Exhibit 10.1



 Exhibit 10.1 
 MEMORANDUM OF UNDERSTANDING 
 This
Memorandum of Understanding is entered into as of February 29, 2008 by: (a) Lead Plaintiffs, City of Philadelphia Board of Pensions and Retirement and General Retirement System of the City of Detroit (together “Lead Plaintiffs”)
in the consolidated action captioned In re R&G Financial Corporation Securities Litigation, Master File No. 05 Civ 4186 (JES) (the “Consolidated Action”) pending in the United States District Court for the Southern District
of New York, on behalf of a class consisting of all persons and entities who purchased or otherwise acquired publicly traded securities of R&G Financial Corporation (“R&G” or the “Company”) between January 21, 2003
and November 2, 2007, inclusive (the “Class Period”), and who, based on conduct that was or could have been asserted therein, alleged that they were injured thereby (the “Class”),1 and (b) R&G (together with Lead Plaintiffs, the “Settling Parties”). The Settlement is intended to settle all claims against R&G and against Victor J. Galan,
Joseph R. Sandoval, Ramon Prats, Benigno R. Fernandez, Gilberto Rivera-Arreaga and Ileana M. Colon-Carlo (the “Individual Defendants” and together with R&G, the “Settling Defendants”). The
Settlement is not intended to settle the pending shareholder derivative actions that were consolidated by Order entered July 13, 2005 (the “Consolidated Derivative Action”), nor is it intended to settle any claims asserted against
PricewaterhouseCoopers LLP (“PwC”) in the Consolidated Action. 
  
  

	 1
	 Excluded from the Class are: (a) the Defendants named in the Amended Complaint (as defined below); (b) members
of the families of the Individual Defendants; (c) the subsidiaries and affiliates of the Defendants; (d) any person or entity who is a partner, officer, director, or controlling person of R&G (including any of its subsidiaries or
affiliates) or of any Defendant; (e) any entity in which any Defendant has a controlling interest; (f) the Defendants’ directors’ and officers’ liability insurance carriers, and any affiliates or subsidiaries thereof; and
(g) the legal representatives, heirs, successors and assigns of any such excluded party. 









 This Memorandum sets forth the general terms of a proposed settlement (the “Settlement”) that
will be the subject of a definitive agreement, as embodied in a final agreement and stipulation and accompanying papers that shall embody the terms set forth herein and such other and consistent terms as are agreed upon by the parties (the
“Stipulation”), and subject to Court approval. This Memorandum is intended by the Settling Parties to be a binding agreement that sets forth the terms and obligations of the Settling Parties in connection with the Settlement. 

WHEREAS, on April 25, 2005, R&G issued a press release announcing that it would revise the methodology used in valuing residual interests
retained in securitization transactions and restate its financial statements for the period January 1, 2003 to December 31, 2004. 
 WHEREAS, on July 27, 2005, R&G issued a Current Report on Form 8-K announcing that it would restate its interim and audited consolidated financial statements for the year ended December 31, 2002. 
 WHEREAS, beginning on April 27, 2005, various actions were commenced in the United States District Court for the Southern District of New York and
the United States District Court for the District of Puerto Rico (the “Securities Class Actions”). The complaints in those actions alleged, inter alia, that certain of the Settling Defendants violated Section 10(b) of the
Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act, and claimed that R&G had fraudulently misstated its financial statements by using an incorrect valuation
methodology for certain securitization transactions. 
  

