U.S. Securities and Exchange Commission
Litigation Release No. 18772 / June 30, 2004
Securities and Exchange Commission v. Eduardo Masferrer, Juan Carlos Bernace and John M.R. Jacobs, Case No. 03-22524-CIV-JORDAN/Brown (USDC/SD FL)
The Securities and Exchange Commission ("Commission") and the United States Attorney for the Southern District of Florida announced that on June 22, 2004, the United States Attorney's Office issued a 42-count federal indictment charging Eduardo Masferrer, Juan Carlos Bernace and John M.R. Jacobs with, among other things, conspiracy, wire fraud, securities fraud and making false filings with the Commission. Masferrer was also charged with insider trading. Masferrer, Bernace and Jacobs are the former senior executive officers of Hamilton Bancorp, Inc. ("Hamilton"). If convicted, defendants face a maximum term of imprisonment of thirty (30) years and a fine of up to $1 million on each wire fraud count, a maximum term of ten (10) years imprisonment and a fine of $1 million on each securities fraud count, and a maximum term of five years' imprisonment and a fine of up to $250,000 for each count of conspiracy and the other charges contained in the Indictment.
The Indictment charges that in 1998 and 1999, Masferrer, Bernace, and Jacobs engaged in swap transactions (or "adjusted price trades") to hide Hamilton's losses, including $22 million-plus losses in 1998, and falsely accounted for the transactions to make it appear that no losses had been incurred. As a result, the Indictment alleges that Masferrer, Bernace, and Jacobs fraudulently inflated the reported results of operations and financial condition of Hamilton Bancorp and defrauded the investing public and bank and securities regulators, so that they would unjustly enrich and benefit themselves through higher salaries, bonuses, and stock options, and would facilitate an upcoming registered securities offering to the investing public. Masferrer made nearly $2 million in bonuses, and Bernace and Jacobs each made more than $100,000 in bonuses while the fraud was concealed. In addition, the Indictment charges that while the fraud was concealed, Masferrer engaged in illegal insider trading in Hamilton Bancorp's stock through the use of trust accounts.
The indictment derives from the same activity that led to the Commission's filing of its complaint against Masferrer, Bernace and Jacobs in the United States District Court for the Southern District of Florida on September 25, 2003. The Commission's complaint alleged that, as a result of the conduct described above, the defendants violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and aided and abetted Hamilton's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. The complaint further alleged that Bernac© and Jacobs violated, in addition to the above provisions, Rule 13b2-2 promulgated under the Exchange Act. The Commission sought permanent injunctions, officer and director bars, disgorgement of ill-gotten gains, plus prejudgment interest, and the imposition of civil money penalties against the defendants. On April 6, 2004, the Court entered, with Bernace's consent, a Final Judgment of Permanent Injunction and Other Relief as to Bernace. The Judgment permanently enjoined Bernace from violating the above provisions of the federal securities laws, permanently barred Bernace from acting as an officer or director of a public company, and ordered Berance to pay a civil money penalty of $110,000 and disgorgement of ill-gotten profits, plus prejudgment interest, in the amount of $93,452.40. The Commission's case against Masferrer and Jacobs continues to be litigated.