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

Kathy is a senior business trial attorney with more than 30 years experience prosecuting and defending claims for high net worth clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases under standard fee and alternative fee arrangements. She also handles SEC and CFTC whistleblower claims. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring detailed knowledge about 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 3, 2012

Not Surprisingly, Bank Settlements Follow the Big Verdict Against TD Bank

Posted by Kathy Bazoian Phelps

The Ponzi Blog by Kathy Bazoian Phelps on February 16, 2012, analyzed on the jury verdict of $67 million in favor of Coquina Investments against TD Bank for its participation in the Rothstein Ponzi scheme in Florida.  Now two more bank settlements are being reported in the news.

First, TD Bank has settled with the Razorback Group of 55 investors for $170 million.  Second, Gibraltar Private Bank & Trust Co. of Coral Gables has settled with the Razorback Group for an additional $10 million.  The total of these two settlements - $180 million - is just what the plaintiffs had requested in damages, but the investors will not likely be paid in full because a large chunk of the settlements is most certainly designated for attorney fees.

It is likely that TD Bank settled because it had no reason to believe that the result of a jury trial on the Razorback Group’s claims would turn out any better than the  clobbering it just suffered on the Coquina claims. 

But why did Gibraltar Bank settle?  Perhaps the answer lies in Scott Rothstein’s deposition testimony of December 12, 2011:
Q:  Now, was [Gibraltar] bank important for your Ponzi scheme?
Rothstein:  Critical.
Q:  And why?
Rothstein:  Because I had [Gibraltar’s Fort Lauderdale market manager] John Harris in my pocket and later had [Gibraltar Chairman and CEO] Steve Hayworth in my pocket, and they were essential for me being able to do what I needed to do without having interference with the federal or state authorities...
(Rothstein Deposition Transcript, 12/12/12 p.m. session, pp. 134-35).
When asked to explain what he meant by "in your pocket," Rothstein responded in part:
Rothstein:  Harris was in my pocket by me supplementing his lifestyle to the extent that I changed his lifestyle. He received gifts from me. He traveled with me extensively. He was on our permanent guest list for all of our sporting events including Dolphin's [sic] stadium and the Heat. Traveled with me on charter private aircraft to all kinds of sporting events. I took him to several thousand dollar a plate smokers for the various charities I was involved in. . .
Q:  How about Mr. Hayworth?
Rothstein:  Hayworth was simple. He needed an investor for the bank, and I invested $5 million...
(12/12/12 p.m. Transcript, pp. 137-38).
Rothstein also testified about his tactics to end questioning by Gibraltar’s compliance officers by purchasing stock in the bank.

Q:  Was there ever a conversation or any conversation with any of those folks concerning your regulatory problems, compliance problems, vis-a-vis become a major shareholder in the bank?
Rothstein:  Yes. I was told by Harris and by Steve Hayworth that we don't investigation [sic] shareholders of the bank.

Q:  That gave you some insensitive [sic] to become a shareholder?
Rothstein:  That's the one and only reason I invested...
(12/12/12 p.m. Transcript, pp. 139).
Rothstein acknowledged in his deposition that he would not provide “real answers” to questions asked by the Bank.
Rothstein:  I never provided real answers to any of these questions.
Q:  If in fact they had gotten the real answers to these questions, what would that have done to your Ponzi scheme?
Rothstein:  It would have exploded.
(12/12/12 p.m. Transcript, pp. 168-69).
Q:  As a matter of fact, was the success of the Ponzi based in part on your ability to keep this bank at bay?
Rothstein:  Absolutely.
(12/12/12 p.m. Transcript, pp. 147-48).
This is potentially strong evidence that these agents of Gibraltar Bank facilitated Rothstein’s fraud and protected it from disclosure, for their personal financial gain.  From this evidence, a jury certainly could find that the bank aided and abetted the fraud and is, therefore, liable for the resulting damages.  Despite questions about Rothstein’s credibility, this, along with the TD verdict, quite likely motivated Gibraltar Bank to settle.
The transcripts of Rothstein’s deposition taken December 12-23, 2011 are available here.

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