(Updates with attorneys’ statements in fourth, 10th paragraphs.)
Jan. 17 (Bloomberg) -- TD Bank helped Scott Rothstein, the convicted and disbarred Florida attorney, keep his $1.2 billion Ponzi scheme afloat by assuring victims their money was safe while Rothstein depleted the accounts, a lawyer for investors told a jury.
David Mandel, an attorney for Coquina Investments, in closing arguments today after a trial in Miami, pointed to letters in which bank Vice President Frank Spinosa said Rothstein’s account was locked and the money in it could be disbursed only to Corpus Christi, Texas-based Coquina.
Coquina Investments’ Rothstein lawsuit is the first such case against the bank to go to trial. Attorneys representing other investors have been watching it closely.
“This case is very significant,” said William Scherer, an attorney representing a group that lost $180 million. “This is the canary in the coal mine for our case.”
Scherer is also suing TD Bank, a unit of Toronto-Dominion Bank, claiming it had a direct role in the fraud.
Mandel asked for $32 million in compensatory damages and $140 million in punitive damages.
Spinosa took the stand during the trial before U.S. District Judge Marcia Cooke and refused to testify, citing his Fifth Amendment right not to be forced to incriminate himself.
“For all intents and purposes, Frank is the bank” where Rothstein is concerned, Mandel told the jury, referring to Spinosa, who is no longer with the bank.
Failure to Act
Mandel said other bank officials failed to act when unusual activity in Rothstein’s accounts triggered money-laundering alerts in the bank’s internal system.
“A mountain of red flags?” Mandel said. “They didn’t lift a finger. Once fraud was evident, it was their obligation to report it and stop it.”
TD Bank told the judge it will argue that the investors should have uncovered the fraud themselves.
Closing arguments were scheduled to continue this afternoon.
Rothstein pleaded guilty to five counts of wire fraud, conspiracy and racketeering and was sentenced to 50 years in prison in 2010. Victims of his fraud believed they were buying stakes in sexual and employment discrimination settlements that Rothstein’s law firm, Rothstein Rosenfeldt Adler PA, was handling. The settlements were fictional.
The scheme collapsed in October 2009 and Rothstein briefly fled to Morocco before returning to the United States to turn himself in. He is cooperating with authorities and attorneys as they sue alleged enablers of the fraud.
Seven employees and associates of Rothstein have been criminal charged. Five pleaded guilty, and two are awaiting trial.
The case is Coquina Investments v. Rothstein, 0:10-cv- 60786, U.S. District Court, Southern District of Florida (Miami).
--Editors: Charles Carter, Mary Romano
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