New e-mails indicate TD Bank head knew colleague helped fraudster lull victims

Emails suggesting the regional president of TD Bank knew that a bank executive had signed letters on the bank’s letterhead that lulled the fraud victims of its customer, Scott Rothstein, have emerged belatedly in a federal case in Miami.

Dated just five days after Rothstein’s $1.2 billion fraud exploded into public view around Halloween Day in October 2009, the e-mails show that TD Bank’s President for Florida was aware that his subordinate, Frank Spinosa, had signed sham “lock letters” that assure Rothstein’s victims that the large sums they had “invested” in Rothstein’s scheme were secure. Rothstein’s fraud involved selling fake shares in legal settlements to wealthy individual and corporate victims using accounts at TD and at Gibraltar Bank, in Miami.

The attorney for fraud victim Coquina Investments, David Mandel, of Mandel & Mandel, in Miami, released the e-mails in a June 14 court filing. TD Bank had not responded at the time this article was posted. ACFCS.org will cover the response when it is filed.

Until then, the e-mails tell their own story.

In e-mails, bank president told TD executive his letters for Rothstein were ‘statement of fact’

Wednesday, November 4, 2009, was a bad day for TD Bank Regional Vice President Frank A. Spinosa. FBI agents had stormed Rothstein’s law firm the previous day armed with search warrants and the media were circling hungrily.

At 1:47 PM that day, Spinosa got this e-mail from a bank employee: “Hi Frank:  Nathan Koppel, a reporter [from the Wall Street Journal] called for you. I gave him Rebecca Acevedo’s [TD Bank’s top US public affairs officer in New York] number to call. Said he still needs to talk to u in regards to fraud allegations by Scott Rothstein. He can be reached at 212-___-____. Regards – Kay Mathura”

Four minutes later, at 1:51 PM Spinosa e-mailed Acevedo and TD Bank Florida president Kevin Gillen: “FYI. Can someone help me understand what is going on?”

At 2:05 PM, Acevedo advised Spinosa: “I wouldn’t call him back.”

A persistent Koppel obtained Spinosa’s home number, which prompted this e-mail at 9:24 PM from the worried banker to Acevedo, with a copy to Gillen: “Rebecca, I spoke with Kevin regarding a phone message at home from Nathan Koppel. I am paraphrasing but he said an article will come out tomorrow with investors alleging I was complicite [sic] in Scotts fraud in that I released funds that were in restricted accounts. This is totally false and very upsetting to me. I played the message for Kevin. This is a lie and would like support to clear my name.”

At 9:48 PM, an increasingly anxious Spinosa wrote to Acevedo, with a copy to Gillen: “Based on my conversation with Kevin I respectfully ask you consider a response of Mr. Spinosa denies any complicity or wrong doing. The Bank is still early in their investigation. I ask for your consideration. My name is all I have.”

Gillen wrote to Spinosa at 10:03 PM: “The problem is that you did in fact author, sign and issue these letters.”

In an increasingly worried tone, Spinosa responded to his boss six minutes later: “Kevin I did not author those letters. Scott did and you have the emails to prove it. I issued those to Scott. I did not comply to any fraud. All I am asking is that my denial is noted and I welcome any and all investigations.”

Minutes later, Gillen wrote: “Frank, Those letters were provided by you on TD letter head and signed by you. I think that is a statement of fact.”

Rothstein testifies he got Spinosa to sign ‘lock letters’ to deceive his victims

Spinosa’s worries that day were well-placed. Rothstein, a disbarred attorney serving a 50-year prison term after pleading guilty to federal fraud, racketeering and money laundering charges, is now providing an avalanche of details about every aspect of his financial crimes. He has given four weeks of depositions to lawyers for victims and bankruptcy trustees.

Spinosa is one of his favorite subjects. Rothstein says he had the banker “in my pocket,” achieving that, he says, by showering Spinosa with many favors, gifts and even money to give him a “rockstar lifestyle.” Rothstein also describes how he got Spinosa to sign the “lock letters” on TD Bank stationary, which Rothstein had drafted.

