UNITED STATES DISTRICT COURT DISTRICT OF PUERTO RICO

GISELA A. CONNELLY, on behalf of itself and all others similarly situated, Plaintiff, v. FIRST BANCORP., ÁNGEL ÁLVAREZ-PÉREZ, and ANNIE ASTOR-CARBONELL, Defendants.

Civil Action No. ________

CLASS ACTION COMPLAINT

Plaintiff makes the following allegations, except as to allegations specifically pertaining

to Plaintiff and Plaintiff's counsel, based upon the investigation undertaken by Plaintiff's counsel,

which investigation included analysis of news articles and reports, public filings, press releases

and other matters of public record.

NATURE OF THE COMPLAINT

1. This is a securities class action on behalf of all persons who purchased or

otherwise acquired the publicly traded securities of First BanCorp. (“First BanCorp” or the

“Company”) during the period of March 31, 2003, through October 21, 2005, inclusive, (“Class

Period”) under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange

Act”), and the regulations promulgated thereunder by the SEC, including Rule 10b-5.

2. As discussed in more detail below, Defendants orchestrated a massive accounting

fraud through which they improperly accounted for mortgages the Company had purchased from

other Puerto Rican banks, including R&G Financial and Doral Financial Corp. - both of which

are also under formal investigation by the SEC - to artificially inflate the Company’s earnings.

The Company recently stated that it will likely restate its financial statements as far back as 2000

because the mortgages it allegedly purchased from other Puerto Rican banks should have been

classified not as purchased mortgages, but as commercial loans to the originating bank. Because

the Company failed to properly classify these transactions as loans, First BanCorp did not

properly reserve for these loans, overstated the value of its mortgage portfolio, and overstated its

earnings in violation of Generally Accepted Accounting Principles (“GAAP”). During the Class

Period, while the investing public was deceived, Company insiders sold 463,105 shares for

personal proceeds of almost $8 million. As a result of Defendants’ deception and artificial

inflation of First BanCorp stock, shareholders suffered a 56% drop from its Class Period high of

$32.09 to $14.03 after the truth was revealed on October 21, 2005.

JURISDICTION AND VENUE

3. This Court has jurisdiction over the subject matter of this action pursuant to

Section 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331. The claims asserted

herein arise under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a),

and the rules and regulations promulgated thereunder by the SEC, including Rule 10b-5 (17

C.F.R. § 240.10b-5).

4. Venue is proper in this district pursuant to Section 27 of the Exchange Act (28

U.S.C. § 1391(b)). Many of the acts and transactions giving rise to the violations of law

complained of herein, including the preparation and dissemination to the investing public of false

and misleading information, occurred in this district. In addition, First BanCorp maintains its

principal executive offices in this district.

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5. In connection with the acts, conduct and other wrongs complained of herein,

Defendants used the means and instrumentalities of interstate commerce, including the mails,

telephone and the facilities of national securities exchanges.

THE PARTIES

A. Plaintiff

6. Plaintiff Gisela A. Connelly purchased First BanCorp common stock during the

Class Period, as evidenced by her certification attached hereto.

B. Corporate Defendant

7. Defendant First BanCorp’s principal offices are located in this district at 1519

Ponce De León Ave., San Juan, PR. The Company’s website provides the following description

of its profile:

First BanCorp is a financial holding company with more than $17 billion in assets offering a full range of financial services through its operations in Puerto Rico, the United States and British Virgin Islands and in the State of Florida, United States.

The Corporation offers a wide selection of financial services to a growing number of consumer and commercial customers through its main subsidiary, FirstBank (the “Bank”), as well as mortgage and consumer lending, auto lease financing, and insurance services through specialized subsidiaries, among others.

In the United States, the Bank operates a loan agency in Coral Gables, Florida and the Corporation owns UniBank, a federal savings and loans institution located in the State of Florida. UniBank offers a wide variety of financial products through its branches located in the southern Florida region.

C. Individual Defendants

8. The Individual Defendants, at all times relevant to this action, served in the

capacities listed below and received substantial compensation:

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Name PositionÁngel Álvarez-Pérez, Esq. Chairman of the Board, President and Chief

Executive Officer (principal executive officer)

Annie Astor-Carbonell Director, Senior Executive Vice President and Chief Financial Officer

CLASS ACTION ALLEGATIONS

9. Plaintiff brings this action as a class action pursuant to Rule 23(a) and (b)(3) of

the Federal Rules of Civil Procedure on behalf of a class (the “Class”) consisting of all persons

who purchased the publicly traded securities of First BanCorp between March 31, 2003 and

October 21, 2005, inclusive. Excluded from the Class are the Defendants, the current and former

directors and officers of First BanCorp or its subsidiaries or affiliates,, members of each

Individual Defendant’s immediate family, any entity in which any Defendant has a controlling

interest, and the legal affiliates, representatives, heirs, controlling persons, successors, and

predecessors in interest or assigns of any such excluded party.

10. Because First BanCorp has millions of shares of common stock outstanding, and

because the Company’s common stock was actively traded on the NYSE under the symbol

“FBP” throughout the Class Period, members of the Class are so numerous that joinder of all

members is impracticable. While the exact number of Class members is unknown at this time

and can only be determined by appropriate discovery, Plaintiff believes that Class members

number at least in the thousands and that they are geographically dispersed.

11. Plaintiff’s claims are typical of the claims of the members of the Class, because

Plaintiff and all of the Class members sustained damages arising out of Defendants’ wrongful

conduct complained of herein.

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12. Plaintiff will fairly and adequately protect the interests of the Class members and

has retained counsel who are experienced and competent in class and securities litigation.

Plaintiff has no interests that are contrary to or in conflict with the other members of the Class

Plaintiff seeks to represent.

13. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual members of the Class may be relatively small, the expense

and burden of individual litigation makes it impossible for the members of the Class individually

to redress the wrongs suffered. There will be no difficulty in the management of this action as a

class action.

14. Questions of law and fact common to the members of the Class predominate over

any questions that may affect only individual members in that Defendants have acted on grounds

generally applicable to the entire Class. Among the questions of law and fact common to the

Class are:

a. whether the federal securities laws were violated by Defendants’ acts as

alleged herein;

b. whether the Company’s publicly disseminated releases and statements

during the Class Period omitted and/or misrepresented material facts and whether Defendants

breached any duty to convey material facts or to correct material facts previously disseminated;

c. whether Defendants participated in and pursued the fraudulent scheme or

course of business complained of;

d. whether Defendants acted willfully, with knowledge or recklessly, in

omitting and/or misrepresenting material facts;

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e. whether the market prices of First BanCorp common stock during the

Class Period were artificially inflated due to the material nondisclosures and/or

misrepresentations complained of herein; and

f. whether the members of the Class have sustained damages and, if so, what

is the appropriate measure of damages.

SUBSTANTIVE ALLEGATIONS

A. The Class Period Begins

15. The Class Period begins on March 31, 2003. On that date, First BanCorp filed its

Form 10-K for the period ending December 31, 2002. The Form 10-K, which was signed and

certified pursuant to the Sarbanes-Oxley Act of 2002 by the Individual Defendants, contained the

following false and misleading statements:

First BanCorp grew substantially in spite of last year’s economic slowdown, which affected Puerto Rico as well as the rest of the U.S. Assets rose 17% from $8.2 billion at year-end 2001 to $9.6 billion at the end of 2002. Net loans increased 31% to $5.5 billion, mostly due to increases of $345 million in commercial loans and $842 million in residential real estate loans. Consumer loans and finance leases grew by $142 million. Deposits increased 34% to $5.5 billion. During 2002 First BanCorp consolidated its position as the second largest commercial bank in Puerto Rico.

16. On April 15, 2003, First BanCorp issued a press release announcing the results for

the first quarter 2003. Those results were reiterated in the Form 10-Q filed with the SEC on May

10, 2003 for the period ending March 31, 2003. The first quarter Form 10-Q was signed and

certified by the Individual Defendants. The April 15, 2003 press release in part stated:

Net income was $36,428,296 or $0.74 per share basic and $0.73 per share diluted, for the first quarter of 2003, as compared to earnings of $25,649,518 or $0.49 per share basic and diluted for the first quarter of 2002. These results represent an earnings increase of 42% for this quarter . . . .

17. Commenting on these first quarter 2003 results, Defendant Álvarez-Pérez said:

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This has been a very good quarter overall. We took advantage of an unusual opportunity in the financial markets to sell approximately $700 million in mortgage backed securities as part of our management of the investment portfolio. This transaction has resulted in additional income during the quarter. On the asset quality side, our non-performing loans and charge offs decreased from the previous quarter, which is remarkable when considering recent global developments. Our core lending operations continued to grow, specially, commercial, auto and residential mortgage lending.

Net interest income, the Corporation’s main source of income, increased by $3.1 million from $69.3 million during the first quarter of 2002 to $72.4 million during the first quarter of 2003, notwithstanding the sale of a portion of the investment portfolio during March. This increase is mostly attributable to an increase in average earning assets of $954.6 million since March of 2002. Net interest margin on a tax equivalent basis was 3.68% for the quarter ended March 2003, as compared to 4.15% for the quarter ended March 2002 and 3.10% for the quarter ended December 2002.

