Chasing Ponzi scheme defendants is not an easy business. By the time they are caught, the coffers are usually dry. Unlike many law firms that pursue the fraudsters directly, we get involved when the money is hard to find. Our preferred targets are stockbrokers and investment advisers (the ones selling the investments), accountants and auditors who filed to detect the fraud and banks.
Banks? Yes, banks. Often we find that bankers simply turn a blind eye to fraud even when it is right under their nose. In our humble opinion, they should be sounding the alarm and warning both authorities and victims. Instead, they often facilitate the crime and earn lucrative fees by keeping the scheme alive.
One of the larger Ponzi schemes to date is the case against former lawyer Scott Rothstein. According to Wikipedia, his scam is the 4th largest Ponzi scheme to date, costing victims approximately $1.2 billion.
While Rothstein will likely spend the rest of his life in prison – he was sentenced in 2010 to 50 years – efforts to recover funds for victims continue. Included in those efforts are civil charges brought by the SEC against Frank Spinosa, a former vice president of a subsidiary of TD Bank.
To get people to invest in his law firm, Rothstein told people that their investment monies were secured by settlements that his firm had secured. Victims were told that he was holding millions of dollars in settlement monies in his attorney trust accounts, monies that would be paid out like structured settlements.
According to the SEC, Rothstein’s firm of 70 lawyers typically had less than $100 in its attorney trust account. When some investors sought proof of the deposits, Spinosa allegedly confirmed the existence of the trust monies even though there was no money in the account.
Spinosa sought to dismiss the case because the SEC can’t prove that he knew of Rothstein’s Ponzi scheme. Not so, said the court. An “aider and abetter” can be held responsible if he knew his role was part of an overall activity that was improper and “knowingly and substantially assisted the conduct that constitutes the violation.” Although no one is sure of Spinosa’s motivation in all this, the court reasoned that he had no logical reason to lie to investors.
The case is still in its early stages and TD Bank itself has also been charged by the SEC. Last year the U.S. Treasury Financial Crimes Network (FinCEN) fined the bank $37.5 million for failing to report suspicious transactions in Rothstein’s accounts.
In announcing the fine, FinCEN’s director, Jennifer Shasky Calvery, said, “In the face of repeated alerts on Mr. Rothstein’s accounts by the Bank’s anti-money laundering surveillance software over an 18 month period, the Bank did not do enough to prevent the pain and financial suffering of innocent investors. Financial institutions must do a better job of protecting our financial system and citizens from such harm. It is not acceptable to have a poorly resourced and trained staff overseeing such a critical function.”
Although banks may not have a direct relationship with the victims of Ponzi schemes and frauds, they can be sued if they fail to follow anti-money laundering guidelines or deliberately cover up frauds. We still wonder why Spinosa would lie for Rothstein, assuming the allegations are true. We believe that he probably thought he was protecting the bank by protecting one of the bank’s biggest clients.
If you lost money in a Ponzi scheme, bogus 419 plan, real estate fraud, bad investment or other scam, give us a call. We are a plaintiff’s firm meaning we primarily represent the victims of fraud and wrongdoing.