TD Bank To Pay $52.5 Million In Fines To Regulators Over Role In Rothstein Ponzi Scheme

A South Florida financial institution has agreed to pay over $50 million in fines to several federal agencies to settle charges that it played a role in Scott Rothstein's elaborate $1.4 billion Ponzi scheme.  In separate announcements by the Securities and Exchange Commission ("Commission") and the Office of the Comptroller of the Currency ("OCC"), TD Bank agreed to the imposition of $52.5 million in total fines based on its extensive role in Rothstein's scheme, including the Commission's characterization that it "told outright lies to [Rothstein] investors."  Former exec Frank Spinosa was also named by the SEC, and has indicated he plans to fight the charges.

TD Bank was the primary banking institution used by Rothstein while he sold over $1 billion in purportedly-discounted pre-lawsuit settlements to investors for several years until October 2009.  Potential investors were told that the settlements had already been deposited into a separate trust account in their name at TD Bank, and were provided so-called "lock letters" signed by Spinosa indicating that distribution of the funds was restricted only to the investor named in the lock letter.  Spinosa also participated in at least one conference call with potential investors in which he supplied scripted answers to a series of Rothstein's questions.  In total, Rothstein raised approximately $1.4 billion from investors.

According to the Commission, none of these representations concerning TD Bank were accurate.  In reality, the "locked" accounts described by Rothstein typically contained less than $100, and there were no procedures employed by TD Bank locking or restricting the accounts in any way.  

Additionally, the OCC alleged that numerous activities occurring in Rothstein's accounts should have triggered alerts in the bank's anti-money laundering system that warranted the filing of suspicious activity reports ("SAR's") under federal law.  However, TD Bank either ignored or dismissed this activity, and no SAR's were ever filed that could have potentially prompted further scrutiny into Rothstein's activities.  

While TD Bank agreed to settle with the OCC and the Commission, Spinosa indicated through his lawyer that he planned to fight the charges and maintained that he denied the Commission's allegations.  These allegations included that Spinosa provided false "lock letters" to investors, provided false balances to investors, and made false representations regarding purported restrictions on investor bank accounts.  The Commission is seeking the imposition of civil monetary penalties against Spinosa.  

According to the OCC, TD Bank's exposure from the Rothstein Ponzi scheme has nearly eclipsed $600 million, including hundreds of millions of dollars in jury verdicts and settlements and a $73 million settlement with the court-appointed bankruptcy trustee, Herbert Stettin.  

It is interesting to note that the Commission chose to bring an administrative proceeding, rather than a typical enforcement action, in announcing the charges against TD Bank.  Perhaps more noteworthy, the charges contained the acknowledgement that TD Bank would be paying the fines without admitting or denying the SEC's findings - a once-common practice by the Commission that has been scaled back as of late.  Earlier this summer, the Commission announced in a memo to enforcement staff that some cases might “justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement.”  One reason for the use of the neither-admit-nor-deny language could be the tacit acknowledgement in the cease-and-desist order that the Commission had taken into account the remedial efforts and cooperation undertaken by the bank.

A copy of the complaint against Spinosa is here.

A copy of the Commission's Cease and Desist Order is here.

A copy of the OCC's announcement is here.

Previous Ponzitracker coverage of the Rothstein Ponzi scheme is here.