Other income amounted to $26.2 million for the first quarter of 2003, as compared to $12.5 million for the first quarter of 2002. Other income included a net gain on sale of investments of $13.7 million. The Corporation decided to sell a $700 million of its $2.5 billion mortgage backed securities portfolio, to take advantage of an extraordinary market opportunity, which arose when the 10-year treasury notes rate reached 3.56%. The proceeds will be maintained in short-term agency discount notes, awaiting an opportunity to reenter the longer term investment market. Interest income will decrease temporarily during this waiting period. Other income, excluding the gains on sales of investments for both periods, was $12.5 million for the March 2003 quarter, as compared to $11.7 million for the March 2002 quarter.

* * *

Total assets were $9,767 million as of March 31, 2003, as compared to $8,515 million as of March 31, 2002 and $9,644 million as of December 31, 2002. Loans receivable increased by 34.9% to $5,933 million, as compared to $4,398 million as of March 31, 2002. The largest loan volume increases were achieved in the commercial and real estate portfolios.

Non-performing loans as of March 31, 2003 were $87.7 million (1.48% of total loans), as compared to $71.2 million (1.62% of total loans) and $91.8 million (1.63% of total loans) as of March 31, 2002 and December 31, 2002, respectively . . . .

The allowance for loan losses to non-performing loans (reserve coverage) was 134.4% as of March 31, 2003, compared to 139.7% as of March 31, 2002 and 121.9%, as of December 31, 2002. The improvement in the most recent quarter is due to the combined effect of a reduction of $4.0 million in the non- performing

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loans for the quarter and the increase for the quarter of $6.0 million in the allowance for loan losses. The allowance increase is related to the $295 million increase in the Corporation’s loan portfolio during this quarter. Net charge offs were $10.6 million (.74% of average loans) as compared to $11.4 million (1.05% of average loans) during the first quarter of 2002, and $10.1 million (.74% of average loans) during the last quarter of 2002. Charge offs have remained very stable in spite of uncertain economic conditions due to the Corporation’s conservative underwriting policies.

18. On July 16, 2003, First BanCorp issued a press release announcing the results for

the second quarter 2003. Those results were reiterated in the Form 10-Q filed with the SEC on

August 14, 2003 for the period ending June 30, 2003. The first quarter Form 10-Q was signed

and certified by the Individual Defendants. The July 16, 2003 press release stated:

Net income was $29,270,698 or $.56 per share basic and $.55 per share diluted, for the second quarter of 2003, as compared to earnings of $26,979,054 or $0.51 per share basic and $0.50 per share diluted for the second quarter of 2002. These results represent an increase in diluted earnings per share of 10.0% for this quarter . . . .

For the six month period ended June 30, 2003, earnings were $65,698,994 or $1.30 per share (basic) and $1.28 per share (diluted), as compared to $52,628,572, or $.99 per share basic and diluted. Basic and diluted weighted average shares for the 2003 year-to-date period were 39,975,825 and 40,851,594, respectively.

19. Commenting on this quarter’s results, Defendant Álvarez-Pérez said:

Our core lending operations have continued to grow, especially commercial, auto, and residential mortgages. We have managed the balance sheet prudently by not purchasing new fixed-rate investments at the current low rate environment. This has affected our short-term net interest income, but will probably benefit our Institution over the medium- to long-term, as we will probably be poised to enter the market with higher rate securities going forward. On the asset quality side, our non- performing loans and charge offs remained stable, which is remarkable when considering an overall weak economy.

Net interest income, the Corporation’s main source of income, decreased by $4.6 million from $68.5 million during the second quarter of 2002, to $63.9 million during the second quarter of 2003, due to the sale of a portion of the investment portfolio during March. This is a temporary decrease totally attributed to the Corporation’s strategy of not reinvesting proceeds of mortgage-backed securities sales and prepayments in long-term fixed rate mortgage-backed securities at the current low rates . . . .

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Other income amounted to $23.0 million for the second quarter of 2003, as compared to $11.0 million for the second quarter of 2002. Other income included a gain on sale of investments of $10.1 million, in the Corporation’s equity portfolio, and a derivative loss of $678,000. Other income, excluding the net gains on sales of investments and derivative losses for both periods, was $13.5 million for the June 2003 quarter, in line with the $13.5 million for the June 2002 quarter.

Net charge offs were $9.9 million (.65% of average loans) for the second quarter of 2003, as compared to $9.8 million (.87% of average loans) during the second quarter of 2002, and $10.6 million (.74% of average loans), during the first quarter of 2003. The charge offs ratio is at the lowest level of the last 10 years in spite of uncertain economic conditions due to the Corporation’s effective risk management infrastructure.

* * *

Total assets were $9,934 million as of June 30, 2003, as compared to $8,649 million as of June 30, 2002 and $9,644 million as of December 31, 2002. Loans receivable increased by 34% to $6,299 million, as compared to $4,690 million as of June 30, 2002. The largest loan volume increases were achieved in the commercial and residential real estate portfolios.

Non-performing loans as of June 30, 2003 were $89.0 million (1.41% of total loans), as compared to $70.3 million (1.50% of total loans) and $87.7 million (1.48% of total loans), as of June 30, 2002 and March 31, 2003, respectively. Non-performing loans remained in line, when compared to the most recent previous quarter, as a result of controlled delinquencies, especially in the Bank’s consumer portfolios . . . .

The allowance for loan losses to non-performing loans (reserve coverage) was 135.5% as of June 30, 2003, compared to 148.1% as of June 30, 2002 and 134.4%, as of March 31, 2003 . . . .

20. On October 20, 2003, the Company issued a press release titled “First BanCorp

Reports Earnings Per Share Increase of 19.6%,” which in part stated:

Net income was $31,684,402 or $0.62 per common share basic and $0.61 per common share diluted, for the third quarter of 2003, as compared to earnings of $27,356,898 or $0.52 per common share basic and $0.51 per common share diluted for the third quarter of 2002. These results represent an increase in diluted earnings per share of 19.6% for this quarter. Return on Assets (ROA) and Return on Common Equity (ROCE) were 1.14% and 20.67% respectively, for the quarter as compared to 1.26% and 21.65% respectively, for the same quarter of 2002. Basic and diluted weighted average common shares for First BanCorp reports earnings per share increase of 19.6% the 2003 third quarter were 40,007,383 and 41,016,121, respectively.

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For the nine months period ended September 30, 2003, earnings were $97,383,395 or $1.92 per common share (basic) and $1.89 per common share (diluted), as compared to $79,985,470, or $1.51 per common share basic and $1.49 per common share diluted. Basic and diluted weighted average shares for the 2003 year-to-date period were 39,986,460 and 40,906,552, respectively.

* * *

Net charge offs were $10.1 million (.63% of average loans) for the third quarter of 2003, as compared to $10.2 million (.85% of average loans) during the third quarter of 2002, and $9.9 million (.65% of average loans), during the second quarter of 2003. The charge offs ratio is at the lowest level of the last 10 years, due to the Corporation's effective credit risk management infrastructure.

* * *

Total assets were $12,089 million as of September 30, 2003, as compared to $9,188 million as of September 30, 2002, and $9,644 million as of December 31, 2002. Loans receivable increased by 36% to $6,707 million, as compared to $4,947 million as of September 30, 2002. The largest loan volume increases were achieved in the commercial and residential real estate portfolios.

21. On November 14, 2003, First BanCorp filed with the SEC a Form 10-Q for the

period ending September 30, 2003. The third quarter Form 10-Q was signed and certified

pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 by the Individual

Defendants. The Form 10-Q reiterated the information released to the public in the October 20,

2003 press release.

22. On January 21, 2004, First BanCorp issued a press release entitled “First BanCorp

reports Earnings Increase of 96.5% for the Quarter and 41.1% for the Year.” The release in part

stated the following:

Net income was $54,954,947 or $1.12 per share basic and $1.09 per share diluted, for the fourth quarter of 2003, as compared to earnings of $27,970,880 or 53 cents per share basic and 52 cents per share diluted, for the fourth quarter of 2002. These results represent an earnings increase of 96.5% for this quarter . . . .

The year ended December 31, 2003 was another record year for First BanCorp, with earnings of $152,338,342 or $3.04 per share (basic) and $2.98 per share (diluted), as compared to $107,956,351 or $2.04 per share (basic) and $2.01 per share (diluted), an earnings increase of 41.1% for the year 2003 . . . . Earnings for

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the fourth quarter and full year 2003 include a $18,840,065 or 46 cents per share diluted (net of tax), gain on the sale of a large part of the subsidiary bank’s credit card portfolio, as part of a new marketing strategic alliance with MBNA Corporation, which is further explained in a separate press release issued today. Earnings for the fourth quarter and full year 2003, excluding the after tax effect of such gain, are as follows: net earnings for the fourth quarter, $36,114,882 or 65 cents (basic) and 63 cents (diluted), 29.1% increase in earnings for the 2003 fourth quarter; net earnings for the full year 2003, $133,498,277, or $2.57 per share (basic) and $2.52 per share (diluted). Main profitability ratios for the same periods, excluding the after tax effect of the gain on the sale of a large part of the credit card portfolio, were: Return on Assets, 1.21% for the fourth quarter of 2003, and 1.28% for the full year 2003; Return on Common Equity for the fourth quarter of 2003, 20.30% and 21.31% for the full year 2003; and the efficiency ratio, 43.86% for the quarter, and 43.15% for the full year 2003.

The earnings increase (excluding the after tax effect of the gain on the sale mentioned above) is attributable mostly to increases in the Corporation’s net interest income and other income net of an increase in operating expenses. Commenting on the year 2003 achievements.

