Opinion ID: 202748
Heading Depth: 3
Heading Rank: 1

Heading: The Gutiérrez Loans

Text: 3 During the relevant time period charged in the Third Superseding Indictment, Muñoz-Franco was President and Chief Executive Officer of Caguas Central Federal Savings Bank of Puerto Rico (Caguas), a federally chartered savings and loan association. Sánchez-Arán was Executive Vice President and Chief Lending Officer of Caguas. Gutiérrez was a land developer who owned several companies that received loans from Caguas. Umpierre-Hernández was an officer of several companies belonging to Gutiérrez. 4 For nearly a decade, Muñoz-Franco and Sánchez-Arán supervised a scheme to use proceeds from various loans for purposes not authorized by Caguas' Board of Directors (Board). 1 The loans were granted for land development projects involving companies that Gutiérrez owned and Umpierre-Hernández helped to operate, including Transglobe, Modules, and Transhore. In many instances the appellants used proceeds from loans to Gutiérrez-owned companies to make payments on prior loans to Gutiérrez-owned companies without Board approval. In other instances Muñoz-Franco and Sánchez-Arán submitted loans to Gutiérrez-owned companies to the Board for approval without disclosing the Gutiérrez-owned companies' failure to complete work on previous projects. On many occasions Gutiérrez and Umpierre-Hernández submitted certifications for construction work that had not yet been completed, and Muñoz-Franco and Sánchez-Arán accepted the certifications and ordered disbursement of funds for the projects. The Board also was not informed of this practice. In January 1988, Muñoz-Franco drafted and obtained Board approval to send a letter to Richard Denby, the Federal Home Loan Bank Board auditor supervising Caguas, which responded to Denby's concerns regarding Caguas' lending practices (Denby letter). The letter contained many misrepresentations regarding the status of Gutiérrez-related projects and loans. 5 As the government explained in its opening statement, this scheme contributed to the appearance that Caguas remained a financially viable institution under the leadership of Muñoz-Franco and Sánchez-Arán. If the problems with the bank became known and Muñoz-Franco and Sánchez-Arán were removed from their positions, not only would that have deprived them of a very lucrative job, but it also would have made it very difficult for them to obtain new employment in the banking industry. The scheme also maintained the appearance of solvency for the Gutiérrez companies, thus protecting the livelihood and professional reputation of Gutiérrez and Umpierre-Hernández. 6 The projects for which Gutiérrez-owned companies received loans included La Marina, Los Mameyes, Cerrovista, and Jardines de Villa Alba. We provide a brief overview of these projects here. 2 7
8 In June 1980, Muñoz-Franco and Sánchez-Arán caused Caguas to grant a $1,450,000 loan to Transglobe to finance the construction of seventy-five units of residential housing, with construction to begin within one month and to be completed within one year. As of September 1981, the loan limit had been increased four times, adding a total of $1.8 million, yet not a single house had been built. Funds were disbursed from the loan for the project based on certifications submitted by Gutiérrez and Umpierre-Hernández and approved by Sánchez-Arán, and approximately $2 million was used to pay unrelated Gutiérrez debts with a different bank. In October 1984, Muñoz-Franco and Sánchez-Arán caused Caguas to finance the sale of the La Marina project to DO.W Group. The agreement for this sale provided that Transglobe would remain the contractor for the project despite its failure to build a single house in the preceding four years. In approving the loan, the Board was not informed of Transglobe's prior poor performance. After this sale, appellants continued to apply funds from the La Marina loan to other projects and to disburse funds for work not completed. Not a single house was ever built on the project, and, in 1989, Caguas entered into a settlement agreement with DO.W releasing DO.W's debt on the project, which totaled over $2 million. 9
10 In late 1985, Muñoz-Franco and Sánchez-Arán caused the Board to grant Modules a commercial line of credit to build two hundred housing units. Between December 1985 and March 1986, Gutiérrez and Umpierre-Hernández submitted a series of certifications stating that a total of two hundred housing units had been built. Even though Caguas' inspector reported that only fifty-five units had been completed, Sánchez-Arán approved disbursements totaling about $800,000. In March 1986 Gutiérrez and Umpierre-Hernández submitted a certification requesting $69,000 for payment of subcontractors, but attached a list of interest payments due on the Jardines de Villa Alba, Levittown, Country Club, La Marina, and Los Caciques projects totalling exactly $69,000. Sánchez-Arán approved the certification and Caguas disbursed the funds. 11
12 In the spring of 1986, John Burns, a developer, applied to Caguas for a loan to build residential housing on land he owned but his application was denied. After meeting with Umpierre-Hernández and agreeing to use Modules as a contractor, Caguas approved Burns' application for a loan to build twenty-three units of housing in what became known as the Cerrovista project. Burns' loan was approved on the condition that he sign a $2 million note as a down payment to Modules. Burns signed the note. Shortly thereafter, however, Umpierre-Hernández told Burns that the project needed a new sponsor because Burns had been gossiping. Umpierre-Hernández then began to negotiate the sale of Cerrovista to Iantho, a company owned by Walter Frambes. In August or September 1986, Burns read newspaper articles indicating that the Cerrovista project might be affected by the Puerto Rico Department of Transportation's plans to build a hospital and an expressway. He inquired with the Department and received confirmation that the development of four lots would be frozen. When Burns brought this information to Umpierre-Hernández, Umpierre-Hernández told him to hide it, boy. 13 On September 10, 1986, Sánchez-Arán received Board approval to offer Iantho an $8.9 million loan, specifying that $1,412,177 would be used to purchase land for the Cerrovista project. The sale was then finalized on September 28. However, the actual land cost was only $480,000, and the remaining $932,000 was used to make principal and interest payments on other loans to Gutiérrez-owned companies. Over the next few months Gutiérrez and Umpierre-Hernández submitted certifications showing approximately $908,000 for premanufacture of housing units, and Sánchez-Arán authorized disbursement of these funds. As of May 1988, however, not a single unit had been built on the project. 14
15 In 1985, a developer named Emilio Montilla sought financing to build housing units on land he owned, and Caguas repeatedly denied his requests. Montilla then met with Umpierre-Hernández, who told him that if he used Modules as a contractor his request would be approved. In July 1985, the Board considered a proposed loan to Montilla with Modules as contractor. Although by this time Modules had failed to perform on the La Marina project for several years, the Board was not informed of this information when it considered the Jardines de Villa Alba project. Moreover, over $231,000 was disbursed before the Jardines de Villa Alba loan agreement was signed. Although the Board eventually approved the loan, this prior disbursement took place without Board knowledge or approval. Only one unit was ever completed on the Jardines de Villa Alba project. However, the Board was not informed of this fact. The Denby letter, which was drafted by Muñoz-Franco in January 1988 and signed by the Board members, refers to the units completed on this project.