Through his cooperation, Rothstein is trying to convince the US Department of Justice and the FBI and IRS CI to ask US District Judge James Cohn to reduce his sentence.

E-mails suggest greater knowledge of ‘lock letters’ than Gillen admitted in court

 More than two years after his e-mail exchange with Spinosa, Gillen testified in the Coquina trial on November 15, 2011. He had this exchange with Coquina attorney, Nina Mandel, in court:

Mandel: Mr. Gillen, are you aware whether there was suspicious activity, fraud alerts or anti-money laundering alerts, generated in connection with the RRA [Rothstein’s law firm] accounts at TD Bank?

Gillen: I became aware of this entire situation in October of 2009.

Mandel: How did you become aware, sir?

Gillen: I received a phone call from Mr. Spinosa.

Mandel: When was that?

Gillen: It was either a Saturday or a Sunday, I was driving back from New Jersey. I had spent the weekend with my family, my brothers and sisters. My mother had been diagnosed with pancreatic cancer and given a couple of months, and I received a phone call in the car driving back, and I just don’t recall if it was a Sunday or a Sunday afternoon.

Mandel: What happened in that call?

Gillen: Frank had said — he — it was a relatively short call. He said he had received a phone call himself from another partner in the firm, and there was concern that Mr. Rothstein had left the country, and I said, “I don’t understand what that has to do with TD Bank or you.” And then, he tried explaining a letter, which I didn’t understand; and from that point, I had said, “You are not making any sense.” I was definitely a little preoccupied, and I asked him to contact bank counsel right away.

Mandel: Why did you direct Frank Spinosa to contact [bank counsel]?

Gillen: It was a subject matter that, frankly, I didn’t understand, and I was concerned.

Mandel: Did Frank Spinosa read you the letter that he was talking about?

Gillen: I’m going to say yes; but as I said before, it was a letter that I didn’t really understand, didn’t make a lot of sense to me.

Mandel: Did you see the letter some time later?

Gillen: I saw the letter from what was shared with me during the depositions.

Mandel: That was the first time that you saw the letter that Frank referred to on the call with you?

Gillen: I would have been shared that letter with bank counsel.

Mandel: So other than by bank counsel, the next time you saw it was when you are being deposed in connection with this case or with another case?

Gillen: That would be correct.

Later in his testimony,Gillen reiterates that while he spoke to Spinosa on October 31, he was dealing with a family matter at the time and did not understand what Spinosa was referring to. He states that he immediately contacted TD Bank’s counsel after speaking with Spinosa. His further exchange with Nina Mandel is below:

Mandel: Did Frank Spinosa read to you from the letter? Did he tell you about the irrevocably restricted accounts referred to in the letter?

Gillen: I just don’t recall if he tried explaining it to me, or if he literally read it to me. I don’t recall.

Mandel: Did you read the lock letters, at some point, sir?

Gillen: When it was shared with me with counsel, yes.

Mandel: Had you ever seen a lock letter like that in your 31 years of banking?

Gillen: No. I think I said before, that’s a term that I had never heard of before, locked.

Also in testimony on November 15, Gillen described being taken by Spinosa to meet Rothstein at his law offices in Ft. Lauderdale in April or May 2009. He described the encounter as a “routine introductory meeting,” and said Rothstein was not a new customer at that time.

Coquina says TD Bank hid e-mails from jury and had a ‘win at all costs strategy’

The new e-mails were uncovered by lead Coquina attorney, David Mandel, five months after the end of a 70-day trial and many more months after the bank and Greenberg Traurig lawyers had said repeatedly that all pertinent information had been disclosed to Coquina.

Mandel received the new e-mails from TD in a case by another Rothstein victim, Emess Capital, which he also represents. He says TD Bank deliberately withheld the e-mails during the Coquina trial as part of a “calculated, win at all costs strategy.”

