Doral Financial Settles SEC Charges

by Glen Shapiro, LawAndTax-News.com, New York

25 September 2006

The US Securities and Exchange Commission last week filed financial fraud charges against Doral Financial Corporation, alleging that the NYSE-listed Puerto Rican bank holding company overstated income by 100% on a pre-tax, cumulative basis between 2000 and 2004.

The Commission further alleged that by overstating its income by $921 million over the period, the company reported an apparent 28-quarter streak of “record earnings” that 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, reducing the company’s market value by over $4 billion.

Without admitting or denying the Commission’s allegations, Doral Financial 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.

Linda Chatman Thomsen, Director of the Division of Enforcement, observed that:

“The accounting fraud at Doral is particularly troubling because it occurred after the reforms of the Sarbanes-Oxley Act of 2002. Today’s settlement reflects our continuing commitment to protect shareholders against financial fraud.”

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