23. Defendant Álvarez-Pérez, CEO of First BanCorp, said:

2003 was a challenging year, as related to interest rates and the general economic environment. Notwithstanding this, we have earned record profits, through the continuous growth of our loan portfolios, especially commercial and residential loans and maintaining low delinquencies in a difficult economic environment, especially in the consumer portfolios. In addition during this year, we restructured our investment portfolio which enabled us to record substantial profits on the securities sold, while at the same time giving us the opportunity to reinvest in a mortgage backed securities portfolio with more attractive yields and shorter maturities.

Net interest income increased by $25.4 million for the year, to end the year at $292.2 million. The increase in net interest income for the year is the result of volume increases of $1,571 million in the Corporation’s average loan and investment portfolios. Net interest income was $84.0 million for this quarter, as compared to $68.7 million for the fourth quarter of 2002 and $71.9 million for the third quarter of 2003. During the fourth quarter the net interest income on investments, increased as a result of the portfolio restructuring completed during the third quarter of the year 2003.

Net interest margin (on a tax equivalent basis) was 3.32% and 3.24% for the fourth quarter and full year 2003, respectively, as compared to 3.10% and 3.56% for the fourth quarter and full year 2002, respectively . . . .

During 2003 the Corporation experienced solid asset growth, ending the year with assets of $12,668 million, up 31.4% from total assets as of December 31 2002 of

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$9,644 million. Deposits were $6,765 million as of December 31, 2003, as compared to $5,483 million as of December 31, 2002. Loans increased to $7,045 million as of December 31, 2003, an increase of 25%, when compared to $5,638 million as of December 31, 2002, mostly as a result of an increase of $341 million in commercial loans and $1,025 million in residential real estate loans. Consumer loans and finance leases increased by $40 million.

Another factor contributing to the record financial results was the stable write-offs of our loan portfolio during the year. Loan losses (net write-offs) were $10.8 million for the fourth quarter, (0.63% of average loans) slightly over the $10.1 million (.74% of average loans) for the fourth quarter of 2002 and $10.1 million (0.63% of average loans) for the immediately preceding third quarter of 2003. For the total year net write-offs were $41.4 million (0.66% of average loans), as compared to $41.5 million during 2002, (.87% of average loans). Non-performing loans at year end were $85.5 million or 1.21% of total loans, lower in absolute dollar amount and as a percentage of loans, when compared to $91.8 million or 1.63% of total loans, as of December 31, 2002, and $85.7 million or 1.28% of total loans as of September 30, 2003, the previous quarter end. The reserve coverage ratio (allowance for loan losses to non-performing loans) was 147.8% as of December 31, 2003, as compared to 121.9% for December 31, 2002 and 143.6% for September 30, 2003. The allowance for loan losses increased to $126.4 million as of December 31, 2003, from $123.0 million as of September 30, 2003 and $111.9 million as of December 31, 2002. The increase corresponds to a higher commercial loan portfolio and current economic conditions.

Other operating income was $50.4 million for the fourth quarter of 2003. Excluding the gain on the sale of a large part of the credit card portfolio of $30.9 million (before tax), other operating income was $19.5 million, as compared to $16.0 million for the fourth quarter of 2002 and $19.1 million for the third quarter of 2003. The increase of $3.5 million, when compared to fourth quarter 2002 is mostly attributable to $2.9 million higher net gains on sale of investments and derivative income (loss).

24. On March 15, 2004, First BanCorp filed its 2003 Form 10-K with the SEC for the

period ending December 30, 2003. The filing was signed and certified by the Individual

Defendants and contained the following statement by the Company’s independent auditor,

PricewaterhouseCoopers LLP:

In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows present fairly, in all material respects, the financial position of First BanCorp and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with

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accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

25. On May 10, 2004, First BanCorp filed with the SEC a Form 10-Q for the period

ending March 31, 2004, which reiterated the financial results for the period first released to the

public on April 22, 2004. The first quarter Form 10-Q was signed and certified pursuant to

Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 by Individual Defendants. The April

22, 2004 press release in part stated:

Net income was $40,205,034 or $0.75 per share basic and $0.73 per share diluted, for the first quarter of 2004, as compared to earnings of $36,428,296 or $0.74 per share basic and $0.73 per share diluted for the first quarter of 2003. These results represent an earnings increase of 10.4% for this quarter . . . .

26. Commenting on these first quarter 2004 results, Defendant Álvarez-Pérez said:

This has been a very good quarter overall. Our loan portfolios continue to grow, and our non-performing assets and charge offs continue to decline. Earnings this quarter include a $3.2 million, or 8 cents per diluted share gain (net of tax), on the sale of a credit card portfolio. However, earnings of March 2003 first quarter included a $13.7 million, or 34 cents per diluted share gain, on the sale of a portfolio of mortgage backed securities done in connection with a restructuring of this portfolio.

Net interest income, the Corporation’s main source of income, increased by $11.8 million from $72.4 million during the first quarter of 2003 to $84.2 million during the first quarter of 2004 . . . .

Other income amounted to $24.0 million for the first quarter of 2004, as compared to $26.2 million for the first quarter of 2003. Other income included a net gain on sale of investments and hedging activities of $3.5 million for this quarter as compared to $14.2 million for the comparable March 2003 period. In addition, other income included a $5.2 million ($3.2 million net of tax) gain on

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the sale of a small $17 million credit card portfolio. Other income, excluding the gains on sales of investments and hedging activities and gain on sale of credit cards for both periods was $15.2 million for the March 2004 quarter, as compared to $11.9 million for the March 2003 quarter. The increase is partially due to an increase in mortgage banking activity results of $1.2 million, plus other fees and service income related to the growing real estate, commercial, and consumer portfolios of the Corporation’s main subsidiary, FirstBank Puerto Rico.

* * *

Total assets were $13,347 million as of March 31, 2004, as compared to $9,767 million as of March 31, 2003 and $12,668 million as of December 31, 2003. Loans receivable increased by 25.5% to $7,446 million, as compared to $5,933 million as of March 31, 2003. The largest loan volume increases were achieved in the commercial and real estate portfolios.

Non-performing loans as of March 31, 2004 were $85.7 million (1.15% of total loans), as compared to $87.7 million (1.48% of total loans) and $85.5 million (1.21% of total loans) as of March 31, 2003 and December 31, 2003, respectively. Non-performing loans, when compared to the March 2003 and December 2003 quarters, decreased as a percentage of the portfolio. These results reflect a continuation of the decreasing trend in non-performers, which has been experienced since early 2003.

The allowance for loan losses to non-performing loans (reserve coverage) was 152.2% as of March 31, 2004, compared to 134.4% as of March 31, 2003 and 147.8%, as of December 31, 2003. The improvement is due to the stability experienced in our non-performing loans, coupled with a reduction in the charge offs. The allowance increase is related to the $402 million increase in the Corporation’s loan portfolio during this quarter. Net charge offs were $9.2 million (0.51% of average loans), as compared to $10.6 million (0.74% of average loans) during the first quarter of 2003, and $10.8 million (0.63% of average loans) during the last quarter of 2003. Charge offs have remained stable due to the Corporation's prudent underwriting policies, implemented since 1998.

27. On August 9, 2004, First BanCorp filed with the SEC a Form 10-Q for the period

ending June 30, 2004. The second quarter Form 10-Q, which was signed and certified pursuant

to Sarbanes-Oxley Act of 2002 by the Individual Defendants, reiterated the financial results first

released to the public on July 22, 2004. The July 22, 2004 press release stated the following:

Net income was $39,934,596, or $0.74 per share basic and $0.72 per share diluted for the second quarter of 2004, as compared to earnings of $29,270,698, or $0.56 per share basic and $0.55 per share diluted, for the second quarter of 2003. These

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results represent an increase in diluted earnings per share of 30.91% for this quarter . . . .

For the six-month period ended June 30, 2004, earnings were $80,139,629, or $1.49 per share (basic) and $1.45 per share (diluted), as compared to $65,698,994, or $1.30 per share (basic) and $1.28 per share (diluted). Basic and diluted weighted average shares for the 2004 year-to-date period were 40,139,875 and 41,375,673, respectively.

Commenting on the quarter’s results, Mr. Angel Alvarez-Perez, Chairman, President, and CEO of First BanCorp, said, “This has been an excellent quarter. Our core lending operations have continued to grow, especially commercial, auto and residential mortgages. With the increase in long-term rates, we have been able to replenish a portion of our investment portfolio at higher yields, and the prepayments on the existing mortgage-backed securities portfolio have slowed. As a result of the positive outcome in both, lending and investment operations net interest income has rebounded significantly.”

Net interest income, the Corporation’s main source of income, increased by $30.4 million from $63.9 million during the second quarter of 2003 to $94.3 million during the second quarter of 2004, due to an increase in average earning assets of $4,093 million, and an increase in the yield of the investment portfolio. During the previous quarters, the Corporation’s subsidiary bank’s strategy had been to decrease the level of medium to longer- term investments until the market provided a better opportunity to invest . . . .

Other income, which is mostly operational, amounted to $13.7 million for the second quarter of 2004, as compared to $23.0 million for the second quarter of 2003. Other income for the previous year’s comparative second quarter included a gain on sale of investments of $10.1 million, and a derivative loss of $678,000. Other income, excluding the net gains on sales of investments and derivative losses for both periods, was $14.1 million for the June 2004 quarter, $520,000 over the $13.5 million for the June 2003 quarter, due mainly to commercial loan fees.

Net charge offs were $9.9 million (.52% of average loans) for the second quarter of 2004, as compared to $9.9 million (.65% of average loans) during the second quarter of 2003, and $9.2 million (.51% of average loans) during the first quarter of 2004. The year-to-date charge-off ratio for 2004 is .52%, as compared to .70% for the year-to-date period of 2003. The charge-offs ratio is at the lowest level of the last 10 years due to the Corporation's effective risk management infrastructure.

