A Florida federal court judge imposed sanctions against TD Bank and its law firm, Greenberg Traurig, for "willfully" hindering and obfuscating the production of evidence that painted a much more culpable role of TD Bank in Scott Rothstein's $1.2 billion Ponzi scheme. The order by United States District Judge Martha G. Cooke comes after the successful attempt by a Rothstein investor, Coquina Investments, to hold TD Bank liable for its participation in Rothstein's fraud. A federal jury deliberated for four hours in January 2012 before rendering a $67 million verdict
against TD Bank, including the imposition of punitive damages.
The dispute arose concerning the sufficiency of TD Bank's participation in discovery, the court-supervised exchange of information in a lawsuit. One of Coquina's central contentions was that TD Bank knew that Rothstein was a high-risk customer, but ignored the warning signs associated with the fraud in favor of the lucrative relationship it had with Rothstein. During the trial, TD Bank maintained that it had not designated Rothstein as a "High Risk" customer, which would have required enhanced due diligence by the bank including robust monitoring and scrutiny. In support, TD Bank offered Rothstein's Customer Due Diligence Form into evidence, which did not contain any indication that Rothstein was considered a high-risk customer. This distinction was emphasized by the bank's testifying expert, and played a key role in its defense. Many observed that the jury award could have been much higher had Rothstein indeed been a high-risk customer.
Coquina's attorney, David Mandel
of Mandel & Mandel, is also representing another Rothstein victim in a related trial against TD Bank. That case, Emess Capital v. TD Bank
, not only features the same charges pursued by Coquina, but also possible treble damages under the Racketeering Influenced and Corrupt Organizations Act (RICO). RICO was originally used primarily against organized crime defendants, but has recently been used to target white collar crime. During ongoing discovery in that case, Mandel's team discovered that TD Bank had produced Rothstein's Customer Due Diligence Form, the same one it produced in the Coquina trial, albeit with an important distinction - the newly-produced Form had a bright red band at the top that read "HIGH RISK". According to Mandel, "
the “HIGH RISK” designation appears to have been blacked out and omitted from" the form produced in the Coquina trial. A comparison of the documents is helpful:
Attacking the previously-produced form as a "sanitized" version of the document, Coquina sought sanctions against TD Bank and Greenberg Traurig ("Greenberg"), seeking:
- sanctions as determined by the Court;
- the referral of TD Bank to the United States Attorney's Office for possible obstruction of justice charges; and
- referral of defense counsel to the Florida Bar for an investigation into their role, if any.
Coquina also alleged that documents known as "Standard Investigative Protocols" were withheld from it, produced several months after the verdict was reached. The documents had been hotly contested during trial and the subject of at least one motion for sanctions. Judge Cooke held several days of hearings that featured testimony from TD Bank employees and several of the Greenberg attorneys involved (TD Bank ceased using Greenberg after the verdict). Mandel scoffed at the insinuation that the omission of the "high-risk" denotation was a copying error, stressing that the multiple errors were not "a series of coincidences", but instead "Rambo litigation tactics."
In her 30-page ruling, Judge Cooke eloquently summarized the nature of the dispute:
In many ways, this is a case of too many cooks spoiling the broth. Over 200 Greenberg Traurig attorneys were involved in this case. There were separate teams of Greenberg Traurig lawyers to handle banking issues, document production, and pretrial and trial practice. TD Bank retained two different firms to work on different aspects of the Rothstein fallout, but the firms did not have any mutual coordination. One of the firms, Sullivan & Cromwell, then hired a consultant to perform work, which was relevant to the Rothstein litigation, but no one ever informed Greenberg Traurig. As a result, it often times appears that this litigation was conducted in an Inspector Clouseau-like fashion. However, unlike a Pink Panther film, there was nothing amusing about this conduct and it did not conclude neatly.
After a thorough review of the alleged discovery violations, Judge Cooke concluded that sanctions were warranted against Greenberg and TD Bank for a "pattern of discovery violations" that deprived Coquina of the ability to "drive home" to the jury that Rothstein's account warranted additional scrutiny. Noting that Coquina faced several post-trial motions challenging the sufficiency of the evidence out forth against TD Bank, Judge Cooke ordered that several facts, including that TD Bank’s monitoring and alert systems were unreasonable and that TD Bank had actual knowledge of Rothstein’s fraud, would be established as true for those actions. The second finding concerning actual knowledge is particularly damaging to TD Bank, as many previous attempts to hold financial institutions liable under these theories fell short of the heightened standard of knowledge required to impose liability.
Additionally, Judge Cook also ordered Greenberg and TD Bank to pay Coquina's fees and costs incurred in preparing its Fourth and Fifth Motions for Sanctions, as well as fees and costs associated with any litigation resulting from TD Bank's notice of the existence of the Standard Investigative Protocol documents. A specific request for those fees is due from Coquina's counsel on or before August 23, 2012. As to Greenberg's attorneys, Judge Cooke found that none had acted willfully or in bad faith, and declined to impose individual sanctions.
TD Bank indicated it plans to appeal Judge Cooke's ruling, as well as the jury verdict.
A copy of the Order is here.
A copy of Coquina's Motion for Sanctions is here.
Additional coverage of the Rothstein Ponzi scheme is here.
Paul Brinkmann, a reporter for the South Florida Business Journal, has also provided detailed coverage of the Ponzi scheme. You can view his articles here.