Mittwoch, 25. April 2012

TD Bank recants testimony, fires law firm, and US judge eyes punishment in historic AML-fraud civil case

April 25, 2012
By ACFCS Staff
The landmark case that produced the first civil verdict against a bank for "aiding and abetting fraud" by means of its collusion with a customer and assistance in laundering the fraud proceeds has taken another startling turn.

TD Bank, which recently suffered a $67 million adverse jury verdict in January to Coquina Investments, a victim of fraudster Scott Rothstein, this week told district Judge Marcia G. Cooke that evidence the bank previously and repeatedly said did not exist has materialized.

The stunning development comes on the heels of a March 26 formal accusation by TD Bank's adversary in the case, Coquina Investments, that a "Customer Due Diligence form" the bank and its lawyers had presented in evidence at trial had been doctored to hide the "high risk" status in which the bank had placed Rothstein.

Rothstein, a former Ft. Lauderdale lawyer and convicted Ponzi schemer, is serving a 50-year prison term and may be the most toxic customer the giant Canadian-based institution ever had. Coquina sued the bank and Rothstein in 2011.

Even with case on appeal, trial judge will consider sanctions on bank, lawyers

Even though the case is now on appeal by the bank before the 11th Circuit Court of Appeals, in Atlanta, Judge Cooke promptly set a hearing after learning of the latest revelations involving one of the world's largest financial institutions and largest law firms.

On May 17, Judge Cooke will hear a motion for sanctions filed by Coquina's lawyer, David Mandel, of Miami, for the allegedly deceptive and doctored Customer Due Diligence form that TD Bank and its former lawyers at Greenberg Traurig presented in evidence at trial.

TD Bank has asked for more time to prepare for the hearing through an "Emergency Motion to Stay" on April 25. The bank stated it has discovered that "a conflict may exist between... Greenberg Traurig, TD Bank, and one or more of TD Bank's employees relating to the production of documents in this case."

TD Bank gave no details of the "conflict," but requested 30 to 45 days to conduct an inquiry. Judge Cooke rejected the bank's request in an order issued on the same day, and stated, "TD Bank may present any evidence it has uncovered at the May 17, 2012 hearing."

Judge will consider holding Greenberg Traurig in contempt for "incorrect representations"

Judge Cooke said in her "endorsed order" of April 24 that the hearing will also require "Counsel for TD Bank [referring to lawyers at Greenberg Traurig] (to) show cause why they should not be held in contempt for making incorrect representations to this Court regarding the document titled 'Standard Investigative Protocol.'"

TD Bank and the Greenberg lawyers had repeatedly maintained at trial and in court filings that this "Standard Investigative Protocol" did not exist. On April 24, the bank recanted this trial testimony and produced the Protocol to Coquina's lawyers.

On the same day that Judge Cooke set the May 17 hearing, TD Bank filed a Motion for Substitution of Defense Counsel by which it dismissed Greenberg Traurig and brought in the firm of McGuireWoods.

Case demonstrates consequences of financial institution's toxic customer

From 2005 to 2009, TD Bank held accounts for Rothstein's law firm, which he used in executing his $1.2 billion Ponzi fraud. In the aftermath of the collapse of Rothstein's fraud, several civil suits by victims have been filed against TD Bank and Miami-based Gibraltar Bank. Both banks have paid multiple millions in damages, including money their insurance companies contributed.

TD Bank, Greenberg could face various penalties

TD Bank used the altered Customer Due Diligence form, which its employees had prepared, to buttress its defense that it did not consider Rothstein a "high risk" customer. The bank said because Rothstein's firm was not designated "high risk," it did not conduct the enhanced due diligence that might have detected his fraud.

The form introduced at trial, on which TD Bank's anti-money laundering expert testified, had a simple black bar across the top. The true version of the form, which was obtained in another case by Coquina's lawyers at Miami's Mandel & Mandel after the trial, had "HIGH RISK" emblazoned across the top, highlighted in red.

Upon obtaining the true form, Mandel moved for sanctions, alleging that TD Bank had intentionally altered it. He said "the trial would have proceeded much differently had the defendant produced the true document." TD admitted the document was altered but blamed a clerical "copying error." It denied it had tampered with evidence to deceive the jury.

Mandel has asked Cooke to impose sanctions on the bank and Greenberg Traurig, including monetary penalties, referral of the bank to the Justice Department for criminal inquiry, and referral of the law firm to the Florida Bar for an ethics probe.

