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September 2, 2010 |
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| December 19, 2006 |
By: Daniel Ostrovsky |
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reenberg Traurig and shareholder Robert L. Grossman have agreed to pay $925,000 in fines to settle allegations by federal banking regulators over legal work for Hamilton Bank, which collapsed in one of Miami’s biggest bank frauds.
The bank was seized by federal regulators, and its three top officers have since been convicted of fraud.
The fines were levied against Greenberg Traurig and Grossman in two separate consent orders between the law firm, Grossman and the U.S. Office of the Comptroller of the Currency.
The agreement with the law firm was made public by the federal banking regulator on Oct. 31, while Grossman’s agreement was revealed by the OCC on Nov. 7. Regulators typically only make disciplinary actions public in the most serious of cases.
The consent orders do not make clear the specific activities by Greenberg Traurig and Grossman that the OCC found objectionable. Neither Grossman nor the law firm admitted any wrongdoing as part of the settlement.
Grossman also agreed not to represent banks before federal banking agencies, not to advise banks on compliance with federal banking laws, not to serve as general counsel for banks, and not to conduct investigatory reports on behalf of banks. The agreements terminate in five years.
Greenberg Traurig, which has 1,500 lawyers, agreed to provide special training for all of its attorneys who represent banks.
Grossman is a principal shareholder in Greenberg’s Miami office, where he began practicing corporate and securities law in 1982. He co-chairs the firm’s Israeli practice group and focuses on corporate and securities law, public offerings, mergers and acquisitions, life sciences and diverse industry representations.
“Although the firm respectfully disagreed with the OCC’s assessment of the facts, we nevertheless entered into this agreement without admitting or denying the OCC’s allegations so we could resolve this matter in a manner satisfactory to the OCC, and without further expense or distraction to the firm,” Jill Perry, a Greenberg Traurig spokeswoman, said in a statement e-mailed to the Daily Business Review.
The OCC does not comment on its stipulation and consent orders.
Greenberg stood by Grossman, saying in the written statement that he is “a shareholder in good standing, working in our corporate department.”
A source with knowledge of the fines who did not want to be identified said that the Miami-based law firm paid Grossman’s $175,000 fine in addition to its own $750,000 fine.
Investigated loans
In her e-mailed statement, Perry said that Greenberg was “retained in 2000 by the Hamilton audit committees to conduct a narrow factual investigation concerning Hamilton Bank’s purchase of certain emerging market loans in 1998.”
According to the source, the investigation concerned Latin American and Russian loans made by Hamilton. Those were the loans that ended up bringing down Hamilton and its executives. Grossman’s name appears on documents submitted by Hamilton dating back to 1997.
Another source, who asked not to be named, said Greenberg’s investigation resulted in a report that found that there was no wrongdoing on the part of Hamilton Bank in connection with the Russian and Latin American loans. But the source said the report was never introduced in the fraud trial of the bank’s CEO.
The Doral-based bank failed in 2002 and regulators then sold off its branches and $1.2 billion in assets. Hamilton’s failure cost the Federal Deposit Insurance Corp. about $165 million.
In May, Hamilton’s former chairman and chief executive Eduardo A. Masferrer was found guilty of federal criminal fraud, after an earlier trial resulted in a mistrial. Prosecutors previously reached plea agreements with Hamilton’s former president Juan Carlos Bernace and chief financial officer John Jacobs. Masferrer was sentenced to 30 years in prison, while Bernace and Jacobs were each sentenced to more than two years in prison.
The OCC issued administrative charges in the summer of 2003 against the three bank executives, including breach of fiduciary duty, conflict of interest, engaging in unsafe and unsound practices, improper accounting as well as violations of several other banking rules and regulations. The Hamilton executives were indicted in June 2004.
The U.S. attorney’s office in Miami declined to comment on whether there was a criminal investigation under way into Greenberg Traurig’s or Grossman’s work for Hamilton Bank.
Perry, the law firm spokeswoman, said: “There are no criminal investigations involving our firm whatsoever.”
Masferrer was accused of removing the bad Russian loans worth nearly $20 million from the bank’s books in 1998 in order to prop up third-quarter results and earn a substantial bonus for himself.
Prosecutors alleged that Masferrer accounted for the Russian loans as being sold at face value when they actually sold at a substantial discount and that the sale was related to the purchase of Latin American securities. While such a swap must be disclosed as a related transaction, no such disclosure was made.
Regulators also alleged that Hamilton’s executives hid the true financial condition of the bank by inflating assets and understating expenses related to almost $40 million in loans to Ecuadorean companies.
Sources changed stories
Hamilton’s Securities and Exchange Commission filing on Nov. 28, 2000, about the bank’s exposure in Ecuador, mentioned an accounting disagreement between the bank and the OCC. It states that Hamilton executives have “asked their counsel, Greenberg Traurig, to independently review the facts underlying the events that led to the accounting disagreement and render a report issued [earlier in November 2000] which the Bank has shared with its accountants.”
The source who spoke with the Review claimed that some of the people interviewed for Greenberg Traurig’s report about the Russian and Latin American loans made by Hamilton changed their stories years later. The source also said that Greenberg did not believe that it was giving accounting advice and that the report only concerned the facts of what transpired.
But consent orders between Greenberg Traurig, Grossman, and the OCC hint that regulators believed that Grossman should have known that the information he was getting from his sources was inaccurate.
The Grossman consent order states that “Grossman shall not knowingly or recklessly make … or abet the making of any materially inaccurate factual statement to any Insured Depository Institution … including by failing … to corroborate, or expressly note the absence of available corroboration, for all material factual statements made by any officers or employees [of the institution].”
The Greenberg consent order repeatedly warns the law firm to watch out for conflicts of interests when representing banks.
Miami-based forensic accountant Stanley Foodman, who has worked with banks and federal agencies, said that it is not common for agencies like the OCC to discipline law firms. However, he said that law firms step into the OCC’s jurisdiction when they provide advice to banks.
The OCC fines are the latest black eye for Greenberg, the former home of convicted Washington, D.C., lobbyist Jack Abramoff. Some of Abramoff’s former clients sued the firm. Greenberg has already settled with several of Abramoff’s former clients, including the Tigua Indian Tribe of El Paso and the Mississippi Band of Choctaw Indians. The firm still faces a $32 million suit filed by the Coushattas Tribe in Louisiana.
Last month, the New York Law Journal, an affiliate of the Daily Business Review, reported that Jay I. Gordon, former chairman of the tax practice at Greenberg Traurig, resigned from the New York bar for taking more than $1.2 million in kickbacks on tax shelters he recommended to wealthy clients.
Daniel Ostrovsky can be reached at dostrovsky@alm.com or at (305) 347-6648.
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