* * *

Total assets were $14,465 million as of June 30, 2004, as compared to $9,934 million as of June 30, 2003, and $12,668 million as of December 31, 2003. Loans

15

receivable increased by 25.3% to $7,892 million, as compared to $6,299 million as of June 30, 2003. The largest loan volume increases were achieved in the commercial and residential real estate portfolios.

28. On November 15, 2004, First BanCorp filed with the SEC a Form 10-Q for the

period ending September 30, 2004. The third quarter Form 10-Q was signed and certified

pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 by the Individual

Defendants. The Form 10-Q reiterated the information released to the public in the October 21,

2004 press release.

Net income was $49,079,189 or $0.97 per common share basic and $0.94 per common share diluted, for the third quarter of 2004, as compared to earnings of $31,684,402 or $0.62 per common share basic and $0.61 per common share diluted for the third quarter of 2003. These results represent an increase in diluted earnings per share of 54% for this quarter . . . .

For the nine months period ended September 30, 2004, earnings were $129,218,818 or $2.46 per common share basic and $2.39 per common share diluted, as compared to $97,383,395 or $1.92 per common share basic and $1.89 per common share diluted. Basic and diluted weighted average shares for the 2004 year-to-date period were 40,174,120 and 41,414,358, respectively.

Commenting on this quarter's results, Mr. Angel Alvarez-Perez, Chairman, President, and CEO of First BanCorp, said, “Our earnings have grown significantly as a result of a strong increase of $31.4 million in net interest income, when compared to the same period in 2003. Both loans and investments have had healthy growth, but it is particularly important to mention that at the end of the previous quarter we were able to make significant longer-term investments, after we had stayed on the sidelines for a few months, awaiting the opportunity to make these investments, which have now contributed significantly to our bottom line.”

Net interest income, the Corporation’s main source of income, increased by $31.4 million from $71.9 million during the third quarter of 2003 to $103.3 million during the third quarter of 2004. When compared to the immediately preceding quarter, it also increased by $9.0 million. The increases in net interest income reflects the additional investments that were made during the second quarter of 2004 . . . .

Other income amounted to $15.7 million for the third quarter of 2004, as compared to $19.1 million for the third quarter of 2003. The decrease is due to higher net gains on sale of investments and derivative gains during the prior year

16

period. These gains amounted to $1.1 million during the third quarter of 2004, versus $5.5 million during the third quarter of 2003.

Net charge-offs were $9.6 million (0.47% of average loans) for the third quarter of 2004, as compared to $10.1 million (0.63% of average loans) during the third quarter of 2003, and $9.9 million (0.52% of average loans) during the second quarter of 2004. The charge-off ratio is at the lowest level of the last 10 years due to the Corporation’s effective credit risk management infrastructure.

* * *

Total assets were $15.2 billion as of September 30, 2004, as compared to $12.1 billion as of September 30, 2003, and $12.7 billion as of December 31, 2003. Loans receivable increased by 27% to $8.5 billion, as compared to $6.7 billion as of September 30, 2003. The largest loan volume increases were achieved in the commercial and residential real estate portfolios.

* * *

The allowance for loan losses to non-performing loans (reserve coverage) was 154.7% as of September 30, 2004, compared to 143.6% as of September 30, 2003, and 146.9%, as of June 30, 2004. The improvement in the coverage ratio is related to the stability during 2004 in the delinquencies and non-performing loans.

29. On January 27, 2005, First BanCorp issued a press release announcing record

results for 2004. The release stated, in part, the following:

The year ended December 31, 2004, was another record year for First BanCorp, with earnings of $178,877,788 or $3.44 per common share (basic) and $3.34 per common share (diluted), as compared to $152,338,342 or $3.04 per common share (basic) and $2.98 per common share (diluted) for the year ended December 31, 2003. Average common shares outstanding for the year were 40,209,447 (basic) and 41,505,183 (diluted). Earnings for the full year 2004 include a gain of $3,374,937, or 8 cents per common share (basic and diluted), net of tax, recorded on the sale of a small credit card portfolio in early 2004. Excluding this effect, full year 2004 earnings were $175,502,851 or $3.36 per common share (basic) and $3.26 per common share (diluted). Earnings for the fourth quarter and full year 2003 included an $18,840,065 or $0.47 and $0.46 per common share, basic and diluted, respectively, (net of tax) gain related to the sale of a credit card portfolio. Prior year comparable earnings, excluding the after tax effect of aforementioned gain, were $133,498,277 or $2.57 per common share (basic) and $2.52 per common share (diluted).

Net income was $49,658,970 or $0.98 per common share (basic) and $0.95 per common share (diluted), for the fourth quarter of 2004, as compared to earnings of $54,954,947 or $1.12 per common share (basic) and $1.09 per common share

17

(diluted), for the fourth quarter of 2003. Earnings per share for the fourth quarter of 2003 include an $18,840,065 or $0.46 per common share (diluted) special gain related to the sale of a credit card portfolio. Earnings for the fourth quarter of 2003, excluding the after tax effect of such gain, was $36,114,882 or $0.65 per common share (basic) and $0.63 per common share (diluted). The 2004 fourth quarter results represent an earnings increase of 37.50% for this quarter, when comparing earnings excluding the previous year special item aforementioned. Return on Assets (ROA) and Return on Common Equity (ROCE), were 1.37% and 24.40%, respectively for the quarter. Comparable ROA and ROCE for the same quarter in 2003, excluding the special credit card gain were 1.21% and 20.30%, respectively. Average common shares used to calculate earnings per share for the fourth quarter of 2004, were 40,314,658 (basic) and 41,819,962 (diluted).

Full year 2004 results represent an earnings increase of $42,004,574 or 31.46% when comparing earnings for both years, excluding the special gains on the sale of credit card loans . . . .

The earnings increase of $42.0 million (excluding the after tax effect of the gain on the sale mentioned above) is attributable mostly to increases in the Corporation’s net interest income net of an increase in operating expenses and a decrease in gains in sale of investments. Commenting on the year 2004 achievements, Mr. Angel Alvarez-Perez, CEO of First BanCorp, said, "2004 was a challenging year due to the uncertainty of the interest rates scenario. Notwithstanding this, we have earned record profits, through the continuous growth of our loan portfolios, especially commercial and residential loans and maintaining low delinquencies and write offs. In addition, during this year, we reinvested most of our investment portfolio, which had been maintained short-term, waiting for the market to give us a re-entry opportunity."

Net interest income increased by $91.0 million for the year, to end at $383.2 million. The increase in net interest income for the year is the result of volume increases of $3.2 billion in the Corporation's average loan and investment portfolios. Net interest income was $101.5 million for this quarter, as compared to $84.0 million for the fourth quarter of 2003 and $103.3 million for the third quarter of 2004. The slight decrease from third to fourth quarter of 2004 is due to $385.6 million in agency securities with an average yield of 5.57%, which were called during the fourth quarter and have been reinvested very short-term.

* * *

During 2004, the Corporation experienced solid asset growth, ending the year with assets of $15.6 billion, up 23.30% from total assets as of December 31, 2003, of $12.7 billion. Deposits were $7.9 billion as of December 31, 2004, as compared to $6.8 billion as of December 31, 2003. Loans increased to $9.5 billion as of December 31, 2004, an increase of 34.5%, when compared to $7.0 billion as of December 31, 2003, mostly as a result of an increase of $374 million in

18

commercial loans, $1.8 billion in residential real estate loans and $254 million in consumer and leasing loans.

Another factor contributing to the record financial results was the stable write offs of our loan portfolio during the year. Loan losses (net write-offs) were $9.4 million for the fourth quarter, (.42% of average loans) under the $10.8 million (.63% of average loans) for the fourth quarter of 2003, and $9.6 million (.47% of average loans) for the immediately preceding third quarter of 2004. For the total year, net write-offs were $38.1 million (.48% of average loans), as compared to $41.4 million during 2003, (.66% of average loans). Non-performing loans at year end were $91.7 million or .97% of total loans, compared to $85.5 million or 1.21% of total loans as of December 31, 2003 and $88.7 million or 1.04% of total loans as of September 30, 2004, the previous quarter end. The reserve coverage ratio (allowance for loan losses to non-performing loans) was 153.86% as of December 31, 2004, as compared to 147.77% for December 31, 2003 and 154.68% for September 30, 2004. The allowance for loan losses increased to $141.0 million as of December 31, 2004, from $137.3 million as of September 30, 2004, and $126.4 million as of December 31, 2003. The increase corresponds to a higher commercial and consumer loan portfolio, which are the main sources of loan write-offs.

Other income was $17.5 million for the fourth quarter of 2004. For the fourth quarter of 2003, excluding the gain on the sale of a large part of the credit card portfolio of $30.9 million (before tax), other operating income was $19.5 million. The decrease of $2.0 million, when compared to normalized fourth quarter 2003, is mostly attributable to $2.3 million lower net gains on sale of investments and derivative income (loss).