TD Bank admits to incorrect trial statements about "Standard Investigative Protocol"

TD Bank's recent withdrawal of court statements that it did not have a "Standard Investigative Protocol" outlining steps its anti-money laundering officers follow in customer due diligence investigations ups the stakes at the May 17 hearing before Judge Cook. The bank does not explain why the Protocol was not produced at trial.

According to court documents filed by Mandel, the Protocol first came to light in depositions by TD Bank's AML investigators. The bank did not produce the document and Greenberg Traurig lawyers told the court "there [were] no hidden documents regarding the investigative protocol."

Later, Greenberg lawyer Donna Evans told the court, "Mandel... seems to have created a document that doesn't exist, there is no document called 'Standard Investigative Protocol.'" A footnote in the bank's Notice of Substitution of Defense Counsel, which reveals its dismissal of Greenberg Traurig, mentions that Evans is no longer with the firm.

The veracity of these trial statements will probably be a central issue in the May 17 hearing before Judge Cooke. The bank's disclosure of the Protocol in its April 24 "Notice of Production and Withdrawal of Certain Statements Made to the Court" puts Evans' truthfulness in doubt. She is believed to have been the firm's "relationship partner" in the TD Bank representation, meaning she was the source of the bank's legal work.

In a comment to ACFCS, TD Bank spokesperson Rebecca Acevedo stated that "TD and Greenberg Traurig decided it was in the best interest of all concerned that McGuireWoods represent TD in the Coquina case moving forward." Mandel & Mandel declined to comment, and Greenberg Traurig could not be reached at the time of publication.

Paul Brinkmann of the South Florida Business Journal has led coverage on the dispute between TD Bank and Coquina Investments, and has broken several related stories.

Office of the Comptroller of the Currency has taken no action against TD Bank

The Office of the Comptroller of the Currency, TD Bank's principal United States federal regulator, has taken no action against the bank since the Rothstein megafraud exploded into public view in 2009.

Dean Debuck, a senior OCC spokesperson told ACFCS "We do not comment on ongoing litigation or supervisory matters involving a specific institution."

(The two versions of the top part of TD Bank's Customer Due Diligence Form for Rothstein's defunct law firm, Rothstein, Rosenfeldt and Adler, follow. The version presented in the Coquina case appears first, followed by the unaltered version.)

False Customer Due Diligence Form

TD Bank Customer Due Diligence Form

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Mittwoch, 18. April 2012

TD Bank says "copying error" caused altered document in fraud-money laundering case; but victim says that's nonsense

April 18, 2012
By ACFCS Staff
The case in which TD Bank has already lost a precedent-setting verdict for "aiding and abetting fraud" arising from collusion with one of its customers to defraud numerous persons and to launder the proceeds has taken an ugly turn.

A 70-day trial that ended in January produced a $67 million victory for Coquina Investments in its civil suit against TD Bank. Coquina was a victim of a megafraud perpetrated by TD Bank customer, Scott Rothstein, a convicted former lawyer now serving a 50-year prison term. The bank has appealed the verdict.

But now, TD Bank, one of the world's largest banks, confronts explosive post-trial charges that it produced a fraudulent piece of evidence at the trial that falsely hid its internal assessment that Rothstein and his firm were a "high risk" for money laundering.

The evidence, a 2009 TD Bank document called a "Customer Due Diligence" form, contained the findings of the pre-account opening inquiry by the bank of Rothstein's firm, Rothstein, Rosenfeldt and Adler.

Coquina Investments, the fraud victim that won the unprecedented verdict, alleged on March 26 that the bank perpetrated a "fraud on the court and jury" by hiding a red banner that contained the all-upper-case words "HIGH RISK."

The accusation, in the form of a motion for sanctions filed by Coquina's lead lawyer, David Mandel, of the Miami firm, Mandel & Mandel, alleges that TD Bank and its lawyers at Greenberg Traurig intentionally altered the form to keep the jury from seeing the official designation of Rothstein's law firm as "high risk."

TD Bank says altered form did not hurt plaintiff's case

TD responded to the accusation on April 12, denying any intention to mislead the jury. It said the alteration of the form resulted from a "copying error" by clerical staff and that Mandel knew of the high risk designation and stressed that to the jury in his closing argument. The bank said the altered form did not significantly influence the jury or change the trial's outcome, which was favorable to Coquina in any event.

Mandel countered with a strongly-worded reply on April 16, saying the bank's "response is tantamount to a continuing fraud on the court." He said TD Bank's explanation that its "copying process" was to blame for the doctored document "is not credible and can't be replicated."

