Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 25 years experience prosecuting and defending claims for clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases on under standard fee and alternative fee arrangements. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring an expert on fraud or Ponzi schemes.

Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
Equity Receivers
Bankruptcy Trustees
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors

Saturday, March 10, 2012

Same Ponzi Case, Same Bank Defendant, Same Result? No!

Posted by Kathy Bazoian Phelps    

To hear a live discussion on these issues and issues relating to bank liability in Ponzi scheme cases, register for the March 15, 2012 webinar, “The Costly Collision of Financial Institutions with Ponzi Schemes” at http://www.nomoneylaundering.com/ described below.

On the heels of a jury’s $67 million verdict against TD Bank for aiding and abetting Scott Rothstein’s fraud, Platinum Estates’ aiding and abetting claim against TD Bank has been dismissed for failing to state a claim.  On March 7, 2012, District Judge Kenneth A. Marra found, “[T]he Complaint fails to include sufficient facts which would support a finding of actual knowledge, only facts that support an insufficient finding that Defendant ‘should have known’ about the alleged fraud. Accordingly, Count II fails for failing to satisfy the actual knowledge requirement of aiding and abetting fraud.” The judge also found, “Count II also fails under the ‘substantial assistance’ prong of aiding and abetting fraud.”  Platinum Estates, Inc. v. TD Bank, N.A., 2012 U.S. Dist. LEXIS 30684 (S.D. Fla. Mar. 7, 2012).

Unfortunately for those of us who follow these matters closely, the opinion contains little more than these conclusory findings and does not review or analyze what Platinum Estates’ complaint did allege.  In addition, the opinion makes no effort to address why its result should be different than the result that District Judge Marcia Cooke of the same court reached on TD Bank’s motion to dismiss Coquina’s aiding and abetting claim.  See Coquina Investments v. Rothstein, 2011 U.S. Dist. LEXIS 7062 (S.D. Fla. Jan. 20, 2011).

Was Platinum Estates’ complaint inadequate?  Judge for yourself.  Here are the key aiding and abetting allegations in the complaint:

22. TD Bank was the financial nucleus of the Rothstein Ponzi scheme as hundreds of millions of Ponzi scheme dollars flowed through RRA's TD Bank trust and operating accounts.

23. Rothstein’s scheme was entirely dependent on the legitimacy TD Bank bestowed upon him. Indeed, TD Bank treated Rothstein as a VIP customer and afforded him unprecedented privileges and access.

24. For example, TD Bank lulled investors, including Plaintiffs, into a false sense of security by providing written assurances that settlement funds existed in separate accounts and could only be disbursed directly to the investor(s).

25. TD Bank further legitimized Rothstein by permitting him to use conference rooms at its branches to have meetings with the very investors he was defrauding and by TD Bank participating in staged procedures during those meetings such that the investor would be led to believe that their investment would be safe with TD Bank's involvement.

* * *

27. TD Bank misrepresented to investors that the settlement funds for Rothstein's clients were “irrevocably locked” in special accounts.

28. Senior officers of TD Bank also met with investors to reassure them about the investments.

29. TD Bank supposedly opened separate accounts for each investor's funds. TD Bank represented to Plaintiffs that settlement funds existed and could only be disbursed directly to the investor.

* * *

57. Defendant knew or should have known that Rothstein was engaged in fraud.

58. Defendant knowingly joined, participated in, and/or ratified Rothstein’s fraud in the following ways:

     (a) Defendant permitted hundreds of millions, of Ponzi dollars to flow through RRA’s TD Bank escrow, trust, and operating accounts in violation of applicable laws, regulations and internal policies and procedures.
     (b) Defendant lulled investors, including Plaintiffs, into false senses of security by providing verbal and/or written assurances that settlement funds existed and could only be disbursed directly to the investor;
     (c) Defendant permitted Rothstein to use conference rooms at its branches to have meetings with investors and TD Bank employees assisted RRA in arranging meetings with investors;
     (d) Defendant mobilized employees to participate in “presentations” or “shows” for Rothstein investors at TD Bank branches;
     (e) Defendant misrepresented to investors that the settlement funds for Rothstein's clients were “irrevocably locked” in special accounts;
     (f) Senior officers of TD Bank frequently met with investors to reassure them about the investments;
     (g) TD Bank represented to Plaintiffs that settlement funds existed and could only be disbursed directly to the investor.

59. Defendant substantially and materially assisted Rothstein in committing fraud.

Fortunately for the plaintiffs, Judge Marra did grant an opportunity to amend the complaint, so it remains to be seen whether the aiding and abetting claim will get past the pleading stage.  As can be seen from the recent jury verdict against TD Bank in the same Ponzi scheme case, a jury can have a very different assessment of the facts than can a judge on a motion to dismiss.

A copy of the Platinum Estates' complaint against TD Bank is available here.

On March 15, 2012, 12:00–1:00 pm EDT, I will be speaking at an AML Services International Training Web Seminar, “The Costly Collision of Financial Institutions with Ponzi Schemes.”  Register to hear me speak about topics such as: how to do due diligence to detect Ponzi schemes, red flag warnings, and liability exposures of the bank. You will get critical insights from recent real life cases, and see court documents showing missteps made by banks involved in costly lawsuits because they were allegedly banking Ponzi fraudsters. There is  a special discount code for my Ponzi Blog readers: 15% off (only $85). Code: TEMP232. Register at: http://www.nomoneylaundering.com/.

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