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How Rothstein Says Banks Helped Run His Ponzi Scheme, Part 1: Gibraltar Bank

Rothstein (center), Rosenfeldt, Adler.
Rothstein (center), Rosenfeldt, Adler.
Update: Also check out part 2, on Rothstein's accusations on the role of T.D. Bank in the scheme.

​Both T.D. Bank and Gibraltar Private Bank & Trust Co. have settled with a group of investors in Scott Rothstein's Ponzi scheme and will pay them $130 million, according to the Miami Herald. Jury selection for the suit was set to start tomorrow.

Gibraltar, based in Coral Gables, will pay $10 million in an agreement reached yesterday. T.D. Bank will pay investors $100 million for losses and $20 million in interest, plus an additional $50 million to investors' attorneys.

The investors, collectively called the Razorback Group, had originally asked for $180 million in damages, according to the Associated Press. T.D. Bank requested that details of the settlement be kept private on Monday, and a hearing on the matter was scheduled for this Friday. Looks to be moot now. 
Both banks got plenty of shoutouts in Rothstein's ten-day deposition marathon in December, when Rothstein claimed not only that bankers at T.D. and Gibraltar knew there were shady dealings going on but that they were in many cases actively participating in them. 

Information from just the first three deposition sessions reveals much of how the banks were allegedly complicit in the billion-dollar scheme; here, in Rothstein's own words, is how Gibraltar helped him do it.

Afternoon session Dec. 12:

Investigator: How much money do you think you've moved in the Ponzi... we know your bank accounts and we know that through the T.D. account and the Gibraltar account... Do you have an idea of how much money you were stealing during this time?

Rothstein: ... It was well over a billion dollars that moved through the accounts.

Actually two billion; you're a billion shy.

A billion here, a billion there, pretty soon --

... Did you invite him over so that you guys could do something to answer Carol's demands from a couple of days before?

... We went ahead to the bank and get [sic] a letter that I was going to put on top of the account statements.

It was the standard process that we always used, not Ted and me always used, that the people involved in the Ponzi scheme always used in getting an original letter which we attached with the bank's assistance to a fake bank statement.

What did you do when you went to Weston [T.D. Bank branch] with Ted?

We gave them the bank statement. We put on what was commonly known in our firm and commonly known to T.D. Bank as the show...

And there was a cover letter with a phony bank balance for the bonds' accounts that's allegedly in your trust account?

Real cover letter, fake bank statement.

It showed 57 million or whatever the bond number was?

Right...

If you look at the actual screen shot from your computer, it would have shown $100 in that account, right?

The real one, sure...

Do you have any reason why you chose Gibraltar [Bank]?

I was actually solicited by them to come to the bank by John Harris... He was a market manager for them as best as I recall. He ran the Fort Lauderdale market for Gibraltar...

Can you summarize the activity during the time of the Ponzi at Gibraltar. Just how -- what went on there?...

Yeah. Ultra high volatility, millions of dollars going in and out on a daily basis, sometimes millions of dollars going in and out within minutes. It was a very volatile banking relationship.

By "volatile" what do you mean?

Several different things. One, it was volatile in terms of the number of transactions. I believe that we were their largest wire customer at one point in time, or certainly up there.

It was also volatile in of the amount of scrutiny we were getting from certain due diligence folks down in Coral Gables...

Now, was this bank important for your Ponzi scheme?

Critical.

And why?

Because I had John Harris in my pocket and later had [Gibraltar Chairman and CEO] Steve Hayworth in my pocket, and they were essential for me being able to do what I needed to do without having interference with the federal or state authorities...

You've got a $2 billion Ponzi. And I want to know whether having two banks is important in terms of how you operated the Ponzi?

It was important initially to have Gibraltar. It became important when I started dealing with the hedge funds and was really growing this to have a second and much larger bank because my investors, the feeder funds, wanted it. Ultimately it became a very, very smart, let's call it a smart criminal decision on my part because we ended up at a bank where we were also able to place key players into our pocket. ...

I was going to have you do this later, but my helpers say I should ask you to explain what you mean by "in your pocket" with respect to Harris and then later Hayworth, Mr. Hayworth.

Harris was in my pocket by me supplementing his lifestyle to the extent that I changed his lifestyle. He received gifts from me. He traveled with me extensively. He was on our permanent guest list for all of our sporting events including Dolphin's [sic] stadium and the Heat. Traveled with me on charter private aircraft to all kinds of sporting events. I took him to several thousand dollar a plate smokers for the various charities I was involved in.

He was one of those people that was living the rock star lifestyle in exchange for protecting us at the bank. He also had a promise from me that at a point in time either if he had a problem with Gibraltar Bank or at the appropriate time when I needed him that he was going to come and actually work for me at a substantial salary with a participation ability in our deals to oversee all the deals...

How about Mr. Hayworth?

Hayworth was simple. He needed an investor for the bank, and I invested $5 million...

Was there ever a conversation or any conversation with any of those folks concerning your regulatory problems, compliance problems, vis-a-vis becoming a major shareholder in the bank?

Yes. I was told by Harris and by Steve Hayworth that we don't investigation [sic] shareholders of the bank.

That gave you some [incentive] to become a shareholder?

That's the one and only reason I invested...

[Regarding emails about insufficient funds between RRA and Gibraltar execs] What's going on here?

This is standard operating procedure with Gibraltar. My conversations and my deal with Harris and [Lisa] Ellis were simple. Any time there's any problem with the account, notify me, and I'll let you know how to move or where to move. That accelerated to the point where they were, I basically just told them, move what you need to move and let me know what you've done.

And did they do that?

On many occasions...

[From a line of questioning about an email appearing to be from Bank Secrecy Act compliance officer Julie Ansari to Harris, asking numerous specific questions about the "unusual" activity of Rothstein's accounts:] At any time were any of those answered or did the bank ever investigate those in detail to determine the facts surrounding paragraphs one through five?

I never provided real answers to any of these questions.

If in fact they had gotten the real answers to these questions, what would that have done to your Ponzi scheme?

It would have exploded.


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