as set forth in section 215.3 of Regulation O of the Board of Governors (12 C.F.R. 215.3). Notwithstanding the foregoing definition of "transaction," for the purposes of paragraph 9(c), "transaction" shall not include: (1) the payment of fees and salaries to directors and officers and the reimbursement of expenses, including but not limited to the expenses of legal counsel paid pursuant to approval by the Insured Institution's board of directors in accordance with the Insured Institution's bylaws and in compliance with 12 U.S.C. §1828k and 12 C.F.R. section 359.5, provided that similar types and amounts of payments and reimbursements have previously been made and fully documented in the Insured Institution's books and records; (2) the provision of any unpaid services to the Insured Institution by any officer, director, or employee of the Insured Institution; and (3) banking transactions between directors and officers and members of their immediate families on the one hand and the Insured Institution on the other hand which are in the normal course of business and are consistent with banking transactions offered by the Insured Institution to members of the general public.

(e) Any request for prior approval pursuant to paragraph 9(a) and (c) above shall be submitted in writing to the Regional Director at least fifteen (15) days prior to the proposed transaction, and shall include a complete and detailed description of the proposed transaction.

Regulatory Reports

[.10] 10. The Insured Institution shall continue to file regulatory reports and shall promptly file amended regulatory reports to correct any reports filed in 2002, 2003, 2004 and 2005 that are determined to contain material errors. For purposes of this paragraph, "material" means a qualitative characteristic of accounting information which is defined in Financial Accounting Standards Board Concepts Statement No. 2 as "the magnitude of
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an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement." The Insured Institution shall maintain sufficient records to indicate how each report was prepared and shall retain such records for subsequent supervisory review.

[.11] 11. The Insured Institution shall take steps to ensure that all balance sheet and income statements and general ledger and subsidiary ledger accounts are reconciled on at least a monthly basis and that the Insured Institution's internal audit unit periodically reviews the Insured Institution's procedures for the preparation of regulatory reports to monitor adherence to the Insured Institution's policies, GAAP, and regulatory guidance.

Approval, Implementation, and Progress Reports

[.12] 12. (a) The Insured Institution shall submit an engagement letter and written plans, programs, policies, and procedures that are acceptable to the Regional Director within the applicable time periods set forth in paragraphs 1, 2, 5 and 6 of this ORDER. The Insured Institution shall adopt the approved plans, programs, policies, and procedures within 10 days of approval by the Regional Director. During the term of this ORDER, the approved plans, programs, policies, and procedures shall not be amended or rescinded without the prior written approval of the Regional Director.

(b) Once adopted, the Insured Institution shall take immediate steps to implement the approved plans, programs, policies, and procedures and thereafter shall continue to fully comply with the approved plans, programs, policies, and procedures.

13. Within 30 days after the end of each calendar quarter following the date of this ORDER, the board of directors shall furnish to the Regional Director written progress reports detailing the form and manner of all actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Insured Institution from making further reports.

Miscellaneous

The provisions of this ORDER shall be binding upon the Insured Institution, its directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Insured Institution.

The provisions of this ORDER shall not bar, stop or otherwise prevent the FDIC, or any other federal or state or commonwealth agency from taking any other action affecting the Insured Institution or any of their current or former institution-affiliated parties and their successors and assigns.

This ORDER shall become effective upon its issuance.

The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.

Pursuant to delegated authority.  Dated: March 16, 2006.