Crime

Hialeah mayor faces possible ethics fines for lying about loans to Ponzi schemer

Hialeah Mayor Carlos Hernandez speaks during a meeting in which he and the City council honored the Hialeah Police Department Swat team members for their performance during last year July 27th shooting event that left seven people dead including the gunman Pedro Alberto Vargas
Hialeah Mayor Carlos Hernandez speaks during a meeting in which he and the City council honored the Hialeah Police Department Swat team members for their performance during last year July 27th shooting event that left seven people dead including the gunman Pedro Alberto Vargas EL NEUVO HERALD STAFF

Hialeah Mayor Carlos Hernandez is fighting potential ethics fines for making false statements on the city’s financial disclosure forms and during a news conference about his high-interest loans to a convicted Ponzi schemer.

Hernandez says he is battling a possible $1,500 fine stemming from a complaint filed by the Miami-Dade Commission on Ethics and Public Trust. If the mayor does not resolve the complaint through negotiations — which have been difficult, sources say — he could be the target of a probable-cause hearing before the commission on Dec. 10.

If the commission finds he probably did violate the county’s ethics laws, Hernandez would face a mini-trial, which could lead to fines.

Hernandez, through a spokesman, declined to comment for this story. But in mid-November, the mayor held interviews with selected Spanish-language reporters in an apparent attempt to distract attention from his ethics complaint. Rather than address the complaint head-on, Hernandez issued a press release attacking the commission, its probe and the lead investigator, questioning “the veracity of this claim” against him.

His attorney, Thomas Cobitz, also declined to comment, referring a Miami Herald reporter’s questions to the mayor. “I can’t really comment on that because of the pending litigation,” Cobitz told the Herald last week.

Rhonda Victor Sibilia, the ethics commission’s spokeswoman, declined to verify the existence of a complaint against Hernandez, citing the panel’s policy of confidentiality under a county ordinance.

Hernandez, mayor of Miami-Dade County’s second-largest city, got into hot water with the ethics commission soon after he took the witness stand in the federal tax-evasion trial of his predecessor, Julio Robaina, in Miami federal court last April. Robaina and his wife, Raiza, were accused of failing to report $2 million in income, including high-interest loans to Hialeah jeweler turned Ponzi schemer, Luis Felipe Perez.

As a witness for the prosecution, Hernandez admitted that he charged illegal interest rates of 36 percent — Florida law calls it “loan-sharking” — to Perez from 2007 to 2009. Hernandez testified that he collected $100,000 in interest on a series of loans totaling $180,000 — income that he did not report on his tax returns.

But that’s not why Hernandez faces potential county ethics violations.

Under oath on the stand, Hernandez contradicted the indignant denials he had issued during the 2011 mayoral campaign when asked about his exorbitant loans to Perez. It turned out that Hernandez — a former City Council president who became acting Hialeah mayor when Robaina resigned that year to run for county mayor — had hidden information about Perez’s interest payments from the public.

Back in 2011, Hernandez had angrily denounced a Herald story that reported he was paid about $100,000 in interest by Perez, calling it an attack on his integrity. At a press conference, Hernandez maintained that Perez had only repaid him part of the principal on his loans.

But at the Robainas’ criminal trial, Hernandez testified that he was paid a monthly rate of 3 percent interest — 36 percent annually — on the series of loans to Perez. He answered “Yes, sir,” when questioned by prosecutor Richard Gregorie about his high-interest terms and payments.

Perez paid him $100,000 in interest, Hernandez told the court, adding that he would have to amend his tax returns to reflect the unreported income.

Hernandez did not report any of the payments he received from Perez on his financial disclosure forms, or on his federal tax returns from 2007 to 2009 attached to some of those forms, according to Hialeah government records obtained by the Herald.

The reason: Perez, once a friend to Hernandez, Robaina and other politicians, became a pariah after his $40 million jewelry investment scheme collapsed in 2009 and he stopped making payments to lenders involved in Hialeah’s shadow-banking business. Perez, who began cooperating with the feds and testified at the Robainas’ trial, was sentenced to 10 years in prison for fraud offenses, which was later cut in half for his assistance.

At trial, the Robainas were found not guilty of all tax-evasion charges. Hernandez faced no charges. Prosecutors called him as a witness solely to bolster their case against the Robainas.

Under federal law, interest income must be reported to the IRS even if a financial deal later goes awry. While Hernandez ultimately lost money in the shadow-banking scheme, he would not have known that when he entered into the loan agreement with Perez and began receiving interest payments.

Hernandez’s tax returns were attached to the real-estate and financial-interest disclosure forms he filed with the city of Hialeah.

His 2009 tax return, from before his tenure as mayor, listed his profession as “councilman and investor.” He also served as a Hialeah police officer before venturing into politics.

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