MIAMI-DADE COUNTY COMMISSION ON ETHICS & PUBLIC TRUST !

! !!PROBABLE CAUSE MEMORANDUM !!

TO: Commission on Ethics and Public Trust !FROM: Miriam Soler Ramos, Deputy General Counsel !Re: Complaint C14-036 (In re: Carlos Hernandez) !DATE: October 1, 2014 !!Recommendation: !

A finding of Probable Cause should be entered in the above captioned matter. Probable

Cause exists where there are reasonably trustworthy facts and circumstances for the Commission

on Ethics and Public Trust (COE) to conclude that Respondent should be charged with violating

Section (A)(2) of the Citizens’ Bill of Rights (CBR), Part I, Miami-Dade County Home Rule

Charter, entitled Truth in Government.

Jurisdiction:

COE has jurisdiction pursuant to Section (A)(17) of the CBR which states, “the

County shall, by ordinance, establish an independent Commission on Ethics and Public Trust

comprised of five members, not appointed by the County Commission, with the authority to

review, interpret, render advisory opinions and enforce the county and municipal code of ethics

ordinances, conflict of interest ordinances, lobbyist registration and reporting ordinances, ethical

campaign practices ordinances, when enacted, and the citizens’ bill of rights.” Section

2-1072(b), states “violations of the Citizens’ Bill of Rights are subject to the penalties set out in

Section 2-11.1(cc)(1) of the Miami-Dade County Conflict of Interest and Code of Ethics

Ordinance.”

Background:

Between 2005 and 2011, Respondent was an elected official in the City of Hialeah (the 1

City).

On March 1, 2007, Respondent loaned $100,000 to convicted Ponzi schemer Luis Felipe

Perez (Perez), as part of an underground “shadow-banking” system that existed in the City of

Hialeah at the time. Unlike other individuals who loaned Perez money, including former Hialeah

Mayor Julio Robaina and his wife, Raiza, Respondent did not receive a formal collateral

agreement, contract or promissory note from Perez.

The Robainas were eventually charged with one count of conspiring to defraud the

United States and two counts of making false statements to federal agents. The conspiracy 2

charge alleged that the couple conducted financial transactions in a manner that concealed their

true nature, concealed information from their tax preparer, signed false tax returns that

understated their true income (including interest paid by Perez before his Ponzi scheme

collapse), and in Julio Robaina’s case, filed corporate tax returns that also overstated losses. 3

! 2C14-036

From 2005 through May 2011 Respondent was a Councilman for the City. In May 2011 Respondent was 1

appointed interim Mayor; he was subsequently elected Mayor of the City in a special run-off election on November 15, 2011.

United States District Court, Southern District of Florida, Case No. 13-20346-Cr-UNGARO.2

The Robainas were acquitted after a 6-week jury trial. 3

According to Perez and consistent with the evidence as presented by the United States

Attorney’s Office (USAO) in U.S. v. Julio Robaina et al (the Robaina trial), under the terms of

the verbal loan agreement, Perez was to pay Respondent three (3) percent interest per month or

$3,000 on that loan, 36-percent interest annually which amount constitutes an illegal usurious

rate. 4

On April 4, 2007, Perez paid Respondent the first $3,000 monthly interest payment, using

check number 1013. Thereafter, Perez continued to pay the same amount monthly until May

2009.

In July 2007, Respondent loaned Perez an additional $80,000. On July 23, 2007, Perez

deposited check number 2407 from Respondent in the amount of $60,000 written to “Lucky Star

Diamond[s].” In the memo line of check 2407, Respondent wrote, “loan/investment” [emphasis

added]. On the same date, Perez deposited the remaining $20,000 in the form of a Total Bank

cashier’s check from Respondent made out to “Lucky Star Diamond[s].” According to Perez and

again consistent with the evidence presented in the Robaina case, the terms of this verbal loan

agreement were similar to the first: Perez was to pay Respondent three (3) percent interest per

month, or $2,400, amounting again to the illegal interest amount of 36 percent annually.

On August 23, 2007, Perez began giving Respondent the equivalent of two (2) checks

monthly: one for $3,000 and another for $2,400. This practice continued until May 2009. 5

Exhibits introduced in the Robaina trial show Respondent received a total of $126,000 in interest

payments between April 2007 and May 2009. In December 2010, Perez was sentenced to 10

! 3C14-036

It is a second degree misdemeanor for lenders to charge more than 25 percent annual interest. The statute of 4

limitations for violation of usury laws is 1 year. See F.S. 687.01(2).

In January 2008, Perez missed a $2,400 payment on the $80,000 loan 5

years in prison for securities fraud and a concurrent five year sentence for bank fraud, and was

ordered to pay $10 million in restitution. He has cooperated with government prosecutors and

continues to do so, in the hopes of reducing his sentence.

Respondent was appointed interim Mayor of the City in May 2011 after then-Mayor

Robaina resigned to run for Mayor of Miami-Dade County. During the fall of 2011, Respondent

was campaigning to retain the position of Mayor.

As an elected official, Respondent was required to file a Statement of Financial Interest

(Form 1) disclosing the sources of his primary and secondary income. Respondent filed Form 1s

for 2007, 2008 and 2009. Respondent was required to disclose the payments he received from

Perez in his 2007, 2008 and 2009 Form 1s since they were sources of income. In his Form 1 for

2007, Respondent was required to disclose the $39,000 he received in interest payments from

Perez; he did not do so. In his Form 1 for 2008, he was required to disclose the $62,400 he

received in interest payments from Perez; he did not do so. In his Form 1 for 2009, Respondent

was required to disclose the $24,600 he received in interest payments from Perez; he did not do

so.

