In a matter of first impression in Puerto Rico, and applying Delaware law, District Judge Gustavo Gelpi dismissed all the claims against 11 defendants, all of whom were the most senior executives at Westernbank, formerly Puerto Rico’s second largest bank. Westernbank, a $10 billion bank with hundreds of branches scattered throughout the island, was closed by the FDIC in 2010 for reasons unrelated to the lawsuit.
The derivative lawsuit, brought by a shareholder of the bank, alleged that the majority of the board of directors and senior management purposely ignored the warning signs of a massive, $200 million structured fraud initiated against the bank’s asset based lending division by a significant client of the bank. The shareholder claims included breach of fiduciary duties as officers and directors of the bank, waste of corporate assets, unjust enrichment, Sarbanes-Oxley violations, and violations of numerous Puerto Rican statutes.
Attorneys Carlos F. Concepcion, Manuel A. Rodriguez and Scott A. Burr, and Forensic Investigator and CPA Francisco Gomez, assisted the Special Litigation Committee of the board of directors in determining the viability of multiple derivative claims initiated against the bank’s officers and directors.
The investigation involved a review and analysis of over 100,000 documents related to the fraud and interviews of nearly 40 bank officials, directors and officers with knowledge of the events leading to the fraud. The Committee’s report, a nearly 200 page single-spaced report detailing its factual and legal analysis, was ultimately filed with the court along with the Committee’s motion to terminate or otherwise dismiss the case. The factual investigation also required detailed analysis of Westernbank’s internal control systems and their remediation that resulted from nearly a dozen third-party reports and analysis.
Resolution of the derivative claims required a full and thorough investigation, however, as the Committee had to be careful not to enhance or otherwise fuel the parallel class action case that was asserted concurrent to the derivative claims.
The Committee and its counsel also had to be very careful not to waive claims of privilege or otherwise divulge sensitive or confidential proprietary information.
The forensic investigation was conducted through the prism of the legal claims being asserted, and the investigators and attorneys had to understand the factual significance of the events and legal elements of the claims. This interplay would have been very difficult without attorneys who were also experienced forensic investigators themselves.
The Special Litigation Committee had no subpoena power, and sought the cooperation of the corporation’s inside counsel, whose ultimate allegiance was to the corporation.
The Special Litigation Committee, while comprised of members of the board of directors, had to maintain its independence, both in appearance and in fact, while adjudicating the claims. This tightrope dictated that the Special Litigation Committee not permit either the corporation’s counsel or plaintiff’s counsel to dictate or otherwise manage the investigation and its conclusions. The Special Litigation Committee, though, sought the cooperation of plaintiff’s counsel, the corporation and its counsel.
In its lengthy order, the Court held that:

The Special Litigation Committee members did not have such significant commercial ties to the defendants to render them impartial to their duties;
Formation of the Special Litigation Committee did not raise serious questions as to their ability to independently assess the shareholder’s claims;
The Special Litigation Committee acted in good faith and conducted a reasonable investigation upon which it based its conclusions, and
The Special Litigation Committee’s recommendation that the derivative action be summarily terminated was reasonable.
The court declined to exercise its own independent judgment because the result reached by the Special Litigation Committee was not “irrational or egregious”.

In reaching its conclusions, the District Court validated several years of independent research by Francisco Gomez and Manuel Rodriguez. Both Mr. Gomez, who lead the initial factual investigation, and Mr. Rodriguez, are Certified Public Accountants and Certified in Financial Forensics. Additionally, Mr. Rodriguez is also an attorney.
Ultimately, Westernbank became a victim of the excesses of the national banking industry this decade. It’s irrational commercial real estate lending practices, coupled with a severe economic downturn in Puerto Rico led to its demise. The fraud perpetrated against it in this instance was but a drop in the proverbial bucket. Mitigation of this fraud, even at the onset, would not have stemmed the flood of losses that it eventually would realize and that doomed the stricken bank.

