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