30. On March 16, 2005, the Company filed its annual report on Form 10-K with the

SEC for the year ending December 31, 2004, which reiterated the results announced in the

January 27, 2005 press release. The Form 10-K was signed by, among others, the Individual

Defendants. The financial results contained in the Form 10-K were certified by the Individual

Defendants and contained the following statement by PricewaterhouseCoopers LLP:

Consolidated financial statements

In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows present fairly, in all material respects, the financial position of First BanCorp and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of

19

America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of

20

financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

31. On May 10, 2005, First BanCorp filed with the SEC a Form 10-Q for the period

ending March 31, 2005, which reiterated the financial results for the period first released to the

public on April 19, 2005. The first quarter Form 10-Q was signed and certified pursuant to the

Sarbanes-Oxley Act of 2002 by the Individual Defendants. The April 19, 2005 press release in

part stated:

Net income was $53,431,802, or $1.07 per share basic and $1.04 per share diluted, for the first quarter of 2005, as compared to earnings of $40,205,034, or $0.75 per share basic and $0.73 per share diluted for the first quarter of 2004. These results represent an earnings increase of 32.9% for this quarter . . . .

32. Commenting on these first quarter 2005 results, Defendant Álvarez-Pérez said:

This has been a very good quarter overall. Our loan portfolios continue to grow, and our non-performing assets and charge offs continue to decline. Earnings this quarter include a gain on sale of investments, net of derivatives net losses, of $8.4 million. However, comparable earnings of the March 2004 first quarter included $6.7 million in special items due to an after-tax gain on the sale of a credit card portfolio of $3.2 million and gains on sale of investments net of derivative losses of $3.5 million.

Net interest income, the Corporation’s main source of income, increased by $21.4 million from $88.2 million during the first quarter of 2004 to $109.6 million during the first quarter of 2005. This increase is mostly attributable to an increase in average earning assets of $3.1 billion since March of 2004. On a linked quarter basis, net interest income increased $5.5 million. The Corporation was able to replace investments, which had been called during the previous quarter, with new securities . . . .

Other income amounted to $19.6 million for the first quarter of 2005, as compared to $20.0 million for the first quarter of 2004. Other income included a net gain on sale of investments net of derivatives losses of $8.4 million for this quarter, as compared to $8.8 million in gains on sale (net of derivatives losses) plus credit card gains on sale, for the comparable first quarter of 2004. Other income for the linked December 2004 quarter amounted to $14.8 million, which included $3.9 million in gains on sale of investments, net of derivatives losses.

21

* * *

Total assets were $17.4 billion as of March 31, 2005, as compared to $13.3 billion as of March 31, 2004 and $15.6 billion as of December 31, 2004. Loans receivable increased by 48.6% to $11.0 billion, as compared to $7.4 billion as of March 31, 2004 and $9.5 billion as of December 31, 2004. The largest loan volume increases were achieved in the commercial and real estate portfolios. In addition, loans receivable include $476 million of loans acquired on March 31, 2005, on the acquisition of UniBank.

* * *

The allowance for loan losses to non-performing loans (reserve coverage) was 162.2% as of March 31, 2005, compared to 152.2% as of March 31, 2004, and 153.9% as of December 31, 2004. The improvement is due to the stability experienced in our non-performing loans, resulting in a reduction in the charge offs. The allowance increase is related to the $1.5 billion increase in the Corporation’s loan portfolio during this quarter. Net charge offs were $9.1 million (.37% of average loans), as compared to $9.2 million (0.51% of average loans) during the first quarter of 2004, and $9.4 million (.42% of average loans) during the last quarter of 2004. Charge offs have remained stable due to the Corporation’s prudent underwriting policies implemented since 1998 and to the gradual shifting of the loan portfolio toward secured loans.

33. On July 19, 2005, First BanCorp issued a press release announcing its results for

the period ending June 30, 2005. The released stated:

Net income was $57,085,530, or $0.58 per share basic and $0.57 per share diluted, for the second quarter of 2005, as compared to earnings of $39,934,596, or $0.37 per share basic and $0.36 per share diluted for the second quarter of 2004. These results represent an earnings increase of 42.95% for this quarter, as compared to the same quarter in 2004 . . . .

For the six month period ended June 30, 2005, earnings were $110,517,332, or $1.12 per share (basic) and $1.09 per share (diluted), as compared to $80,139,629, or $0.75 per share (basic) and $0.73 per share (diluted), for the six months ended June 30, 2004. Basic and diluted weighted average shares for the 2005 year-to-date period were 80,817,734 and 83,140,753, respectively.

Commenting on these second quarter 2005 results, Angel Alvarez-Perez, Chairman, President and CEO of First BanCorp, said, “This has been an excellent quarter. Our loan origination has been outstanding, increasing our loan portfolio by $659 million, and our non-performing assets and charge offs levels continue very stable. Net interest income increased substantially as a result of the increased volume of loans and investments. In addition, for the first time this quarter, the

22

results of operations of Ponce General Corporation, the holding company of UniBank, a Florida thrift acquired on March 31, 2005, were included.”

The main reasons for the increase in net earnings for the second quarter of 2005, when compared to the second quarter of 2004, were an increase of $33.7 million in net interest income, net of an increase of $10.0 million in other operating expenses and an increase of $7.7 million in the provision for income taxes.

Net interest income, the Corporation’s main source of income, increased by $33.7 million from $96.5 million for the second quarter of 2004 to $130.2 million for the second quarter of 2005. This increase is mostly attributable to an increase in average earning assets of $4.5 billion, since June of 2004. On a linked quarter basis, net interest income increased $20.6 million.

The Corporation’s average loan portfolio increased $1.4 billion during this quarter and its average investment portfolio increased by $1.3 billion. Net interest income includes, for the first time, $5.6 million net interest income of Ponce General, which was acquired on March 31, 2005. Net interest margin on a taxable equivalent basis was 3.36% for the second quarter of 2005, as compared to 3.50% for the second quarter of 2004 and 3.33% for the first quarter of 2005. To conform to the 2005 presentation, the 2004 net interest income, other income and net interest margin numbers have been adjusted to reflect late charges, prepayment fees and dividends on equity securities under interest income.

* * *

Total assets were $18.8 billion as of June 30, 2005, as compared to $14.5 billion as of June 30, 2004, and $15.6 billion as of December 31, 2004. Loans receivable increased by 47% to $11.6 billion, as compared to $7.9 billion as of June 30, 2004, and by 23% as compared to $9.5 billion as of December 31, 2004. The largest loan volume increases this quarter were achieved in the commercial portfolio. In addition, loans receivable include $476 million of loans acquired on March 31, 2005, on the acquisition of Ponce General. On a linked quarter basis, when compared to March 2005, loans increased by $659 million, mostly through internal loan generation, which did not include, for this quarter, bulk purchases of loans. During the second quarter, commercial loans increased by $587 million, consumer loans and finance leases increased by $129 million, and residential real estate loans decreased by $56 million, mostly as a result of mortgage loan sales in the amount of $90 million, and normal repayment of the existing portfolio.

* * *

The allowance for loan losses to non-performing loans (reserve coverage) was 157.47% as of June 30, 2005, compared to 146.9% as of June 30, 2004, and 153.9% as of December 31, 2004. The improvement is due to the stability experienced in our non-performing loans, resulting in a reduction in the charge

23

offs. The allowance increase is related to the $659 million increase in the Corporation’s loan portfolio during this quarter.

34. During the Class period, insiders sold 463,105 shares of First BanCorp stock for

proceeds of almost $8 million.

B. The Truth Begins to Emerge

35. Between August 11, 2005 and October 21, 2005, the truth concerning First

BanCorp’s valuation of its mortgage portfolio and financial fraud was revealed. On August 11,

2005, First BanCorp announced that it was delaying the filing of its Form 10-Q for the period

ending June 30, 2005. According to the press release issued on August 11, 2005, First

BanCorp’s Audit Committee determined on August 1, 2005 that it needed to review the

background and accounting for certain purchases of mortgage loans made by the Company

between 2000 and 2005. The release also stated:

The Committee’s decision to undertake this review was based on several factors, including discussions with the Company’s external auditors. The extension is needed to permit the Committee to complete its review of the mortgage loan purchase contracts and to determine the impact, if any, of the results of the review on the Company’s previously issued interim and audited financial statements. The Committee has engaged independent counsel to undertake this review, which is currently in progress.

The transactions to be reviewed involve the Company’s purchases of mortgage loans originated by other financial institutions. The Company has accounted for these transactions as regular purchases of mortgage loans with variable contractual rates payable to the Company. At the time of these purchases, the Company recorded the outstanding balance of these loans as mortgage loans receivable. The variable interest collected by the Company on these mortgage loans has been recorded as interest income. The Company did not record any derivatives or interest only strips as a result of these transactions. The issues currently being reviewed by the Committee are related to the terms and conditions of the purchase contracts. The Company does not believe that the review of these issues will result in any changes to the Company’s reported cash flows.

24

36. In an effort to bolster Company stock while making the announcement of the

delay in filing the Form 10-Q and the Audit Committee investigation, the Defendants affirmed

their opinion that the accounting for the transactions in question was proper by stating:

At the present time, the Company believes its accounting for these transactions was made in accordance with generally accepted accounting principles. In the event that the Committee concludes that the terms of the transactions are different from those that were considered by the Company to record these transactions, the Company will have to determine the impact, if any, of such terms on the Company’s financial statements. At the present time, the Company does not know the impact, if any, that different terms may have on the accounting for these transactions.

37. In reaction to the delay in filings, First BanCorp stock fell dramatically from

$22.73 per share close on August 10, 2005 to $21.00 per share the following day.

