Banking Law

TD Bank to pay $52.5M to settle regulatory complaints related to ex-attorney Rothstein's $1.2B fraud

Without admitting wrongdoing, Canada’s second-largest bank has agreed to pay $52.5 million to settle complaints by U.S. regulators that it failed to put the brakes on a Florida lawyer who used his accounts at Toronto-Dominion Bank in a $1.2 billion Ponzi scheme for which he is now serving a 50-year federal prison term.

The settlement apparently resolves allegations made against TD Bank in a federal lawsuit (PDF) filed Monday by the SEC in Miami. However, a co-defendant, former bank regional vice president Frank A. Spinosa, is fighting its claims, according to the Associated Press, Bloomberg, the Financial Post and the Wall Street Journal (sub. req.).

“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,” said Andrew Ceresney, the co-director of the Security and Exchange Commission’s enforcement division, in a written statement. “TD Bank through a regional vice president produced false documents on bank letterhead and told outright lies to investors.”

But former regional vice president Frank Spinosa didn’t know about the massive fraud being perpetrated by then-attorney Scott Rothstein, managing partner of a politically influential Fort Lauderdale law firm that is now in bankruptcy, according to attorney Samuel Rabin Jr., who represents Spinosa. In a written statement provided to Bloomberg he said his client was also a Rothstein victim and “is now being vilified for discharging his duties as a banker and for various deficiencies within TD Bank’s internal administrative and compliance functions.”

A spokesman said TD Bank works closely with regulators and is pleased to have resolved regulatory concerns and “put the Rothstein matter behind us.”

TD Bank previously agreed to pay as much as $72 million to the law firm’s bankruptcy trustee. The Office Comptroller of the Currency said the bank has paid Rothstein investors over $600 million in reimbursement for their losses.

Of the $52.5 million the bank agreed to pay most recently, $37.5 million will go to the OCC and $15 million will go to the SEC.

Additional coverage: “Federal Jury Says TD Bank Must Pay $67M to Investors Swindled by Ex-Attorney Scott Rothstein” “Federal Judge Sanctions Law Firm and Client re Withheld Docs, Finds TD Bank Knew of Rothstein Fraud” “Investors in law firm chief’s $1.2B swindle to get full repayment under OK’d bankruptcy plan”

Courthouse News: “TD Bank, Former Exec Charged in Ponzi Scam”

Securities and Exchange Commission (press release): “SEC Charges TD Bank and Former Executive for Roles in Rothstein Ponzi Scheme in South Florida”

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