SEC v. R&G Financial Corporation, No. LR-20455, Southern District of New York (Feb. 13, 2008) — Press Release
raw: R&G Financial Corporation
R&G Financial Corporation, No. LR-20455 (S.D.N.Y. Feb. 13, 2008)
R&G Financial Corporation fraudulently overstated income by $180 million from 2002 to 2004 by improperly recognizing gains on non-sale mortgage transactions and overvaluing interest-only strips, falsely reporting 12 consecutive quarters of record earnings, which caused its stock to crash 75% and erase $900 million in market value, leading to an SEC settlement with an injunction against securities law violations.
R&G Financial Corporation was charged by the SEC with committing an $180 million accounting fraud between 2002 and 2004 by improperly recognizing gains on mortgage loan sales that violated GAAP due to full-recourse provisions and by significantly overvaluing retained interest-only strips. These manipulations enabled the company to falsely report a 12-quarter streak of 'record earnings,' misleading investors and inflating its stock price. When the fraud became public in early 2005, the stock plummeted from $40 to $10 per share, reducing market capitalization by approximately $900 million, and R&G settled without admitting or denying the allegations, consenting to an injunction barring violations of Sections 10(b), 13(a), and 13(b)(2) of the Securities Exchange Act.
R&G Financial Corporation, a Puerto Rico-based bank holding company, engaged in a systematic accounting fraud between 2002 and 2004 that overstated its income by approximately $180 million, falsely creating the appearance of twelve consecutive quarters of 'record earnings.' The fraud involved two primary schemes: improperly recognizing gains on mortgage loan sales that were not true sales under GAAP due to full-recourse provisions in the contracts, and significantly overvaluing interest-only strips retained by the company in these transactions. R&G further manipulated earnings through a series of mortgage loan swap transactions with other Puerto Rican financial institutions to smooth reported results. When the accounting irregularities surfaced in early 2005, investor confidence collapsed, causing the company’s common stock to plummet from $40 to $10 per share—a 75% decline that erased roughly $900 million in equity market value. The SEC filed charges in the Southern District of New York, alleging violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act and related rules on fraud, reporting, books and records, and internal controls. Without admitting or denying the allegations, R&G consented to a court order enjoining it from future violations of these provisions. The SEC acknowledged critical assistance from the U.S. Attorney’s Office, the FBI, the Federal Reserve, and the FDIC, and confirmed that its investigation into related matters remains ongoing.
Exhibits & Attached Documents (1)
Extracted insights
- $900.00M $900 million $100M–$1B
- $180.00M $180 million $100M–$1B
- agency the securities and exchange commission
- The Securities and Exchange Commission filed financial fraud charges against R&G Financial Corporation
- R&G Financial Corporation overstated income by approximately $180 million
- R&G Financial Corporation settles financial fraud charges with the SEC
- Litigation Release No. 20455 issued on February 13, 2008
- Securities and Exchange Commission v. R&G Financial Corporation assigned case number 08 CV 1471
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20455 / February 13, 2008 Securities and Exchange Commission v. R&G Financial Corporation, 08 CV 1471 (Marrero, J.) (S.D.N.Y. filed February 13, 2008) R&G Financial Settles Financial Fraud Charges With SEC The Securities and Exchange Commission today filed financial fraud charges against R&G Financial Corporation, a bank holding company with mortgage banking operations in Puerto Rico. The Commission alleges that R&G Financial overstated income by approximately $180 million or 80 percent on a cumulative basis by improperly accounting for billions of dollars worth of mortgage-related transactions in 2002, 2003 and 2004. The Commission further alleges that those accounting irregularities enabled R&G financial to report an apparent twelve quarter streak of "record earnings." Since the accounting and disclosure problems began to surface in early 2005, the market price of the company's common stock plummeted from approximately $40 to $10 per share or 75%, thereby reducing equity market value by approximately $900 million. According to the Commission's complaint, R&G Financial improperly accounted for the purported sale of non-conforming mortgage loans to other Puerto Rican financial institutions in two respects. First, R&G Financial improperly recognized gain on sales of mortgages. These transactions were not true sales under generally accepted accounting principles because of full recourse provisions in the written contracts. Second, R&G Financial significantly overvalued interest-only strips retained by the company in its purported mortgage loan sale transactions. The Commission further alleges that R&G Financial managed earnings through a series of mortgage loan swap transactions with other Puerto Rican financial institutions. The Commission's complaint, which was filed in the United States District Court for the Southern District of New York, charges R&G Financial with violating 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, R&G 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. 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. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 20455 / February 13, 2008 Securities and Exchange Commission v. R&G Financial Corporation, 08 CV 1471 (Marrero, J.) (S.D.N.Y. filed February 13, 2008) R&G Financial Settles Financial Fraud Charges With SEC The Securities and Exchange Commission today filed financial fraud charges against R&G Financial Corporation, a bank holding company with mortgage banking operations in Puerto Rico. The Commission alleges that R&G Financial overstated income by approximately $180 million or 80 percent on a cumulative basis by improperly accounting for billions of dollars worth of mortgage-related transactions in 2002, 2003 and 2004. The Commission further alleges that those accounting irregularities enabled R&G financial to report an apparent twelve quarter streak of "record earnings." Since the accounting and disclosure problems began to surface in early 2005, the market price of the company's common stock plummeted from approximately $40 to $10 per share or 75%, thereby reducing equity market value by approximately $900 million. According to the Commission's complaint, R&G Financial improperly accounted for the purported sale of non-conforming mortgage loans to other Puerto Rican financial institutions in two respects. First, R&G Financial improperly recognized gain on sales of mortgages. These transactions were not true sales under generally accepted accounting principles because of full recourse provisions in the written contracts. Second, R&G Financial significantly overvalued interest-only strips retained by the company in its purported mortgage loan sale transactions. The Commission further alleges that R&G Financial managed earnings through a series of mortgage loan swap transactions with other Puerto Rican financial institutions. The Commission's complaint, which was filed in the United States District Court for the Southern District of New York, charges R&G Financial with violating 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, R&G 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. 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