38. On August 25, 2005 after the market closed, First BanCorp announced that the

SEC was conducting an informal inquiry into the Company’s accounting. Specifically, the press

release stated:

[O]n August 23, 2005, the Company received a letter from the United States Securities and Exchange Commission (the “SEC”) in which the SEC indicated that it was conducting an informal inquiry into the Company. The inquiry pertains, among other things, to the accounting for mortgage loans purchased by the Company from two other financial institutions during the calendar years 2000 through 2004. The Company intends to fully cooperate with the SEC.

The Company has previously disclosed that the Audit Committee (the “Committee”) of the Company had determined that it should undertake a review of purchases of mortgage loans originated by other financial institutions. This disclosure was made by the Company in its Form 12b-25 filed with the SEC on August 10, 2005. In this filing, the Company announced that it would be unable to file its Form 10-Q for the quarter ended June 30, 2005 on a timely basis.

The Committee has retained the law firms Clifford Chance U.S. LLP and Martinez Odell & Calabria to assist the Committee in its review. Forensic accountants FTI Consulting Inc. have also been retained to assist in the review.

The Committee is reviewing the terms of these transactions and the accounting for these transactions. The accounting issues being reviewed include the following:

25

- Whether the Company should have recorded any such transactions as loans made by the Company to the sellers of the mortgage loans, rather than as purchases of mortgage loans under SFAS No. 140.

- Whether any of the transactions resulted in derivatives requiring the application of SFAS No. 133.

The Committee is also evaluating the impact of these issues on the Company’s internal controls and procedures, including its internal control over financial reporting.

Although the Committee is reviewing the issues described in this Form 8-K, it is possible that the Committee may also determine it is appropriate to review other issues.

The issues being reviewed by the Committee could potentially affect the Company’s financial statements for the years 2000 through 2004 and the first two quarters of 2005. The Committee has not yet made any determinations with respect to the potential impact of these issues on the Company’s prior financial statements. As indicated above, the Company was the purchaser of mortgage loans in these transactions. The income recorded by the Company in connection with these transactions was interest income on the mortgage loans purchased by the Company. The Company did not record any interest only strips as a result of these transactions.

At the present time, the Company is uncertain when the Committee’s review will be completed and when the Company will be able to file its Form 10-Q for the quarter ended June 30, 2005.

39. Again reacting to this development, the price of First BanCorp stock dropped

almost 9% from its closing price on August 25, 2005 of $20.02, trading as low as $18.14 on

August 26, 2005.

40. As the SEC continued its informal investigation, executive management at First

BanCorp began to flee the Company. On September 30, 2005, with its second quarter Form 10-

Q still delinquent, the Company announced that both the Individual Defendants were stepping

down. Defendant Álvarez-Pérez stepped down as President and CEO and announced his

retirement as Chairman of the Board, effective December 31, 2005. Defendant Astor-Carbonell

also resigned as CFO and a member of the Board, effective October 31, 2005.

26

41. Once again, in reaction to this announcement, First BanCorp’s stock price fell

another 8%. After closing on September 30, 2005 at $16.92, it fell $1.36 per share on unusually

heavy volume to close at $15.56 on October 3, 2005.

42. On October 21, 2005, Defendants revealed that the SEC’s informal investigation

had become a formal investigation and that the Company would have to restate earnings for as

far back as five years due to its improper accounting for the mortgage purchases first mentioned

in the August 11, 2005 press release. First BanCorp released the following statement over the

Businesswire:

First BanCorp (NYSE: FBP) announced that the Securities and Exchange Commission has issued a formal order of investigation in its investigation into First BanCorp. The investigation, which stems out of an informal inquiry announced by the Company in late August 2005, appears to relate to, among other things, transactions in which First Bank acquired a substantial number of mortgage loans from other Puerto Rican financial institutions. The Company is cooperating with the SEC’s investigation.

The Audit Committee of First BanCorp’s Board of Directors has been looking into the mortgage transactions and the proper accounting treatment of them since shortly before the Company learned of the SEC’s initial inquiry into First BanCorp. The Audit Committee is also reviewing other possible accounting and financial controls issues, and it is possible that the Committee may also determine to review other issues as well. The Committee has retained independent counsel and forensic accounting advisers to assist in this review. The Committee and its counsel are cooperating with, and providing information to, the SEC staff.

One issue under review by the Audit Committee is whether the mortgage transactions at issue were properly classified for accounting purposes as purchases of the mortgage loans by First Bank or whether they should have been treated as loans by First Bank to the other financial institutions, secured by the mortgages. Although the Company’s accounting analysis is not complete, First Bank has concluded that most of its transactions with one financial institution, R&G Mortgage Corp, did not qualify as true sales as a legal matter. Accordingly, these transactions may need to be accounted for as a secured loan to that financial institution. As a result, First BanCorp may be required to restate its previously issued financial statements for the period from 2000 through the first quarter of 2005.

Any reclassification of the transactions as secured loans rather than as purchases of mortgages would affect the notes to the Company’s financial statements as well

27

as the Company’s presentation of its cash flow from investing activities. The Company is reviewing the adequacy of its allowance for loan losses relating to the potential reclassified secured loans as well as the regulatory capital implications of the reclassifications. Any need to change the allowance for loan losses would impact previously reported net income and loans net of allowance for loan losses.

The analysis of the mortgage transactions with other financial institutions, including Doral Financial Corporation, is not complete. To the extent that the Company concludes that any transactions are considered to be true sales, it also will need to determine whether such transactions include various terms that should have been accounted for as derivatives. Any need to restate historical financial statements to reflect such derivatives could substantially decrease or increase First BanCorp’s net income for particular periods between 2000 and the first quarter of 2005. The Audit Committee's continuing review of this matter as well as other matters may result in the need for the Company to restate its financial statements.

43. During the period of August 10, 2005 to October 24, 2005, the price of First

BanCorp stock shed $8.61 per share, or 38%. From its January 18, 2005 close of $49.25 per

share, First BanCorp’s stock has plummeted an amazing 65%, closing at the end of the Class

Period on October 21, 2005 at $16.92 per share.

44. For the reasons announced in the October 21, 2005 press release, the statements

contained in paragraphs 15 through 34 were false and misleading when made, caused an artificial

inflation in the Company’s stock price, which injured plaintiff and the proposed class of First

BanCorp investors.

FIRST BANCORP’S FALSE FINANCIAL REPORTING DURING THE CLASS PERIOD

45. In order to overstate the Company’s financial results during the Class Period, the

defendants caused the Company to misreport its investment in interest-only securities, mortgages

servicing rights and adjustable-rate mortgages. Defendants overstated First BanCorp’s assets by

failing to properly account for mortgages purchased from R&G Financial as loans to R&G

instead of a true sale of the mortgage assets. Because the Company failed to reserve for these

loans, and recognized a gain or sale, Defendants thereby overstated the Company’s financial

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statements during the Class Period. As a result of First BanCorp’s improper accounting for its

portfolio, First BanCorp presented materially false financial results during the Class Period in

violation of GAAP despite the fact that defendants repeatedly represented that the financials

were prepared “in accordance with generally accepted accounting principles.”

46. In addition, the Forms 10-Q represented that with respect to the financial

statements included therein, such financial statements included all adjustments necessary “for a

fair presentation” of First BanCorp’s financial position, results of operations and cash flows.

47. These statements were false and misleading as to the financial results released

during the Class Period as such financial information was not prepared in accordance with

GAAP, nor did the financial information “present fairly” the Company’s operations due to the

Company’s improper accounting for its interest-only investments and mortgage-servicing rights

which improper accounting caused the Company’s earnings to be materially overstated in

violation of GAAP and SEC rules.

48. GAAP are those principles recognized by the accounting profession as the

conventions, rules and procedures necessary to define accepted accounting practice at a

particular time. Regulation S-X (17 C.F.R. §210.4-01(a)(1)) states that financial statements filed

with the SEC which are not prepared in compliance with GAAP are presumed to be misleading

and inaccurate. Regulation S-X requires that interim financial statements must also comply with

GAAP, with the exception that interim financial statements need not include disclosure which

would be duplicative of disclosures accompanying annual financial statements. 17 C.F.R.

§ 210.10-01(a).

49. GAAP, as forth in FASB Statement of Concepts No. 5, ¶ 87 states:

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An expense or lose is recognized if it becomes evident that previously recognized future economic benefits of an asset have been reduced or eliminated, or that a liability has been incurred or increased, without associated economic benefits.

50. GAAP, as set forth in FASB Statement of Financial Accounting Standards

(“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities, ¶ 16,

states:

For individual securities classified as either available-for-sale or held-to-maturity, an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary. For example, if it is probable that the investor will be unable to collect all amounts due according to the contractual terms of a debt security not impaired at acquisition, an other-than-temporary impairment shall be considered to have occurred. If the decline in fair value is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the writedown shall be included in earnings (that is, accounted for as a realized loss).1

51. Due to the aforementioned accounting improprieties, the Company presented its

financial results and statements in a manner which violated GAAP. Indeed, the falsity of First

BanCorp’s Class Period financial statements has now been admitted by defendants. In a press

release issued on October 21, 2005, defendants admitted that:

One issue under review by the Audit Committee is whether the mortgage transactions at issue were properly classified for accounting purposes as purchases of the mortgage loans by First Bank or whether they should have been treated as loans by First Bank to the other financial institutions, secured by the mortgages. Although the Company’s accounting analysis is not complete, First Bank has concluded that most of its transactions with one financial institution, R&G Mortgage Corp, did not qualify as true sales as a legal matter. Accordingly, these transactions may need to be accounted for as a secured loan to that financial institution. As a result, First BanCorp may be required to restate its

1 According to SFAS No. 125, 14:

Interest-only strips, loans, other receivables, or retained interests in securitizations that can contractually be prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment shall be subsequently measured like investments in debt securities classified as available-for-sale or trading under Statement 115, as amended by this Statement (paragraph 233).

