TD Bank Settles Another Rothstein Investor Suit For $70 Million

A hedge fund specializing in arbitrage trading that had invested hundreds of millions of dollars in Scott Rothstein's $1.3 billion Ponzi scheme has reached a settlement valued at nearly $70 million from TD Bank and others it claimed facilitated the scheme.  Platinum Partners Value Arbitrage Fund, L.P. ("Platinum Partners") was one of hundreds of investors in Rothstein's purportedly lucrative business of investing in confidential structured settlements, ultimately investing more than $400 million along with two of its sister hedge funds.  The fund brought claims against TD Bank and others in the aftermath of Rothstein's collapse, claiming the bank played a vital role in Rothstein's scheme.  In the announced settlement, TD Bank will be on the hook for approximately $44 million which, according to Paul Brinkmann of the South Florida Business Journal, brings the bank's financial exposure thus far to roughly $374 million.

The settlement is a welcome reversal in roles for Platinum Partners, which found itself and two partner  funds, Centurion Structured Growth and Level 3 Capital, the target of a $400 million lawsuit by the trustee appointed to recover funds for Rothstein's victims.  The trustee, Herbert Stettin, filed suit in December 2010 and sought more than $400 million - an amount representing the amount of funds that flowed in and out of Platinum during Rothstein's fraud.  Platinum Partners settled with the trustee in June 2012, agreeing to pay $32 million to the bankruptcy estate, which represented the amount of transfers made during the 90-day period preceding the bankruptcy filing in which Rothstein was legally presumed insolvent.  In exchange, Stettin agreed to allow Platinum Partners to hold claims of $28 million, as well as subordinated claims of $26 million.  

Meanwhile, Platinum Partners had joined a multitude of other Rothstein victims in pursuing claims against TD Bank, claiming that the bank and its executives willingly aided Rothstein's scheme.  That strategy had become increasingly popular in the wave of several high-profile settlements by TD Bank, as well as a jury verdict awarding punitive damages.  The adverse verdict served as a powerful incentive for settlement, and the bank has since settled several other suits.

Under the terms of the settlement with Platinum Partners, TD Bank agreed to make a cash payment of $18 million, as well as satisfy the fund's remaining obligation to Stettin of approximately $26 million.  Platinum Partners will also recover its legal fees in pursuing the multi-year litigation.  Additionally, Platinum Partners still has its $54 million in claims submitted to the bankruptcy estate, including an allowed claim with equal priority to other investor-victims of $28 million that is expected to be nearly or fully satisfied out of recoveries by Stettin.  Thus, assuming a payout percentage of 80% or more, Platinum Partners will stand to recover approximately $70 million - a figure that seems even more impressive considering some estimates that the fund recovered all but $19.5 million of its original investment with Rothstein.

TD Bank has been a central focus of Stettin's efforts to formulate an exit plan from bankruptcy that has featured a heavily-debated ban on current and future litigation against TD Bank in exchange for a cash payment to the bankruptcy estate.  The proposal has pitted Stettin and the creditors' committee against a group of investors with pending claims of nearly $300 million against TD Bank who would be 'forced' to 'only' receive whatever payments they would be entitled under a bankruptcy plan.  Stettin supports the plan because victims would be on track to receive close to a 100% recovery - an outcome only possible with the cash payment by TD Bank in exchange for a bar order.  Under a recently proposed version of the plan - one that still includes a bar order - creditors will have the chance to submit their vote in advance of a July confirmation hearing.  

A copy of the Trustee's lawsuit against Platinum Partners is here.