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 WHEREAS, on July 26, 2005, the Court entered an Order consolidating the Securities Class Actions
into the Consolidated Action, appointing Lead Plaintiffs as lead plaintiffs in the Consolidated Action, and ordering that Lead Plaintiffs were to file an amended complaint. 
 WHEREAS, on February 27, 2007, Lead Plaintiffs filed a Consolidated Amended Class Action Complaint (the “Amended Complaint”) which
asserted claims against the Settling Defendants under Section 10(b) and Rule 10b-5 and Section 20(a) of the Exchange Act. The Amended Complaint alleged, inter alia, that the Company’s valuation methodology, accounting treatment
and/or financial reporting of (i) mortgage loan transfers that were initially recorded as sales but subsequently recharacterized as secured borrowings (the “Recharacterized Mortgage Loan Transfers”) and (ii) the retained
interests initially recognized in connection with the Recharacterized Mortgage Loan Transfers, violated GAAP, and that R&G’s misclassification of the Recharacterized Mortgage Loan Transfers constituted a fraudulent misrepresentation
designed to artificially inflate R&G’s earnings and stock price. 
 WHEREAS, on May 4, 2007, the Settling Defendants and PwC
filed motions to dismiss the Amended Complaint, which were fully briefed by July 16, 2007. On September 10, 2007, the Court entered an order denying the Settling Defendants’ motions to dismiss. 
 WHEREAS, on October 29 and 30, 2007, Lead Plaintiffs and the Company, through counsel, voluntarily mediated with assistance of retired Judge 

  

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Nicholas Politan in an effort to resolve this dispute. No settlement was reached during those two days of mediation sessions. 
 WHEREAS, on November 2, 2007, R&G issued the Company’s restatement of its financial statements for 2002, 2003 and 2004 and selected
additional data as required by Item 301 of Regulation S-K and Industry Guide 3 as described in the Amended Annual Report on Form 10K/A filed by R&G (the “Restatement”). 
 WHEREAS, in the weeks subsequent to the Restatement, Lead Plaintiffs and the Company conducted additional settlement negotiations through Judge Politan,
pursuant to which the Settling Parties reached an agreement in principle to settle the Consolidated Action on the terms set forth herein. 
 WHEREAS, R&G has received commitments from certain of the Individual Defendants and from the Company’s insurance carriers to make certain financial contributions toward the Settlement. 
 THEREFORE, as a result of the foregoing, and other things, the Settling Parties have agreed to settle the litigation on the following terms: 

1. The Settling Defendants shall collectively pay $39 million ($39,000,000.00) in cash (the “Settlement Amount”), some of which will be
contributed by certain parties pursuant to previous commitments to R&G by those parties to make certain financial contributions toward the Settlement. The Settlement Amount shall, within five (5) days of entry of an order preliminarily
approving the Settlement, be 

  

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deposited into an interest-bearing escrow account designated by Lead Plaintiffs. This escrow account shall be controlled and maintained by Lead Counsel.

 2. The Company has informed Lead Plaintiffs that the defendants in the derivative action have had discussions concerning the potential
settlement of that action that would, among other things, result in certain changes to the Company’s corporate governance policies and procedures. Lead Plaintiffs have also participated in discussions with the Company concerning changes to the
Company’s corporate governance policies and procedures. 
 3. The Settling Defendants recognize that Lead Plaintiffs intend to pursue
claims against the non-settling defendant. The Settling Defendants agree to comply with their discovery obligations under the Federal Rules of Civil Procedure, subject to any rights to object to discovery. Nothing in this Memorandum shall be
construed as a limitation on the Settling Defendants’ rights to object to discovery. 
 a. The Settling Defendants agree
to produce witnesses requested for depositions pursuant to third-party subpoenas, subject to the Settling Defendants’ rights to object to any such request. Such depositions shall take place in Puerto Rico. The Settling Defendants agree that
their counsel may accept service of deposition subpoenas on their behalf and will work to facilitate the scheduling of such depositions through their respective counsel. 
 b. All Settling Defendants will appear to testify in person at trial, even if they are located outside the Court’s jurisdiction,
whether in the United States or abroad, at the time of trial, provided that Lead Plaintiffs will take 

  