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previously issued financial statements for the period from 2000 through the first quarter of 2005.

Any reclassification of the transactions as secured loans rather than as purchases of mortgages would affect the notes to the Company’s financial statements as well as the Company’s presentation of its cash flow from investing activities. The Company is reviewing the adequacy of its allowance for loan losses relating to the potential reclassified secured loans as well as the regulatory capital implications of the reclassifications. Any need to change the allowance for loan losses would impact previously reported net income and loans net of allowance for loan losses.

The analysis of the mortgage transactions with other financial institutions, including Doral Financial Corporation, is not complete. To the extent that the Company concludes that any transactions are considered to be true sales, it also will need to determine whether such transactions include various terms that should have been accounted for as derivatives. Any need to restate historical financial statements to reflect such derivatives could substantially decrease or increase First BanCorp’s net income for particular periods between 2000 and the first quarter of 2005. The Audit Committee’s continuing review of this matter as well as other matters may result in the need for the Company to restate its financial statements.

52. SEC Regulation S-X requires that publicly traded companies present their annual

financial statements in accordance with GAAP. [17 C.F.R. § 210.4-01(a) (1)]. In addition,

Regulation S-X requires that interim financial statements also comply with GAAP. Financial

statements filed with the SEC that are not prepared in compliance with GAAP are presumed to

be misleading and inaccurate. Management is responsible for preparing financial statements that

conform to GAAP. As noted by AICPA professional standards:

financial statements are management’s responsibility . . . . [M]anagement is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, record, process, summarize and report transactions (as well as events and conditions) consistent with management’s assertions embodied in the financial statements. The entity’s transactions . . . are within the direct knowledge and control of management . . . . Thus, the fair presentation of financial statements in conformity with Generally Accepted Accounting Principles is an implicit and integral part of management’s responsibility.

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A. Internal Control Deficiencies

53. The Company also suffered from a chronic and systematic breakdown of its

internal accounting controls, which rendered First BanCorp’s financial reporting unreliable and

incorrect, resulting in materially false and misleading financial statements.

54. Section 13(b)(2)(B) of the Exchange Act requires every issuer that has securities

registered pursuant to Section 12 of the Exchange Act, such as First BanCorp, to: (a) make and

keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the

transactions and disposition of the assets of the issuer; and (b) devise and maintain a system of

internal accounting controls sufficient to reasonably assure, among other things, that transactions

are recorded as necessary to permit preparation of financial statements in conformity with

GAAP. These provisions require an issuer to employ and supervise reliable personnel, to

maintain reasonable assurances that transactions are executed as authorized, to properly record

transactions on an issuer’s books and, at reasonable intervals, to compare accounting records

with physical assets.

55. First BanCorp failed to implement and maintain an adequate internal control

system, in a manner that would ensure compliance with GAAP, which Defendants knew or

recklessly disregarded, resulting in materially false and misleading financial statements, despite

the fact that First BanCorp’s CEO and CFO regularly signed certifications attesting to the

adequacy of the Company’s internal controls.

B. First BanCorp’s False and Misleading Class Period Financial Statements Were Material

56. The foregoing violations of GAAP were material. Staff Accounting Bulletin No.

99 (“SAB 99”), emphasizes the need to assess and take into account the qualitative aspects of

materiality, including, but not limited to:

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(a) Whether the misstatement arises from an item capable of precise

measurement or whether it arises from an estimate and, if so, the degree of imprecision inherent

in the estimate;

(b) Whether the misstatement masks a change in earnings or other trends;

(c) Whether the misstatement hides a failure to meet analysts’ consensus

expectations for the enterprise;

(d) Whether the misstatement changes a loss into income or vice versa;

(e) Whether the misstatement concerns a segment or other portion of the

registrant’s business that has been identified as playing a significant role in the registrant’s

operations or profitability; and

(f) Whether the misstatement has the effect of increasing management’s

compensation - for example, by satisfying requirements for the award of bonuses or other forms

of incentive compensation.

C. Additional GAAP Violations

57. In addition to the accounting improprieties stated above, First BanCorp presented

its financial statements during the Class Period in a manner which also violated at least the

following provisions of GAAP:

(a) The concept that financial reporting should provide information that is

useful to present and potential investors and creditors and other users in making rational

investment, credit and similar decisions (Concepts Statement No. 1, ¶ 34);

(b) The concept that financial reporting should provide information about the

economic resources of an enterprise, the claims to those resources, and the effects of

transactions, events and circumstances that change resources and claims to those resources

(Concepts Statement No. 1, ¶ 40);

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(c) The concept that financial reporting should provide information about how

management of an enterprise has discharged its stewardship responsibility to owners

(stockholders) for the use of enterprise resources entrusted to it. To the extent that management

offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for

accountability to prospective investors and to the public in general (Concepts Statement No. 1,

¶ 50);

(d) The concept that financial reporting should provide information about an

enterprise’s financial performance during a period. Investors and creditors often use information

about the past to help in assessing the prospects of an enterprise. Thus, although investment and

credit decisions reflect investors’ expectations about future enterprise performance, those

expectations are commonly based at least partly on evaluations of past enterprise performance

(Concepts Statement No. 1, ¶ 42);

(e) The concept that financial reporting should be reliable in that it represents

what it purports to represent. That information should be reliable as well as relevant is a notion

that is central to accounting (Concepts Statement No. 2, ¶¶ 58-59);

(f) The concept of completeness, which means that nothing is left out of the

information that may be necessary to ensure that it validly represents underlying events and

conditions (Concepts Statement No. 2, ¶ 79); and

(g) The concept that conservatism be used as a prudent reaction to uncertainty

to try to ensure that uncertainties and risks inherent in business situations are adequately

considered. The best way to avoid injury to investors is to try to ensure that what is reported

represents what it purports to represent (Concepts Statement No. 2, ¶¶ 95, 97).

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SCIENTER ALLEGATIONS

58. As alleged herein, Defendants acted with scienter in that Defendants knew that

the public documents and statements issued or disseminated by or in the name of the Company

were materially false and misleading; knew or recklessly disregarded that such statements or

documents would be issued or disseminated to the investing public; and knowingly and

substantially participated or acquiesced in the issuance or dissemination of such statements or

documents as primary violators of the federal securities laws. As set forth elsewhere herein in

detail, Defendants, by virtue of their receipt of information reflecting the true facts regarding

First BanCorp and its business practices, their control over and/or receipt of First BanCorp’s

allegedly materially misleading misstatements and/or their associations with the Company which

made them privy to confidential proprietary information concerning First BanCorp, were active

and culpable participants in the fraudulent scheme alleged herein. Defendants knew and/or

recklessly disregarded the falsity and misleading nature of the information which they caused to

be disseminated to the investing public. The ongoing fraudulent scheme described in this

complaint could not have been perpetrated over a substantial period of time, as has occurred,

without the knowledge and complicity of the personnel at the highest level of the Company,

including the Individual Defendants.

59. The Individual Defendants engaged in such a scheme to inflate the price of First

BanCorp securities in order to: (i) protect and enhance their executive positions and the

substantial compensation and prestige they obtained thereby; (ii) enhance the value of their

personal holdings of First BanCorp securities; and (iii) reap enormous profits from the exercise

of their stock options and the sale of First BanCorp securities.

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STATUTORY SAFE HARBOR

60. The federal statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded here.

Further, none of the statements pleaded here which were forward-looking statements were

identified as “forward-looking statements” when made. Nor was it stated that actual results

“could differ materially from those projected.” Nor were the forward-looking statements

pleaded accompanied by meaningful cautionary statements identifying important factors that

could cause actual results to differ materially from the statements made therein. Defendants are

liable for the forward-looking statements pleaded because, at the time each of those forward-

looking statements was made, the speaker knew the forward-looking statement was false and the

forward-looking statement was authorized and/or approved by an executive officer of First

BanCorp who knew that those statements were false when made. Further, the clear language of

the Private Securities Litigation Reform Act expressly excludes from the safe harbor protection

statements that are “included in a financial statement prepared in accordance with generally

accepted accounting principles.” In re Sunbeam Sec. Litig., 89 F. Supp. 2d 1326, 1339 (S.D. Fla.

1999); 15 U.S.C. §78u-5(b)(2)(A).

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE

61. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that, among other things:

a. Defendants made public misrepresentations or failed to disclose facts

during the Class Period;

b. The omissions and misrepresentations were material;

c. First BanCorp stock traded in an efficient market;

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d. The misrepresentations alleged would tend to induce a reasonable investor

to misjudge the value of the Company’s stock; and

e. Plaintiff and the other members of the Class purchased First BanCorp

stock between the time Defendants misrepresented or failed to disclose material facts and the

time the true facts were disclosed, without knowledge of the misrepresented or omitted facts.

62. At all relevant times, the market for First BanCorp stock was an efficient market

for the following reasons, among others:

a. First BanCorp stock was listed and actively traded during the Class Period

on the NYSE, an open, highly efficient and automated market.

b. As a regulated issuer, First BanCorp regularly made public filings,

including its Forms 10-K, Forms 10-Q and related press releases, with the SEC.

c. First BanCorp was followed by analysts from major brokerages including:

Brean Murray, ThinkEquity Partners LLC, and Moors and Cabot Capital Markets.

d. The reports of these analysts were redistributed to the brokerages’ sales

force, their customers, and the public at large; and

e. First BanCorp regularly communicated with public investors via

established market communication mechanisms, including the Company’s website, regular

disseminations of press releases on the major news wire services, and other wide-ranging public

disclosures, such as communications with the financial press and other similar reporting services.