Judge weighing sanctions against bank and lawyers for discovery violations

The e-mails are not the first supposed damning evidence the bank has belatedly revealed. Mandel, a partner at Mandel & Mandel, of Miami, has moved five times for sanctions against the bank and Greenberg Traurig with US District Judge Marcia G. Cooke, of Miami. In his filing last week, he filed a “Notice of Supplemental Evidence” to which he attached the e-mails involving Gillen.

Last month, Cooke held two days of hearings to determine if she would hold the bank and law firm in contempt for withholding a key record and doctoring a crucial document that also surfaced after the trial. She invited the lawyers for both sides to submit additional evidence and briefs. TD dismissed Greenberg Traurig on April 24 and is now represented by another large firm, Maguire Woods, whose lead counsel in the case is, Robert Plotkin, of Washington, DC.

Cooke has not ruled on the sanctions against TD and the Greenberg attorneys. Mandel has asked for monetary sanctions, referral to the US Justice Department for criminal investigation of TD Bank, and referral to the Florida Bar to inquire into possible ethics violations by Greenberg Traurig.

At the hearing in May, Cooke recited the sanctions she may impose if she finds “bad faith” by the bank or lawyers. They include striking the bank’s pleadings in the Coquina case, including the Notice of Appeal it filed with the US 11th Circuit Court of Appeals, in Atlanta, seeking reversal of the verdict Coquina won in court. That would end TD’s case.

Despite compromised evidence, fraud victim Coquina won big verdict against TD

 Notwithstanding the new e-mails and the other allegedly compromised evidence that has surfaced post-trial, Coquina Investments won a $67 million verdict against TD in January. The jury took 15 minutes after a 70-day trial to find the bank liable for $32 million in actual losses Coquina incurred. The jury added $35 million in punitive damages.

It is the first known case where a bank is held liable for “aiding and abetting fraud” for its complicity in a fraud perpetrated by a customer, including its neglect of its anti-money laundering compliance regimen and safeguards. The groundbreaking legal theory now has a foothold and will serve as a precedent that lawyers for fraud victims in the United States will dissect, cite and seek to emulate.

In relative terms, the monetary losses TD Bank has suffered in the Rothstein affair are small for the global financial institution with $150 billion in assets. In addition to the $67 million liability it has to Coquina, the bank settled with another Rothstein victim, Razorback Group, for a reported $170 million.

But the reputational harm the bank has suffered, which is impossible to quantify, may be much more expensive.

Case could be textbook on bank customer procedures, employee supervision

In his depositions, Rothstein describes how he was able to game the bank’s fraud and money laundering controls by compromising and corrupting bank officials and employees. It is evident from his revelations that TD Bank, and Gibraltar Bank, where he also had fraud-contaminated accounts, did not monitor the electronic or print communications of their employees.

A regular and systematic review of these communications would have halted the fraudulent operation in its tracks.

Silence and inaction of OCC and FinCEN

A mystery surrounding the TD Bank case is the silence and inaction of its primary federal regulator, the Office of the Controller of the Currency during the 2 1/2 years since the massive fraud erupted. The Coquina trial transcript is replete with instances of the bank ignoring money laundering alarms that its control systems were blaring from Rothstein transactions. These included many alarms that sounded from repeated overdrafts and commingling of funds in client trust accounts that Rothstein maintained. It is a doctrine of banking and the legal profession that lawyer trust accounts must never have an overdraft.

The OCC stated it has no comment on TD Bank at this time.

The Financial Crimes Enforcement Network, or FinCEN, which enforces the Bank Secrecy Act, the centerpiece of the US money laundering regulatory system, has also taken no action against TD Bank for its dealings with Rothstein, which involved many transactions bearing the trappings of money laundering and BSA violations. An ACFCS.org request for comment to FinCEN was not answered at the time of posting.

(See prior stories on the TD Bank liability and Rothstein’s financial crimes in the News section at ACFCS.org.) 

( Marc Nurik, attorney for Scott Rothstein, will be a speaker at the ACFCS International Financial Crime Conference & Exhibition in New York on September 13-15, 2012. Visit www.financialcrimeconference.com for full information and to register).

View Gillen’s full testimony on November 15, 2011 here