Hialeah Mayor Carlos Hernandez, testifying under oath Wednesday in the tax-evasion trial of his predecessor, acknowledged that he too had taken part in the city's “shadow” banking business that charged astronomical interest rates on loans.
That under-the-radar industry has put former Hialeah Mayor Julio Robaina in the cross-hairs of federal prosecutors. They have charged him and his wife with hiding some $2 million in income to avoid paying taxes — including secret cash payments from 36 percent interest charged on $750,000 in loans made to a convicted Ponzi schemer.
Hernandez doesn’t face any charges himself, but under questioning he admitted he collected the same inflated interest on $180,000 in loans he made to con man Luis Felipe Perez — contradicting denials he had issued during the 2011 mayoral campaign.
Back then, Hernandez had angrily denounced a Miami Herald story that reported he was paid about $100,000 in interest by Perez, calling it an attack on his integrity. He claimed that Perez had only repaid him part of the loan principal.
But at the Robainas’ criminal trial, Hernandez testified that he was paid a monthly rate of 3 percent interest — 36 percent annually — on a series of loans between 2007 and 2009. He answered “Yes, sir,” when questioned by prosecutor Richard Gregorie about his high-interest terms and payments.
Hernandez was called as a witness to support the prosecution's claim that Robaina, too, charged the con man 36 percent and collected about $300,000 in cash payments that he allegedly failed to report on his income tax returns. Robaina and his defense attorney have asserted that he charged Perez 18 percent interest and collected only check payments, but no cash.
Previously at trial, Perez himself testified that he paid 36 percent interest on loans from Robaina, Hernandez and others.
Both Robaina and Hernandez, while serving as Hialeah politicians, participated in the city’s shadow banking industry, which provided millions of dollars in loans to Perez as he bilked lenders to sustain a $40 million Ponzi scheme until its collapse in 2009.
After he left the courtroom Wednesday, Hernandez said he was asked by prosecutors before the start of the Miami federal trial last week to testify for the government.
“I came here as a victim of Perez’s fraud,” Hernandez told reporters. “I am doing my part as a good citizen.”
The hearing was something of a Hialeah mayoral reunion, with another former officer holder also in court.
Raul Martinez, the city’s best-known politician, has been attending as a spectator since Monday. In the 1990s, Martinez beat corruption charges at his own criminal trial.
Last year, a federal grand jury indicted Robaina, 49, and his wife, Raiza, 40, on charges of conspiring to evade paying taxes between 2005 and 2010. The main conspiracy charge in the indictment accuses the Robainas of overstating losses on their businesses and understating gains in their personal income, failing to report about $2 million.
It further charges that the couple’s reported income swung wildly from a loss of $62,015 in 2006 to a gain of $1,023,672 in 2007, when they knew their “total income was greater than reported” in both years.
Both Robainas also are charged with lying to federal agents about his involvement in his wife’s two lending businesses, and he alone is charged with lying about receiving the undisclosed cash.
When Robaina ran for Miami-Dade mayor in May 2011, Hernandez was elevated from Hialeah Council president to acting mayor of the county’s second-largest city.
That October, during his re-election bid for Hialeah mayor, the Herald reported that Hernandez received about $100,000 in interest payments on loans he made to Perez, who was already serving a 10-year prison sentence after pleading guilty to fraud charges.
Records show that Hernandez did not list his loans or the interest income on his financial disclosure forms filed with the county and Hialeah. Those records showed that he also failed to disclose the interest he earned on his $180,000 in loans to Perez on his federal tax returns for 2007-09.
At the time, Hernandez, a former Hialeah police officer, told the Herald that Perez was a crook who had stiffed him on the loans.
“This is a guy who stole from me,” he said. “The [loan] principal was not recovered. He owes me my principal.”
Hernandez became so upset about questions regarding his apparent failure to disclose Perez’s interest payments that he called a news conference to denounce the “malicious intentions of the Miami Herald,” which he said was trying to derail his campaign.
At the Oct. 13, 2011 news conference, Hernandez said Perez, the convicted Ponzi schemer, never paid him any interest on the $180,000 in loans, so he didn't have any interest income to report on his federal tax returns. He said Perez paid back part of the principal on the loans, but no interest.
“I will not let any newspaper question my integrity based on the word of a convicted felon like Luis Felipe Perez,” Hernandez said at his campaign headquarters. He also pointed out he was “under no investigation.”
The acting mayor did not answer questions about a series of 37 checks for $2,400 and $3,000 that he received from Perez between April 2007 and February 2009 — some of which were displayed in federal court Wednesday by prosecutors to showcase the sky-high interest rate.
Gregorie, the prosecutor, stated the two checks a month Hernandez received reflected a 36 percent annual interest rate.
Hernandez, who won the November 2011 mayoral election handily, agreed: “Yes, sir.”