We wrote earlier today about the latest settlements going to investors in Scott Rothstein's $1.2 billion Ponzi scheme; investors were awarded $130 million and lawyers at least another $50 million from T.D. Bank and Gibraltar Bank & Trust Co. The previous post covered Rothstein's description of how Gibraltar was complicit (and, in some cases, actively involved) in the scheme.
Investigator:So let me direct your attention to the role that TD Bank played in this, in your Ponzi scheme.
Rothstein: They were critical in it.
In terms of the components that you view as critical, how does TD rate?
Do you want it on a scale of one to ten --
-- ten being the most important?
They were a ten.
And why do you say that?
Because they were assisting me in putting fake balance statements into the hands of my investors. They were critical in providing real letters to go on top of the fake balance statements. They were critical in the fact that they had TD Bank employees actually handing me those phony statements in front of the investors; and [T.D. executive] Frank Spinosa was a fantastic advocate for our firm's supposed financial condition, as well as on several occasions actually verifying phony balances...
How was the lock letter -- the concept developed and then whether it was refined. That's a compound question.
But tell me, how did it happen that you started using lock letters, and how did that evolve?
... At some point in time -- I don't remember the time -- an investor -- I do not remember which investor, but it was one of the large investors -- told, notified us... that they wanted to have a procedure put in place. They wanted to see if it was possible to have a procedure put in place whereby, once funds were deposited into their segregated at TD, there would be an instruction on the account, initiated by this letter that would, in essence, prevent transfer of any of those funds to anyplace other than to the investor who was to be paid with that money...
And then it would be locked in there, and the only place it would go would be to the investor for whom it was designated.
So was the lock letter then incorporated into the "shows," as you call them, with TD Bank and the investors?...
OK. It was utilized as part of the package that we gave. The main purpose of it was to give an additional false sense of security to our investors...
I needed, of course, to see if it was possible. So I got in touch with Mr. Spinosa, and I told him, specifically, what I needed.
I said, I need this letter. I said, what I am going to do -- because I wanted to make it as easy as possible for him. I'm going to say: I'm going to draft this letter for you. I'm going to send it to you. It's going to say that these funds can't be put anywhere. OK. All I need you to do is sign the letter...
Did he ever tell you, or did anybody at TD ever tell you, that these lock letters don't mean anything, they can't lock up anything?
Sure. I had that discussion, actually, with [TD Bank Weston Branch Manager] Roseanne Caretsky and Mr. Spinosa. ...
At some point in time she actually asked me what the letter was. We were talking about it in one of my trips to the bank, and she asked me just -- it was more as matter of fact: Do you know what these are for?
I said, you're going to have to talk to Frank. Everything was always, you're going to need to talk to Frank.
She said, I don't even know how this really could work because you could move money in and out of the accounts online.
I said, just talk to Frank about it.. ...
[In regards to representatives for Coquina Investments asking about whether the lock letters were actually useful:]
Frank was extremely convincing as to the effect of the letter...
Frank actually gave a fairly long answer, and it was to the effect that TD Bank is one of the largest banks in the country. They have all kinds of the newest computer equipment and the like, that they are very used to doing this; they were not the first people to ever request this, and they can rest assured that their money is secured.
[Coquina Investments received a $67 million settlement last month from TD Bank.]
... Didn't your banking relationship and activities at TD Bank cause some concern on behalf of the folks at TD Bank?
... Well, earlier on, when I first got Spinosa onboard, I had explained to him the issues that I was having at Gibraltar Bank. I said, you know, we're fighting -- constantly fighting with [oversight] personnel there. I'm constantly being called on to justify transactions. I don't want to be bothered with this nonsense, and I made it perfectly clear to Mr. Spinosa that if this was going to go on here, then I would find another large bank to do this.
He said not to worry about it. He always told me that he would provide me everything that I needed and that I did not need to worry about it...
I really recall very little interference, if any, from anyone at TD Bank. It was a very -- for the most part, considering the velocity and the number of transactions and what we were actually doing at the bank, it was a very peaceful relationship...
Do you think that if TD Bank had investigated you at any stage of your relationship with TD Bank, that your Ponzi scheme could have continued in the face of that investigation?
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