TD Bank Denied Rehearing of $67M Verdict Against TD Bank for Aiding Florida Attorney Scott Rothstein’s $1.2B Ponzi Scheme

The U.S. Court of Appeals for the Eleventh Circuit recently denied TD Bank’s request for a rehearing concerning the $67 million verdict against TD Bank in favor of Coquina Investment based on TD Bank’s role in the billion-dollar Ponzi scheme perpetrated by Scott Rothstein. Plaintiff Coquina Investments (“Coquina”) invested with Rothstein and lost millions when his scheme collapsed. Defendant TD Bank, N.A. (“TD Bank”) was the bank through which Rothstein handled transactions with his investors. The jury found that TD Bank made material misrepresentations and took other actions to help Rothstein perpetrate the fraud. In Coquina Investments v. TD Bank, N.A., 760 F.3d 1300, 1304-05 (11th Cir. 2014), the Eleventh Circuit concisely stated the background of this case as follows:

In 2009, Scott Rothstein, then a prominent South Florida lawyer, purported to represent whistleblowers and victims of sexual harassment. According to Rothstein, the defendants in those cases agreed to pay enormous sums to avoid litigation. To ensure confidentiality, they supposedly entered into “structured settlements” in which they paid large amounts to Rothstein's law firm, Rothstein Rosenfeldt Adler (“RRA”), but required RRA to release the money over time, with the proviso that the victims would forfeit the deferred payments if they breached confidentiality. Some victims, Rothstein claimed, desperately wanted immediate payment and would forgo a large portion of the settlement to get it. On that pretext, Rothstein asked wealthy investors to finance immediate payments to victims of a fraction of the settlement in exchange for receiving the entire settlement in very quick installments. Rothstein assured his investors that the defendants had already deposited the full amount of the settlements in TD Bank trust accounts that RRA administered, so there was little or no risk of loss in the investments that he offered. In reality, the clients, defendants, and settlements were all fictitious; Rothstein used the money provided by new investors to repay old investors and to finance an elaborate lifestyle.

Coquina is a Texas investment partnership. Partners and non-partners can apparently contribute capital to Coquina, which invests the capital in its own name and divides the profits in proportion to each investor's contribution. Between April and October 2009, Coquina invested $37.7 million with Rothstein. Coquina lost around $6.7 million when Rothstein's Ponzi scheme collapsed in late October 2009.

To convince Coquina to make multi-million dollar investments, Rothstein promised Coquina that the settlement money allegedly deposited by settling defendants could be held in a TD Bank trust account that contained heightened transfer restrictions. Rothstein sent Coquina so-called “lock letters” signed by TD Bank's then-regional vice president Frank Spinosa, which claimed that the funds in the trust account could be disbursed only to Coquina. That claim was false: Rothstein was able to transfer funds to himself from that account and did so on occasion. Further, according to Coquina's version of the events, Spinosa falsely assured Coquina's investors that the restriction described in the “lock letters” was effective and commonplace at TD Bank. Spinosa also allegedly told the investors that there were millions of dollars in the restricted account when in fact there was only $100 in the account at the time.