On October 12, 2011, the Miami Herald published an article accusing Respondent of

lending funds to Perez at usurious rates and of not disclosing the interest earned on the loans as

income in his financial disclosure forms.

The next day Respondent, who was the interim Mayor at the time and running for

election, called a press conference to address the allegations made in the article. Footage from

the press conference aired on multiple television stations in Spanish and English. The press

conference was also disseminated on YouTube in both Spanish and English.

! 4C14-036

During the Spanish-language press conference, Respondent stated, “I invested money

with Mr. Luis Felipe Perez and never recovered my original investments; therefore there were

never earnings to declare in my income tax.” Later, Respondent stated that a $2,500 check he

deposited was “part of recovering my original investment.”

During the English-language press conference, Respondent stated, “I invested money

with Luis Felipe Perez and never recovered my original investments. So I never had profits to

report on my tax statements.” Later, in response to a question he stated, “…my agreement was

principal. Always…a few times…that I made investments in movies or anything like this, I’d

get my principal back…”

COE investigators showed the YouTube videos to three reporters who attended the press

conference – all three authenticated them as complete, accurate and unaltered. The COE

subsequently obtained via subpoena a complete copy of the unedited Spanish version of the press

conference directly from WJAN-Channel 41.

On November 15, 2011, Respondent was elected Mayor of the City of Hialeah to

complete the two (2) years remaining on Robaina’s term. On November 5, 2013, Respondent

was re-elected Mayor.

On April 14, 2014, Respondent was called to testify in the Robaina trial as a prosecution

witness. Respondent, who testified without an immunity agreement, was essentially called to

help the prosecution bolster testimony it had already received from convicted Ponzi-schemer

Perez, who painted a picture of the underground “shadow-banking” industry that thrived in

Hialeah.

! 5C14-036

When placed under oath, Respondent told a different story than the one he told reporters

at the October 13th, 2011 press conference and at various campaign events that season.

Responding to questions from federal prosecutor Richard Gregorie (Gregorie), Respondent

admitted loaning Perez $180,000 with the expectation of 3 percent monthly interest payments, or

36 percent annual returns, which would violate state usury statutes. Respondent also testified

that he received more than $100,000 in interest payments from Perez, but none of the principal

when the Perez Ponzi scheme collapsed in 2009. Respondent’s testimony from the Robaina trial

states as follows:

Q: So he paid you over $100,000 in interest up till that point?

A: Somewhere – in that investment, somewhere in that area, sir, yes, sir.

Q: But you hadn’t taken anything off the principal. You hadn’t taken anything off the

principal? He still owed you $180,000?

A: I believe so. Yes, sir. I’m sorry. 6

Respondent’s sworn testimony directly contradicts the statements that he made to the

public at the October 13, 2011 press conference.

After testifying in federal court, it is clear that Respondent received $126,000 in interest

income.

Relevant Ordinances

Section (A)(2) of the Charter, entitled Truth in Government, states, in pertinent part:

“No County or municipal official or employee shall knowingly furnish false information on any public matter, nor knowingly omit significant facts when giving requested information to members of the public.”

! 6C14-036

Transcript of Respondent’s federal court testimony in USA v. Robaina et al., P. 12, Lines 18-25.6

!Section 2-1072(b) of the Miami-Dade County Code, states, in pertinent part:

“Violations of the Citizens’ Bill of Rights are subject to the penalties set out in Section 2-11.1(cc)(1) of the Miami-Dade Conflict of Interest and Code of Ethics Ordinance.” !

COUNT ONE

On or about October 13, 2011, Respondent violated Section (A)(2) of the Charter when

he stated, during a Spanish-language press conference and to Spanish-speaking media, that he

had never received interest payments from Perez on the money he loaned him, when, in fact, he

received up to $5,400 per month in interest payments from Perez from March 2007 through May

2009 . Respondent “knowingly furnished false information on a public matter,” when he filed 7

his Form 1 in 2007, 2008 and 2009, and failed to acknowledge the interest income he received

from Perez during those years. Respondent further “knowingly furnished false information on a

public matter,” when he made false statement at the October 2011 press conference.

Furthermore, during the press conference, Respondent “knowingly omit[ed] significant facts

when giving requested information to members of the public,” who viewed the taped press

conference.

COUNT TWO

On or about October 13, 2011, Respondent violated Section (A)(2) of the Charter when

he stated, during an English-language press conference and to English-speaking media, that he

had never received interest payments from Perez on the money he loaned him, when, in fact, he

received up to $5,400 per month in interest payments from Perez from March 2007 through May

2009. Respondent “knowingly furnished false information on a public matter,” when he filed his

! 7C14-036

Respondent received $3,000 per month from March 2007 through July 2007. 7

Form 1 in 2007, 2008 and 2009, and failed to acknowledge the interest income he received from

Perez during those years. Respondent further “knowingly furnished false information on a

public matter,” when he made false statement at the October 2011 press conference.

Furthermore, during the press conference, Respondent “knowingly omit[ed] significant facts

when giving requested information to members of the public,” who viewed the taped press

conference.

Conclusion: ! A finding of Probable Cause should be entered as to Counts One and Two as there is

substantial evidence to prove that Respondent violated §§ 2-11.1(A)(2) of the Charter.

! 8C14-036