Doral Lawyer Presses Case for Puerto Rico Tax Refund

Doral Financial Corp., the holding company for Puerto Rico’s second-largest mortgage lender, pressed its demand before a judge for a $229.9 million tax refund, with testimony from the company’s lawyer.

Doral and Puerto Rico agreed in 2012 that the company was entitled to the refund as a result of a restatement of earnings from 1998 to 2004. Puerto Rico’s treasury department voided the deal, claiming Doral obtained it through fraud.

The numbers in the refund agreement “are correct,” Doral’s General Counsel Enrique Ubarri today told Superior Court Judge Laureana Perez Perez in the third day of a non-jury, Spanish-language trial in San Juan, amid repeated objections from island treasury officials. He said he reviewed the figures with Chief Executive Officer Glen Wakeman.

Puerto Rico’s refusal to honor its agreement threatens to undermine all contracts between government agencies and private parties on the island, Doral said in its complaint. Puerto Rico is struggling with an economic downturn, having recorded negative growth in five of the past seven fiscal years. In February, the U.S. commonwealth’s debt was cut to junk by the three largest credit-rating companies.

Government officials are cutting budgets, closing some schools and freezing workers’ salaries.

After the final witness today, the judge gave each side five days to file its closing arguments in writing. Perez will issue a written ruling after that.

Incorrect Representations

Witnesses “established that Doral’s representations were incorrect and that the amount claimed by the plaintiff is not supported by the evidence,” Puerto Rico’s justice department said in a statement today.

After rising as much as 22 percent today, Doral closed 5.5 percent higher at $7.68 in trading in New York.

The treasury department said when the suit was filed that the request is invalid, and Doral’s alleged overpayment of taxes “never took place.”

Doral announced in September 2005 that it would restate its earnings before taxes as of the end of 2004. The following year, it agreed to pay a $25 million fine to settle an investigation by the U.S. Securities and Exchange Commission into whether it had overstated earnings.

In a Sept. 19 statement, Matthew McGill, a lawyer representing Doral, said the government has presented no evidence of alleged fraud.

“When this case is over, the people of Puerto Rico will have to ask whether they were well served by their government’s unfounded attack on one of Puerto Rico’s few remaining banks,” he said.

The case is Doral Financial Corp. v. Commonwealth of Puerto Rico, KAC2014-0533. Civil Court of First Instance, San Juan Superior Division.

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