Because a Ponzi scheme cannot operate independent of a bank, banks have the unique ability to notice fraudulent activity before all the funds are lost. Government action against a bank for failing to notice this kind of activity is rare, yet this is exactly what happened in a case with TD Bank.
Just last week, the Securities and Exchange Commission (SEC) along with the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network filed a joint regulatory action against TD Bank alleging that the bank aided Scott W. Rothstein, a lawyer from Florida, in operating a Ponzi scheme. TD Bank agreed to pay a $52.5 million settlement.
Whether this indicates a new attitude toward banks or just an isolated incident is unclear. Either way, the accusations are noteworthy because regulators don't normally hold banks accountable for failing to notice unusual activity that could possibly indicate a Ponzi scheme.
Mr. Rothstein pled guilty to federal charges that he ran and operated a $1.2 billion Ponzi scheme. In an effort to reduce his sentence, Mr. Rothstein gave regulators information about TD Bank employees who were aware of what they were helping him pull off.
To help conceal his scheme, Mr. Rothstein made various charitable contributions, political contributions and paid off high-ranking police officials while pocketing the rest for himself. He didn't start his Ponzi scheme using TD Bank, but only made the switch to Commerce Bank (later bought by TD Bank) after he began to receive scrutiny from officers at Gibraltar Private Bank and Trust.
The officer of this particular TD Bank, Frank A. Spinosa, is accused by the SEC of ignoring suspicious activity warnings and giving false information to investors. Victims of this Ponzi scheme are going to be fully compensated for the money they lost, and hopefully other banks will look at the crackdown on TD Bank as a warning to be more vigilant to possible signs of investment fraud.
If you or someone you know has suffered substantial financial losses because of a Ponzi scheme or another type of investment fraud, call an investment fraud attorney at Meyer Wilson today to receive a free and confidential evaluation of your case.