He said "the trial would have proceeded much differently had the defendant produced the true document." Coquina's $67 million verdict included $35 million in punitive damages. Mandel had asked the jury to award $140 million in punitive damages.

With true form in hand, jury may have awarded higher damages

"Coquina is unfairly left to wonder what the jury's punitive damages award might have been if [TD Bank] had produced an unaltered version of the document before trial," says Mandel.

"The integrity of our judicial system demands that [TD Bank's] actions have consequences," he added.

Mandel said the bank not only introduced "the altered document into evidence," but also "affirmatively used it, both to cross-examine Coquina's expert and in closing argument." The bank, he says, "insisted that (Rothstein's firm) was a Low Risk customer" and berated Coquina's expert for asserting otherwise.

He alluded to a federal law at Title 18 USC, Section 1512(c)(1), which makes it a criminal offense to intentionally alter a document for use in a trial.

"Unreasonable" to believe alteration was accidental, Mandel says

The version of the Customer Due Diligence form the bank introduced in evidence had a simple black bar as a heading. Mandel says the true form, which he obtained in another case in which TD Bank is being sued, contains the words "HIGH RISK" emblazoned across the top, highlighted by a red background.

He says the alteration was so obvious and egregious that it had to be deliberate and that the misleading form propped up TD's defense that it knew nothing of Rothstein's fraud, did not help him perpetrate it and viewed his law firm as low risk.

"With tens of millions of dollars on the line, the Defendant asks the Court to believe... that it accidentally altered the document and presented it to the jury in a fashion that was undeniably misleading," says Mandel. He calls the argument "nonsense."

TD Bank denies bad faith

The bank's April 12 response denies it acted in "bad faith" and says changes to the form were unintentional by unnamed administrative staff.

The bank submitted a signed declaration by Sara Pinkus, a risk officer who had been asked to "gather customer due diligence records" to send to Greenberg Traurig for the trial. Pinkus says she printed the form and turned it over to an assistant for photocopying. The form was sent to the law firm, where a clerical assistant scanned the form and converted it to electronic format.

The bank says "the printing and copying process inadvertently blackened all of the words in all of the colored headers of the [form]," including the "HIGH RISK" designation.

Mandel calls this explanation "insufficient, inaccurate and potentially perjurious."

"Coquina attempted to replicate the Defendant's "copying process," but none of our efforts resulted in the words HIGH RISK being obscured from the document." he adds.

TD Bank declined requests for comment by, citing its policy of not commenting on "pending litigation."

TD Bank says it "sincerely regrets this copying error," but contends that the obliterated "HIGH RISK" heading had no impact on Coquina's presentation at trial.

TD Bank's laundering expert testified Rothstein's firm was not "high risk"

TD Bank's response is silent on why Ivan Garces, who was TD Bank's anti-money laundering trial expert, testified that Rothstein was not a high-risk customer when its Customer Due Diligence form labeled him as such. Garces' had this colloquy at trial with a lawyer in Mandel's firm:

Coquina lawyer: Now is it - it's your opinion, sir, that TD Bank did not consider RRA [Rothstein's law firm] to be a high-risk customer of the bank; is that right?
Garces: Yes, ma'am. That's correct.
Coquina lawyer: It's not a high-risk customer.
Garces: It did not consider it a high-risk customer.

Mandel says in his new reply that "if the true document had been produced and entered into evidence..., it is hard to imagine anyone brazen enough to claim that [TD Bank] did not consider [Rothstein's law firm] to be a HIGH RISK customer."

Call for sanctions includes referral to Justice Department, Florida Bar

Mandel has requested that US District Court Judge Marcia G. Cooke impose a series of sanctions, including referring TD Bank to the US Department of Justice for criminal investigation and referral of Greenberg Traurig to the Florida Bar for review of possible ethical violations.

Judge Cooke, who presided over the long trial, has not yet acted on the motion, which requests sanctions.

The case offers many anti-money laundering and fraud control lessons to financial institutions. The experience of TD Bank also plants the seeds of headaches for financial institutions whose employee compensation plans include bonuses for attracting "assets under management."

(The two versions of the top part of TD Bank's Customer Due Diligence Form for Rothstein's defunct law firm, Rothstein, Rosenfeldt and Adler, follow. The version presented in the Coquina case appears first, followed by the unaltered version.)

False Customer Due Diligence Form

TD Bank Customer Due Diligence Form

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Freitag, 6. April 2012

Opposition to the USA's motion to dismiss the complaint

April 6, 2012
By Dr. Gaytri D. Kachroo
Plaintiffs hereby oppose the United States of America's Motion to Dismiss the Complaint (the "Motion"). This Court has subject matter jurisdiction over this action because the government fails to demonstrate that the discretionary function exception shields from liability the Securities and Exchange Commission's ("SEC") negligent failure to follow statutorily prescribed courses of action in the wake of its discovery of Robert Allen Stanford's Ponzi scheme.