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reasonable steps to accommodate other obligations of the Settling Defendants in scheduling their trial testimony; 
 c. The Settling Defendants also agree to produce documents requested pursuant to Rule 45 of the Federal Rules of Civil Procedure, subject
to the Settling Defendants’ rights to object to any such request; and 
 d. The Company will, at Lead Plaintiffs’
request, take all reasonable steps necessary to confirm the authenticity and admissibility of produced documents. Such steps shall include, but are not limited to, (1) submission of a declaration stating that documents produced by the Company
are authentic and are records of regularly conducted activity as defined in Fed. R. Evid. 803(6), and (2) production at trial of Company witnesses, including those located outside the Court’s jurisdiction, whether in the United States
or abroad, who are necessary, as determined by Lead Plaintiffs, to testify as to authenticity and admissibility. 
 4. The Settlement is
subject to and conditioned upon (a) the Company receiving certain settlement contributions from certain of the Individual Defendants pursuant to agreements between the Company and those Individual Defendants, and (b) the Company’s
insurance carriers’ agreement to pay certain funds in connection with a settlement of the dispute between the Company and the insurance carriers with respect to coverage. 
 5. Lead Plaintiffs and the Settling Defendants agree, subject to the approval of the Court, that, for purposes of this Settlement only, the Consolidated
Action shall be maintained and proceed as a class action pursuant to Rule 23 of the Federal Rules of Civil 

  

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Procedure on behalf of the Class. Lead Plaintiffs and the Settling Defendants will stipulate to the appointment of Lead Plaintiffs as the Class
Representatives. 
 6. Upon final judicial approval of the Settlement, the Consolidated Action shall be dismissed, with prejudice, against
all the Settling Defendants, pursuant to the Stipulation. 
 7. Upon final judicial approval of the Settlement, the Class will release as
against the Settling Defendants, their respective present or former officers, directors, agents, employees, attorneys, stockholders, advisors, investment bankers, commercial bankers, insurers, representatives, trustees, parents and officers and
directors thereof, affiliates and officers and directors thereof, subsidiaries and officers and directors thereof, general and limited partners, heirs, executors, administrators, successors and assigns, all claims and causes of action of every
nature and description, whether known or unknown, whether arising under federal, state, common or foreign law, whether directly, representatively, derivatively, individually or in any other capacity, that Lead Plaintiffs or any member of the Class
(a) asserted in the Consolidated Action, or (b) could have asserted in any forum that relate to or arise out of or are based upon the allegations, transactions, facts, matters or occurrences, circumstances, representations or omissions
involved, set forth, or referred to in the Consolidated Action or that relate to or arise out of the purchase or sale of shares of the Company’s common stock during the Class Period, including but not limited to all claims relating to
(a) the Company’s announcement on April 25, 2005 that it would restate its financial statements for the period January 1, 2003 to December 31, 2004, (b) the Company’s announcement on July 27, 2005 that it
would restate its interim and audited consolidated financial statements for 

  

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the year ended December 31, 2002, (c) the Restatement (including without limitation the audit committee investigation, the results of which are
reflected therein, and any weaknesses in internal controls or remediation of such weaknesses), and/or (d) the Company’s valuation methodology, accounting treatment and/or financial reporting of (i) the Recharacterized Mortgage Loan
Transfers and (ii) the retained interests initially recognized in connection with the Recharacterized Mortgage Loan Transfers. 
 8.
Subject to the discovery contemplated in Paragraph 14 below, Lead Plaintiffs and the Settling Defendants shall promptly prepare and execute the Stipulation embodying the terms of this Settlement and shall promptly submit those papers to the Court
for hearing and approval. The Stipulation will expressly provide, inter alia, (1) for the release of claims as specified in Paragraph 7 above; (2) for a bar order as set forth in 15 U.S.C. § 78u-4(7)(A); and (3) that
the Settling Defendants have denied, and continue to deny, that they have committed or have threatened to commit any violations of law. 
 9.
The Settling Defendants shall not take any position with respect to Lead Counsel’s request or award of attorneys’ fees and reimbursement of expenses, and such matters are not the subject of any agreement between the Settling Defendants and
Lead Plaintiffs other than what is set forth in this Agreement. 
 10. All fees and expenses awarded by the Court to Lead Counsel shall be
paid to Lead Counsel out of the Settlement Amount immediately upon award. In the event that the Settlement does not become effective, or if the final judgment is reversed or modified, or if the Settlement is terminated or cancelled for any other
reason, and in the event that the attorneys’ fees and expenses have been paid to any extent, then Lead 

