The US Securities and Exchange Commission (SEC) has charged TD Bank and a former executive with violating securities laws in connection with a massive South Florida-based Ponzi scheme conducted by Scott Rothstein, who is now serving a 50-year prison sentence.
The SEC alleges that TD Bank and its then-regional vice president Frank Spinosa defrauded investors by producing a series of misleading documents and making false statements about accounts that Rothstein held at the bank and used to perpetuate his scheme.
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Spinosa falsely represented to several investors that TD Bank had restricted the movement of the funds in these accounts when, in fact, Rothstein could transfer investor money however he desired. Spinosa also orally assured investors that certain accounts held balances totaling millions of dollars, but each account actually held zero to US$100.
TD Bank agreed to settle the SEC’s charges in an administrative proceeding and pay US$15 million. The SEC filed a complaint against Spinosa in US District Court for the Southern District of Florida.
Andrew Ceresney, co-director for division of enforcement, SEC, said: "Financial institutions are key gatekeepers in the transactions and investments they facilitate and will be held to a high standard of accountability when their officers enable fraud. TD Bank through a regional vice president produced false documents on bank letterhead and told outright lies to investors, failing in its gatekeeper role."
Eric Bustillo, director of miami regional office, SEC added: "Spinosa played a key supporting role in Rothstein’s Ponzi scheme by providing false comfort to investors that their money was safe and secure in the accounts at TD Bank. He enabled Rothstein to con investors into believing he couldn’t move their money when he could, and that the bank was holding money that it wasn’t."
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By GlobalDataIn previous enforcement actions, the SEC has charged two feeder funds to the Rothstein Ponzi scheme.
According to the SEC’s order and complaint, Rothstein claimed to represent plaintiffs who had reached purported legal settlements that were confidential and payable over time by large corporate defendants. He claimed that the purported plaintiffs were willing to sell their periodic payments to investors at a discount in exchange for one lump-sum payment.
The legal settlements were fake and the plaintiffs and defendants were not real. Rothstein told investors that the purported defendants had deposited the entire settlement amounts into attorney trust accounts. Rothstein opened 22 such accounts at Commerce Bank and TD Bank (the two merged in 2008) from November 2007 to October 2009.
TD Bank consented to the entry of an administrative order finding that it violated Sections 17(a)(2) and (3) of the Securities Act of 1933. Without admitting or denying the SEC’s findings, TD Bank agreed to pay US$15 million and cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act.
The SEC’s complaint against Spinosa charges him with violating Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Spinosa also is charged with aiding and abetting Scott Rothstein’s violations of Section 10(b) of the Exchange Act and Rule 10b-5. The complaint seeks disgorgement plus prejudgment interest, financial penalties, and a permanent injunction.
The SEC coordinated the filing of its cases with the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, which announced their own actions against TD Bank.