The government's strategy on this Motion is to paint with a very broad brush. Thus, the government argues that "the manner in which the SEC chooses to regulate the securities industry" is discretionary conduct protected by the discretionary function exception in the Federal Tort Claims Act ("FTCA"), 28 U.S.C. § 2680(a). Generalized this way, the government's argument obviously cannot be contested. But framing the issue this way only creates a paper tiger. The conduct challenged in this case is not the SEC's regulation of the industry writ large, but rather its failure to comply with two specific, non-discretionary mandates. The government's over-generalization of the issue is an effort to move the battle to safer ground. This misdirection does not survive scrutiny.

Moreover, such a macro approach to the discretionary function exception results in the reverse of what Congress intended, which was to construe the remedial provisions of the FTCA liberally and the exceptions narrowly. If every claim against the SEC were to be construed as an attack on "the manner in which the SEC chooses to regulate the securities industry," then this narrow exception would swallow the general waiver and afford the SEC virtual immunity, contrary to Congress' intent. Indeed, as the government itself points out, Congress considered exempting the SEC from the FTCA entirely, but ultimately, did not do so.

Thus, the crucial first step in determining whether the exception applies is to isolate the specific conduct actually being challenged. Here, the Complaint does not make a broad attack on the manner in which the SEC regulates the securities industry, but rather, challenges two specific instances of SEC inaction: (1) a failure to notify the Securities Investor Protection Corporation ("SIPC") that U.S. registered broker-dealer Stanford Group Company "SGC") was in financial difficulty, after concluding that it was; and (2) a failure to deny continued registration to SGC as an investment advisor in light of the SEC's determination that SGC failed to satisfy registration requirements.

These negligent omissions violated statutorily mandated duties to take prescribed courses of action and thus, were not and could not have been permissible policy choices. As the Supreme Court has explained and courts have consistently held, where there exists a mandatory responsibility, there is no room for a policy choice. Moreover, even if the government could show that the SEC's negligent omissions involved the exercise of judgment, the government also fails to demonstrate, as it must, that such judgment was grounded in considerations of public policy.
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Donnerstag, 5. April 2012

Stanford Judge Lets Receiver Raise Fee, Retains 20% Discount

April 5, 2012
By Andrew Harris and Edvard Pettersson
The court-appointed receiver for R. Allen Stanford can bill his time starting this year at 2012 rates with a 20 per cent discount in spite of objections by Stanford investors who haven't received any money so far.

U.S. District Judge David C. Godbey in Dallas, in an order yesterday, imposed a 10 per cent "holdback" on out-of-pocket expenses. In a separate order today, Godbey approved the payment of $1.6 million in fees and expenses that the receiver, Dallas lawyer Ralph Janvey, had requested and said he could apply later for the held-back amount of $382,253.

Janvey's outside counsel, Kevin Sadler, argued at a hearing yesterday that the receiver's team has been working at the same pay rates since 2009. Sadler said that Janvey, who regularly charges his clients $500 an hour, has been billing $340 an hour on the Stanford case and then discounting that by 20 per cent.

A federal jury in Houston last month found Stanford, 62, guilty of fraud in what prosecutors said was a $7 billion scheme involving bogus certificates of deposit at his Antigua-based bank. He's scheduled to be sentenced on June 14. Janvey, whom Godbey appointed in February 2009 -- four months before Stanford was indicted -- and his outside professionals, including Baker Botts LLP (1143L), have been paid more than $52 million. That sum doesn't include a court-imposed $16 million hold-back.
The Official Stanford Investors Committee (the "Committee"), respectfully submits this Response to the Receiver's Motion for Approval of Request to Amend Fee Structure and Holdback [Doc. No. 1543].

The Committee, which speaks for the more than 20,000 investor victims of Allen Stanford's Ponzi scheme, opposes the relief requested by the Receiver and his team of professionals. The Receiver's professionals have been well compensated in the 3 years of this Receivership, having collected well in excess of $52 million in fees (with an additional almost $16 million in reserve via the holdback). During this same time period the investor victims have not recovered a single penny as there have been no distributions. Given the current state of this receivership, the Committee cannot agree to giving the Receiver's professionals what is widely perceived within the investor community as a "raise".

Therefore the Committee opposes the relief requested.
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