  

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Counsel shall within five (5) business days from receiving notice to that effect from counsel for the Settling Defendants or from a court of appropriate
jurisdiction, refund to the settlement escrow account any such fees, expenses and costs and interest previously paid to them from the Settlement Amount. 
 11. Plaintiffs shall cause the notice required by Federal Rule of Civil Procedure 23(e) to be printed and mailed to the Class in accordance with the terms of the Stipulation. Lead Counsel may pay from the Settlement
Amount all reasonable costs of providing such notice and of settlement administration. In the event that the Settlement is not consummated, money reasonably paid or reasonably incurred for this purpose, including any related fees, shall not be
returned or repaid to the Settling Defendants or their insurance carriers. 
 12. The parties hereto agree that the Settling Defendants shall
have the option to terminate this Settlement in the event that Class members holding in excess of a certain, to be agreed upon, percentage of the total outstanding shares eligible to participate in the Settlement elect to opt-out of the Settlement
prior to final approval (the “Opt Out Threshold”). Lead Plaintiffs and the Settling Defendants will negotiate in good faith and agree to an appropriate percentage for purposes of this Paragraph 12 prior to submitting this Settlement to the
Court for approval. If the parties are unable to agree, any disputes shall be submitted to Judge Politan to attempt to reach a resolution first by way of mediation. Should such mediation fail to reach a resolution, Lead Plaintiffs and/or the
Settling Defendants may submit such dispute to the Court. Lead Counsel shall have the right to communicate with the holders of such shares and, if a sufficient number of them withdraw their requests for exclusion such that the total number of shares
eligible 

  

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to participate in the Settlement represented by the remaining “opt outs” represents less than the Opt Out Threshold, any termination by the
Settling Defendants shall be deemed withdrawn. 
 13. Lead Plaintiffs and the Settling Defendants and their counsel will use their best
efforts to secure the Court’s final approval of the Settlement described herein. 
 14. Prior to presenting the Settlement to the Court
for approval, Lead Plaintiffs may conduct such additional discovery from the Settling Defendants as the parties agree is reasonably necessary to confirm that the settlement is fair and reasonable to the Class, which discovery shall remain subject to
the Protective Order agreed to among the parties and entered by the Court on January 7, 2008. 
 15. Other than the discovery provided
for in Paragraph 14, Settling Defendants’ obligations to participate in discovery and otherwise comply with the deadlines set forth in the Stipulated Case Management Order entered by the Court on October 11, 2007 in the Consolidated Action
are suspended. Within a reasonable time after the execution of this Memorandum, the parties shall advise the Court of this Memorandum and shall seek a stay of all deadlines pending effectuation of the Settlement. 
 16. This is not a claims-made Settlement. Once the Effective Date (to be defined in the Stipulation) occurs, there will be no reversion or return of
consideration, and neither the Settling Defendants nor their insurance carriers will have the ability to get back any of the Settlement Amount. 
  

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 17. The Settling Defendants and Lead Plaintiffs agree that each has complied fully with the strictures of
Rule 11 of the Federal Rules of Civil Procedure, and that the final judgment will contain a statement to reflect this compliance. 
 18.
Lead Counsel shall be solely responsible for designating the settlement claims administrator, subject to Court approval. Upon execution of the Stipulation, the Company shall provide or cause to be provided to the settlement claims administrator its
shareholder lists as appropriate for providing notice to the Class. 
 19. The Settling Defendants and Lead Plaintiffs agree that the
Settlement Fund is intended to be a Qualified Settlement Fund within the meaning of Treasury Regulation § 1.468B-1. Lead Counsel shall administer the account. All reasonable costs and expenses of class notice and administration of the
Settlement shall be paid from the Settlement Fund when incurred. The account funds, less any amounts paid or incurred for notice, administration, and/or taxes paid or owing shall revert to the person(s) making the deposits if the Settlement does not
become effective. 
 20. Neither this Memorandum nor any documents prepared nor proceedings taken in accordance with the terms set forth
herein shall be construed as or deemed to be evidence, or an admission or concession, either (a) on the part of Lead Plaintiffs, of the lack of merit of the Consolidated Action, or (b) on the part of the Settling Defendants or any of them,
of any liability or wrongdoing whatsoever, which is hereby expressly denied and disclaimed by the Settling Defendants. Neither this Memorandum, nor the fact of its execution, nor any of its provisions, shall be offered or received in evidence in any
action or proceeding of any nature or otherwise referred to or used in any manner in any court or 