The US has begun a long slog into the cycle of decay and vacuum of leadership that characterizes all great empires whose suns are fading.
We have witnessed the hubris of endless cycles of war and conquest that have characterized the Roman, Greek, British and Spanish empires, and more recently, the German Reich and the Soviet Union. Nearly every continent and empire has held unbridled power briefly, but none has been able to hold it for long. The Romans succeeded chiefly because of the relative weakness and tribal instincts that characterized their vanquished enemies, but even they were ultimately defeated by their own demons and internal failings.
These failings were principally characterized by an inability to recognize the unsustainable nature of their societies and the economic models on which they were premised. Marching vast armies through multiple continents became economically and politically unsustainable for the Roman Empire, which entrusted its unceasing demands for territory and power to professional armies that would spend years abroad and far removed from the Roman homeland. The German Army would march its Panzer units abroad for years, virtually requiring that these specialized army units reposition themselves as occupiers, rather than conquistadors.
Meanwhile, the local populace, ignorant of the back-breaking cost of these armadas, continued to cheer the endless conquests and territorial expansion of their homelands. Nationalistic fervor and pride, bordering on nihilistic self-approbation, continued unabated. No sacrifice was required, no penalty or tax was paid for this unceasing expansion, until virtually the end of their empires. The populace was ultimately deluded into a vision of guilt-free expansion, politically and economically, that required no excessive or burdensome levy on their current lifestyles.
We have witnessed a similar paradigm of empire-building and decay in the United States in the last 30 years. We have fought wars, namely the Korean, Vietnam, Iraq 1, Iraq 2 and Afghanistan wars. These wars have required little to no participation, tax or pain by the general American public, socially, politically or economically. Indeed, most Americans have come to believe that these wars have been relatively painless and have cost little in blood, sacrifice and economic contraction.
While these wars were fought, serious economic and political challenges occurred at home. American’s have inured themselves to the severe economic challenges facing this country. A duopoly of two political parties, both entrenched by extremists within their own ranks, contributes to a toxic environment of extreme political correctness. No major reforms are possible and public discourse is reduced to the merely inane. Vacuous platforms have numbed and desensitized our citizenry. Outside of the Beltway, no one really pays attention anymore.
Who is the Guy in the Gray Range Rover? He is every upper-middle-class individual who continues to ignore the symptoms of failing empire. He uniquely characterizes the suburban class in this country. He is every man enamored of his own image, enthralled by his economic self-sufficiency and independent means. This is the group that stands to lose the greatest in this seemingly unending downward spiral, and yet remains blissfully oblivious to its decay. The Guy in the Gray Range Rover is a white, suburban male, in his 40’s, married and has children. He owns his own business, has children who are in private schools, his wife drives a BMW, and his house is heavily mortgaged. He is quite likely Republican, drinks scotch, and is rabidly anti-tax. He is the perfect portrait of a contented, domesticated, upper middle-class existence. He is satisfied with his life, rejects any substantial social or political changes, and views the inertia favorably. He and his wife have little sex, so he satisfies this sexual deficit through clandestine affairs, refuses to disrupt his marriage, and is largely content with the status quo. He ignores the epochal changes enveloping him, society and his family. He is the epitome of upper and middle class America, immune, smug, and satisfied.
This characterization could have been repeated in ancient Rome, Greece, the German Reich, or any other empire facing systemic struggles. The fact remains that change is uncomfortable, destabilizing, stressful and filled with unknown and unintended consequences. As selfish as past generations and empires, the Guy in the Gray Range Rover is intent on preserving his social and economic well-being at the expense of future generations. The Guy in the Gray Range Rover has faced no serious consequences from these wars and the deficits they’ve occasioned, in fact, his overall tax burden has likely been lowered. His businesses continue to cater to crowds much like himself, oblivious to the impending schism occurring throughout society, and not caring much about its impact, as long as he and his family’s lifestyle remains unaffected.
The chasm occurs between the Guy in the Gray Range Rover and the rest of America. The reality of American life is such that a growing polarization between the Range Roving elite and the rest of the country is quickly occurring. Those that still hold power and the economic strings remain largely unaffected by the economic malaise affecting working class Americans and the backbone of our own reich. The costly wars, endless bailouts, and near-constant money printing have yet failed to impact the Guy in the Gray Range Rover, but have decimated the working class existence of middle and lower class America. These groups will find themselves burdened by permanent and structural 10% unemployment for the foreseeable future. No longer will young Americans look forward to rising prosperity as part of the social contract resulting from years of acquiring costly and increasingly meaningless student loans. No longer will future generations enjoy a heightened standard of living.
The very rich and merely rich will always remain unaffected by economic strains and discontent, their real living standards largely unaffected. The lower classes, never having acquired much in even the best of economic circumstances, will merely work harder to subsist. The greatest impact will occur to the Guy in the Gray Range Rover and his family, as his customer base is whittled, his taxes inevitably rise, and his savings and investments are consumed. For at least the near-term future, we will increasingly begin to resemble the Latin American continent, which has long exhibited a shrinking or insubstantial middle-class. Increasing wealth concentration among a substantially smaller upper class will create havoc for the Guy in the Gray Range Rover, who has long aspired to join the more elite class. His ability to seek alternative means of income, a simple re-calculation and re-calibration in the last decade, will be permanently impaired.
For now, the upper middle class will remain pliant, content in its bohemian excess and business-as-usual attitude. The Guy in the Gray Range Rover will remain blissfully unaware of the changes enveloping his life and society, the destruction of his customer base, and the political indecision and toxicity of our leadership. The Guy in Gray Range Rover has noticed the social upheaval, but his lifestyle choices and intellectual laziness render him incapable of any drastic change. He will blame the masses for their unending entitlements, blame our leadership for their failure to relieve his regulatory burdens, and seek relief from those in social classes superior to himself. In the end, all empires implode from their inability and unwillingness to seek social and economic justice and re-direct their resources to justifiable and meaningful goals. The goals of a few select classes eventually conflict with those of the greater majority, resulting in social strife and turmoil. Let’s hope the Guy in the Gray Range Rover understands this, soon.