The Securities and Exchange Commission announced that it has filed and settled financial fraud charges against bank holding company Doral Financial Corp.

The SEC's complaint against Doral, one of Puerto Rico's largest financial institutions, alleges that the company overstated its income by $921 million between 2000 and 2004, touting a 28-quarter streak of record earnings that "facilitated the placement of over $1 billion of debt and equity" back into the company.

Since Doral Financial's accounting and disclosure problems surfaced in early 2005, the company's market value has been reduced by more than $4 billion. Doral completed restating four years of financial results in February, which reduced retained earnings by $694.4 million as of the year ended 2004.

Without admitting or denying the Commission's allegations, Doral Financial has 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. The settlement reflects the significant cooperation provided by Doral in the Commission's investigation.

In a statement, the SEC said that Doral's senior management used improper valuation of corporate assets, sales lacking economic substance and round-trip transactions to carry out the scheme -- improperly recognizing gain on sales of approximately $3.9 billion in mortgages and overvaluing interest-only strips. The SEC also said that Doral engaged in a number of other questionable purchases in its mortgage loan sale transactions.

Doral completed restating four years of financial results in February, which reduced retained earnings by $694.4 million as of the year ended 2004.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access