Doral Financial Corporation ("Doral" or the Company) was organized in 1972 under the laws of the Commonwealth of Puerto Rico and operates as a bank holding company. Doral's principal operations are conducted in Puerto Rico, with growing operations in the United States, specifically in the New York City metropolitan area, as well as in northwest and south Florida.

Several purported shareholder class action lawsuits have been filed against Doral and certain of its present and former executive officers. Specifically, the Complaint alleges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Statements issued by the Defendants were materially false and misleading when made because they failed to disclose that the Company used actual 90-day London interbank offer rates ("LIBOR") rates instead of the forward LIBOR curve, which is customary, to value its floating rate interest only ("IO") Strips. As a result of such unusual methodologies, during the Class Period: (1) the Company's IO Strip portfolio was materially overvalued; (2) the Company's net income and net gain on mortgage loan sales were materially overstated; (3) the Company's return on equity and return on capital were materially overstated; and (4) the Company's reported net capital was materially overstated. Defendants also failed to disclose to investors that the Company's risk management, hedging strategies, and internal controls were deficient and would not protect the value of Doral's IO Strip portfolio in a rising-rate environment, despite repeated reassurances to the contrary.

The Complaint further alleges that on or around April 19, 2005, Doral announced that it was restating its financial results for 2000 through 2004. The restatements were made to correct the accounting treatment for the value of its IO Strip portfolio. The Company said the restatement will result in a decrease in the fair value of the securities by $400 to $600 million. It said it estimates it will eventually have to take a $290 million to $435 million charge for the required adjustments. In a press release, the Company stated that "management concluded that the previously filed interim and audited financial statements for the periods from January 1, 2000, through December 31, 2004, could be materially affected and, therefore, should no longer be relied on and that the financial statements for some or all of the periods included therein should be restated." Since January 3, 2005, the price of Doral's common stock has dropped from $48.50 a share to below $16 a share.

As summarized by the FORM 10-Q for the quarterly period ended June 30, 2006, following the announcement of the restatement, Doral and certain of its officers and directors and former officers and directors were named as Defendants in eighteen purported class action lawsuits filed between April 20, 2005 and June 14, 2005, alleging violations of federal securities laws. Sixteen of these actions were filed in the U.S. District Court for the Southern District of New York and two were filed in the U.S. District Court for the District of Puerto Rico. These lawsuits, brought on behalf of shareholders who purchased Doral securities as early as May 15, 2000 and as late as May 26, 2005, allege primarily that the Defendants engaged in securities fraud by disseminating materially false and misleading statements during the class period, failing to disclose material information concerning the valuation of the Company’s IOs, and misleading investors as to the Company’s vulnerability to interest rate increases. The two actions not initially filed in the U.S. District Court for the Southern District of New York have been transferred there by the Judicial Panel on Multi-District Litigation for coordinated or consolidated pretrial proceedings with the actions previously filed there before Judge Richard Owen. On February 8, 2006, Judge Owen entered an order appointing the West Virginia Investment Management Board as lead Plaintiff and approving the selection of Lerach Coughlin Stoia Geller Rudman & Robbins LLP as lead Plaintiffs’ Counsel. On June 22, 2006, the lead Plaintiff filed a consolidated amended Complaint alleging securities fraud during the period between March 15, 2000 and October 25, 2005, based on allegations similar to those noted above, as well as based on the reversal of certain transactions entered into by Doral with other Puerto Rico financial institutions and on weaknesses in Doral’s control environment as described in the Company’s amended annual report on Form 10-K for 2004. The consolidated amended Complaint seeks unspecified compensatory damages (including interest), costs and expenses, and injunctive relief. On September 15, 2006, all Defendants moved to dismiss the amended Complaint based on contentions that, as a matter of law, the allegations of the amended Complaint fail to state a claim upon which relief may be granted.

In a press release dated April 30, 2007, as part of the settlement, the Company and insurers will pay an aggregate of $129 million, of which insurers will pay approximately $34 million. In addition, one or more individual Defendants will pay an aggregate of $1 million (in cash or Doral stock). The Company also agreed to certain corporate governance enhancements. The settlement is subject to notice and approval from the U.S. District Court for the Southern District of New York. The Company's payment obligations under the settlement agreement are subject to the closing and funding of one or more transactions through which the Company obtains outside financing during 2007 to meet its liquidity and capital needs, including the repayment of the Company's $625 million senior notes due on July 20, 2007, payment of the amounts due under the settlement agreement and certain other working capital and contractual needs. Either side may terminate the settlement agreement if the Company has not raised the necessary funding by September 30, 2007 or if the settlement has not been fully funded within 30 days from the receipt of such funding. As a result of this settlement agreement, Doral established a litigation reserve and recorded a one-time charge to the Company's full-year financial results for 2006 of $95.0 million. The parties to the settlement agreement will seek final court approval of the settlement before the maturity of the senior notes due July 20, 2007, but no assurance can be given that it will receive final court approval by this date.

According to a press release dated July 19, 2007, on the heels of an announcement that Doral had gotten final court approval of a $129 million shareholder class-action settlement, the Puerto Rico-based bank-holding Company reported that its shareholders had approved a buyout of the Company by a group of private-equity investors and hedge funds. Investors in the deal include Bear Stearns Merchant Banking and funds managed by Marathon Asset Management, Perry Capital, and the D. E. Shaw group. Subject to fulfilling some closing conditions in the $610 million buyout, the buyout is currently expected to close on July 19. The proceeds of the deal would enable the company to pay off $625 million in floating-rate senior notes issued in 2004, which come due on July 20. The court settlement satisfied another condition of the buyout. On Tuesday, Doral, a big mortgage lender, announced that it had obtained a court agreement in a consolidated securities class-action lawsuit and shareholder derivative litigation filed against it. The litigation stemmed from its April 2005 announcement of Doral's need to restate its previously issued financials.