63. As a result, the market for First BanCorp securities digested current information

regarding the Company from the publicly available sources described above and reflected such

information in the prices of First BanCorp’s securities. As would be expected where a security is

traded in an efficient market, material news concerning First BanCorp’s business had an

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immediate effect on the market price of First BanCorp’s securities, as evidenced by the rapid

decline in the market price in the immediate aftermath of First BanCorp’s corrective disclosures

as described herein. Under these circumstances, all purchasers of First BanCorp’s securities

during the Class Period suffered similar injury due to the fact that the price of First BanCorp

securities was artificially inflated throughout the Class Period. At the times they purchased or

otherwise acquired First BanCorp’s securities, Plaintiff and other members of the Class were

without knowledge of the facts concerning the wrongful conduct alleged herein and could not

reasonably have discovered those facts. As a result, the presumption of reliance applies.

Plaintiff will also rely, in part, upon the presumption of reliance established by a material

omission.

COUNT I

FOR VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER AGAINST ALL DEFENDANTS

64. Plaintiff repeats the allegations set forth above as though fully set forth herein.

This claim is asserted against First BanCorp and the Individual Defendants.

65. During the Class Period, Defendants, carried out a plan, scheme and course of

conduct which was intended to, and did: (i) deceive the investing public, including Plaintiff and

other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

First BanCorp common stock; and (iii) cause Plaintiff and other members of the Class to

purchase First BanCorp stock at artificially inflated prices during the Class Period. In

furtherance of this unlawful scheme, plan and course of conduct, Defendants took the actions set

forth herein.

66. Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

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statements not misleading; and (c) engaged in acts, practices and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s common stock in an effort

to maintain artificially high market prices for First BanCorp common stock in violation of

Section 10(b) of the Exchange Act and Rule 10b-5. Defendants are sued as primary participants

in the wrongful and illegal conduct charged herein, and as controlling persons of First BanCorp,

as alleged below.

67. In addition to the duties of full disclosure imposed on Defendants as a result of

their affirmative statements and reports, or participation in the making of affirmative statements

and reports to the investing public, they had a duty to promptly disseminate truthful information

that would be material to investors in compliance with the integrated disclosure provisions of the

SEC as embodied in SEC Regulation S-X (17 C.F.R. § 210.01 et seq.) and S-K (17 C.F.R. §

229.10 et seq.) and other SEC regulations, including accurate and truthful information with

respect to the Company’s operations, financial condition and performance so that the market

prices of the Company’s publicly-traded securities would be based on truthful, complete and

accurate information.

68. Defendants, individually and in concert, directly and indirectly, by the use of

means or instrumentalities of interstate commerce and/or of the mails, engaged and participated

in a continuous course of conduct to conceal adverse material information about the business,

business practices, performance, operations and future prospects of First BanCorp as specified

herein. These Defendants employed devices, schemes and artifices to defraud, while in

possession of material, adverse, non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of First BanCorp’s value and

performance and substantial growth, which included the making of, or the participation in the

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making of, untrue statements of material facts and omitting to state material facts necessary in

order to make the statements made about First BanCorp and its business, operations and future

prospects in the light of the circumstances under which they were made, not misleading, as set

forth more particularly herein, and engaged in transactions, practices and a course of business

which operated as a fraud and deceit upon the purchasers of First BanCorp securities during the

Class Period.

69. Individual Defendants’ primary liability, and controlling person liability, arises

from the following facts: (i) Individual Defendants were all high-level executives and/or

directors at the Company during the Class Period; (ii) each of these Defendants, by virtue of his

responsibilities and activities as a senior executive officer and/or director of the Company, was

privy to and participated in the creation, development and reporting of the Company’s internal

budgets, plans, projections and/or reports; (iii) the Individual Defendants enjoyed significant

personal contact and familiarity with each other and were advised of and had access to other

members of the Company’s management team, internal reports, and other data and information

about the Company’s financial condition and performance at all relevant times; and (iv) these

Defendants were aware of the Company’s dissemination of information to the investing public

which they knew or recklessly disregarded was materially false and misleading.

70. Defendants had actual knowledge of the severe misrepresentations and omissions

of material facts set forth herein, or acted with reckless disregard for the truth in that they failed

to ascertain and to disclose such facts, even though such facts were readily available to them.

Such Defendants’ material misrepresentations and/or omissions were done knowingly or

recklessly and for the purpose and effect of concealing First BanCorp’s operating condition,

business practices and future business prospects from the investing public and supporting the

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artificially inflated price of its stock. As demonstrated by their overstatements and

misstatements of the Company’s financial condition and performance throughout the Class

Period, the Individual Defendants, if they did not have actual knowledge of the

misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by

deliberately refraining from taking those steps necessary to discover whether those statements

were false or misleading.

71. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of First BanCorp’s

common stock was artificially inflated during the Class Period. Unaware of the fact that the

market price of First BanCorp’s shares was artificially inflated, and relying (directly or

indirectly) on Defendants’ false and misleading statements, or on the integrity of the market in

which the securities are traded, and/or on the absence of material, adverse information known to

or recklessly disregarded by Defendants (but not disclosed to the public) during the Class Period,

Plaintiff and the other members of the Class acquired First BanCorp common stock during the

Class Period at artificially high prices and were damaged thereby.

72. At the time of said misrepresentations and omissions, Plaintiff and other members

of the Class were unaware of their falsity, and believed them to be true. Had Plaintiff and the

other members of the Class and the marketplace known of the true performance, business

practices, future prospects and true value of First BanCorp, which were not disclosed by

Defendants, Plaintiff and other members of the Class would not have acquired their First

BanCorp securities during the Class Period, or, if they had acquired such securities during the

Class Period, they would not have done so at the artificially inflated prices which they paid.

41

73. By virtue of the foregoing, Defendants violated Section 10(b) of the Exchange

Act and Rule 10b-5 promulgated thereunder.

74. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and

the other members of the Class suffered damages in connection with their acquisition of the

Company’s securities during the Class Period.

COUNT II

FOR VIOLATIONS OF SECTION 20(A) OF THE EXCHANGE ACT AGAINST INDIVIDUAL DEFENDANTS

75. Plaintiff repeats the allegations set forth above as if set forth fully herein. This

claim is asserted against the Individual Defendants.

76. Individual Defendants were, and acted as, controlling persons of First BanCorp

within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their

high level positions with the Company, participation in and/or awareness of the Company’s

operations and/or intimate knowledge of the Company’s actual performance, these Defendants

had the requisite power to directly or indirectly control or influence the specific corporate policy

which resulted in the dissemination of the various statements which Plaintiff contends are false

and misleading. Individual Defendants were provided with or had unlimited access to the

Company’s reports, press releases, public filings and other statements alleged by Plaintiff to be

false and misleading prior to and/or shortly after these statements were issued and had the ability

to prevent the issuance of the statements or cause the statements to be corrected.

77. In addition, Individual Defendants had direct involvement in the day-to-day

operations of the Company and, therefore, is presumed to have had the power to control or

influence the particular transactions giving rise to the securities violations as alleged herein, and

exercised the same.

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78. As set forth above, Individual Defendants violated Section 10(b) and Rule 10b-5

by their acts and omissions as alleged in this Complaint. By virtue of their controlling positions,

Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and

proximate result of these Defendants’ wrongful conduct, Plaintiff and other members of the

Class suffered damages in connection with their purchases of the Company’s securities during

the Class Period.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff, on his own behalf and on behalf of the Class, prays for

judgment as follows:

a. Declaring this action to be a class action pursuant to Rule 23(a) and (b)(3)

of the Federal Rules of Civil Procedure on behalf of the Class defined herein;

b. Awarding Plaintiff and the other members of the Class damages in an

amount which may be proven at trial, together with interest thereon;

c. Awarding Plaintiff and the members of the Class pre-judgment and post-

judgment interest, as well as their reasonable attorneys’ and experts’ witness fees and other

costs;

d. Ordering an accounting of Defendants’ insider trading proceeds;

e. Awarding preliminary and permanent injunctive relief in favor of

plaintiffs and the Class against Defendants, including an accounting and the imposition of a

constructive trust and/or an asset freeze on Defendants’ insider trading proceeds; and

f. Such other relief as this Court deems appropriate.

JURY DEMAND

Plaintiff demands a trial by jury.

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Date: November_____, 2005 Respectfully submitted, LAW OFFICES JOHN E. MUDD John E. Mudd, Esq. Puerto Rico Bar No. 201102 jemudd@yahoo.com P.O. Box 194134 Hato Rey, PR 00919 Tel.: (787) 754-7698/(787) 413-1673 Fax: (787) 766-1596

MILBERG WEISS BERSHAD & SCHULMAN LLP Maya Saxena Florida Bar No. 0095494 msaxena@milbergweiss.com Joseph E. White III Florida Bar No. 0621064 jwhite@milbergweiss.com Ariel Acevedo Florida Bar No. 0946001 aacevedo@milbergweiss.com 5200 Town Center Circle, Suite 600 Boca Raton, FL 33486 Tel.: (561) 361-5000 Fax: (561) 367-8400 -and- Steven G. Schulman One Pennsylvania Plaza New York, NY 10119 Tel.: (212) 594-5300 Fax: (212) 868-1229 Counsel for Plaintiff

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