TD Bank is undergoing one of the most difficult times a financial institution has ever endured for the fraud and money laundering perpetrated by a customer. Last week, the bank was told by a federal judge that it must defend against one of the most potent weapons in the United States Code that another victim of the fraud of its customer, Scott Rothstein, will be allowed to wield.
This time, the victim, Emess Capital, will be armed not only with all the weapons that Coquina Investments used in its January victory against the Canadian-based bank which produced a $67 million judgment, but it will also be allowed to use the powerful US Racketeering Influenced and Corrupt Organizations Act (RICO) in a Miami federal court.
For the many Rothstein victims, as well as other unrelated fraud victims seeking to recoup their losses, the cases against TD Bank are helping to compile a roadmap on how to recover their losses from deep-pocketed financial institutions.
Coquina case set major ‘aiding and abetting fraud’ precedent against banks
Coquina Investments, a Rothstein victim, sued TD Bank in 2011. The Coquina lawsuit against TD Bank ended in the first known jury verdict to hold a bank liable for “aiding and abetting fraud” by one of its customers. The case produced a wealth of evidence linking TD Bank to Rothstein’s $1.2 billion Ponzi scheme. The disbarred former Ft. Lauderdale lawyer, who is serving a 50-year federal prison term, used accounts at the bank and assistance from TD Bank employees, including a regional vice president, to perpetrate and conceal his fraud.
Evidence presented at the Coquina trial is being used to support claims in a civil suit that alleges TD Bank violated the civil remedy provisions of the RICO Act in its dealings with Rothstein. On May 2, US district Judge Joan Lenard ruled that Emess Capital could bring RICO claims against TD Bank. Her ruling was based, in part, on documents and testimony revealed in the Coquina case. One of the ominous implications of a RICO civil lawsuit is that the law permits the trebling of damages and the award of attorney’s fees. In the Coquina case, the RICO Act was not utilized.
David Mandel, of the Miami firm of Mandel & Mandel, will represent Emess at trial. He was the victorious lawyer in the Coquina case that produced the unprecedented verdict in January of this year. Mandel will approach the trial full of knowledge of what was uncovered in the Coquina case and will have intimate familiarity with the testimony of the witnesses the bank will likely produce and the documentary evidence that it presents. This will include “internal money laundering alerts” that TD Bank generated concerning Rothstein, which the Bank turned over to Mandel in November 2011 during the Coquina trial.
The ruling permitting use of the RICO Act exposes TD Bank to potential hundreds of millions in additional damages, in addition to attorney’s fees. The Emess complaint cites $34 million in actual damages that it alleges it lost to Rothstein.
Coquina and Emess are not the only Rothstein victims that TD Bank has faced. The beleaguered bank settled with the Razorback Group, another Rothstein victim, for $170 million in February.
Coquina case evidence buttresses Emess RICO claims
Emess, a Brooklyn investment firm, initially filed its RICO claims on May 26, 2010, in Miami, which is in the Southern District of Florida, as part of its suit against the bank and Rothstein. The complaint alleged that “TD Bank… actively participated in Rothstein’s scheme by meeting with investors to… create an appearance of legitimacy of the transactions, by making false statements to investors…, and by providing false and misleading documents to investors.”
RICO, which was enacted in 1970, originally targeted organized crime, but has since been used against a variety of defendants, including financial institutions.
TD Bank moved to dismiss the RICO charges in July 2010, and Judge Lenard referred the motion to a magistrate judge for recommendation. Based on the report, Lenard dismissed the claims stating that Emess had “not adequately pled a pattern of racketeering activity.” Last week, she allowed Emess to amend its complaint after it convinced her that new evidence had come to light supporting its RICO claims.
Emess cited “internal anti-money laundering alerts for the period from April 2008 through September 2009,” and “testimony of… TD Bank officers in December 2011,” which had surfaced in the Coquina trial.
New Rothstein revelations shine the light on TD Bank’s role
Emess lawyers also cited a Rothstein deposition in December 2011, in which he “revealed new information and categorically confirmed suspicions about the extent of the Ponzi scheme, including TD Bank’s active involvement and participation….” In the deposition which Rothstein provided in an attempt to reduce his 50-year prison term, he spoke at length about his collusion with former TD Bank Regional Vice President Frank Spinoza to lure investors to his fraud scheme.
TD Bank argued to Lenard that Emess should be prevented from using the RICO statute because it had missed a September 2011 deadline for filing an amended complaint. Lenard gave short shrift to this argument, saying “Emess could not have discovered evidence from Rothstein himself or evidence related to TD Bank’s internal anti-fraud alerts prior to the Court’s September 1, 2011 deadline.” The new evidence, she said, gave Emess “good cause” to reintroduce its RICO claims.
RICO ruling follows TD Bank’s evidence-tampering travails
On March 26, TD Bank was accused of altering a “Customer Due Diligence Form” it had filled out on Rothstein, which was introduced in the Coquina trial.
The form was altered to remove a red heading listing Rothstein as a “high risk” customer. Mandel, as Coquina’s lawyer, moved for sanctions against the bank and its attorneys at Greenberg Traurig. Coquina requested that the bank be referred to the US Justice Department for criminal inquiry and that Greenberg Traurig be referred to the Florida Bar for review of possible ethics violations. Greenberg Traurig was dismissed by TD Bank on April 24.
TD Bank has also told Judge Cooke that a Greenberg Traurig lawyer made false statements in the Coquina trial about a document outlining the bank’s anti-money laundering investigative procedures. The bank and Greenberg lawyers had previously and repeatedly said the document, the “Standard Investigative Protocol,” did not exist. On April 25 the bank moved to withdraw its statements, and produced the document to Coquina’s lawyers.
TD Bank shuffles lawyers as more battles loom
The bank has brought lawyers from McGuireWoods to represent it against Emess. The firm will also represent the bank in a hearing that Judge Cooke has set for May 17 to consider sanctions against TD Bank and Greenberg Traurig on the evidence tampering issues. Additionally, the bank has hired former Miami US Attorney Marcos Jimenez, of Kasowitz, Benson, Torres & Friedman, to participate in its defense.
Cooke will require Greenberg Traurig to “show cause why they should not be held in contempt for making incorrect representations to this Court.” The firm has been relieved of representing TD Bank in the Emess case.
Meanwhile, the bank awaits a ruling by the 11th Circuit Court of Appeals on the Coquina judgment that it has asked the court to overturn. There is no indication when the Atlanta-based appellate court will decide the appeal.
(The ACFCS International Financial Crime Conference, Sept. 13-15, 2012, in New York, with Charles Intriago as MC, will probe the compliance, regulatory and enforcement aspects of the landmark TD Bank fraud-money laundering case. Two of the speakers will be David Mandel, who has won a $67 million verdict against TD Bank for “aiding and abetting fraud,” and Mark Nurik, lawyer for imprisoned fraudster Scott Rothstein.