  

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other tribunal, except in a proceeding to enforce the terms of the Stipulation or this Memorandum of Understanding. Nothing in this Memorandum shall be
deemed to affect a waiver or relinquishment of any right or defense to the Consolidated Action. 
 21. If the Settlement outlined in this
Memorandum is not approved by the Court or is terminated: (a) the Settlement shall be without prejudice, and none of its terms shall be effective or enforceable, except to the extent costs of notice and administration have been incurred or
expended; (b) the Settling Defendants and Lead Plaintiffs shall revert to their litigation positions immediately prior to the execution of this Memorandum; and (c) the fact and terms of this Settlement shall not be admissible in any trial
of this Action. 
 22. While retaining their right to deny that the claims asserted in the Consolidated Action were meritorious, the Settling
Defendants in any statement made to any media representative (whether or not for attribution) will not deny that the Consolidated Action was commenced and prosecuted in good faith and is being settled voluntarily after consultation with competent
legal counsel. In all events, Lead Plaintiffs and the Settling Defendants shall refrain from any accusations of wrongful or actionable conduct by either party concerning the prosecution and resolution of the Consolidated Action, and shall not
otherwise suggest that the settlement constitutes an admission of any claim or defense alleged. 
 23. If any disputes arise out of the
finalization of the Stipulation, the parties will seek to resolve the dispute by way of mediation with Judge Politan. If for any reason Judge Politan is unavailable or has a conflict, Lead Plaintiffs and the Settling Defendants 

  

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will agree on a substitute neutral to assist the parties in reaching an agreement. If Lead Plaintiffs and the Settling Defendants, after mediation with Judge
Politan or substitute neutral cannot resolve any such dispute that arises out of the finalization of the Stipulation, or cannot agree on a substitute neutral in the event Judge Politan is unavailable or has a conflict, then this Memorandum shall be
enforceable in Court. 
 24. This Memorandum shall be governed in accordance with the laws of the State of New York. 
 25. This Memorandum may be executed in two or more counterparts by any of the signatories hereto, including by facsimile or electronic scan, and as so
executed shall constitute one agreement. 
  

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 IT IS HEREBY AGREED by the undersigned as of February 29, 2008. 
  

									
	BARRACK, RODOS & BACINE	 		 	BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
					
	By:	 	 /s/ M. Richard Komins
	 		 	By:	 	 /s/ Steven B. Singer

		 	Leonard Barrack	 		 		 	Max W. Berger
		 	M. Richard Komins	 		 		 	Steven B. Singer
		 	Jeffrey Barrack	 		 		 	Eric T. Kanefsky
		 	Lisa Lamb	 		 		 	Jeremy Robinson
		 	3300 Two Commerce Square	 		 		 	1285 Avenue of the Americas
		 	2001 Market Street	 		 		 	New York, New York 10019
		 	Philadelphia, PA 19103	 		 		 	(212) 554-1400
		 	(215) 963-0600	 		 		 	
					
		 	 Attorneys for Lead Plaintiff City
 of
Philadelphia Board of
 Pensions and Retirement
	 		 		 	 Attorneys for Lead Plaintiff
 General
Retirement System of
 the City of Detroit

				
	SULLIVAN & CROMWELL LLP	 		 		 	
					
	By:	 	 /s/ Maite Aquino
	 		 		 	
		 	Maite Aquino	 		 		 	
		 	125 Broad Street	 		 		 	
		 	New York, New York 10004	 		 		 	
		 	(212) 558-4000	 		 		 	
					
		 	 Attorneys for Defendant R&G
 Financial
Corporation
	 		 		 	

  

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