TD Bank Faces Sanctions Request After Losing $67 Million Verdict

Toronto-Dominion Bank (TD), after losing a $67 million verdict over claims it aided a $1.2 billion Ponzi scheme, should be sanctioned for “altering” a document used at trial, an investor said in court papers.

Coquina Investments, which won the verdict on Jan. 18 in federal court in Miami, seeks sanctions after a trial over whether TD Bank should have detected money laundering that supported a Ponzi scheme that disbarred attorney Scott Rothstein ran out of his law firm.

The unaltered document shows TD Bank designated Rothstein, Rosenfeldt & Adler as “HIGH RISK” in letters on a bright red band at the top of the page, according to a March 26 filing by Coquina. The document, which Coquina introduced into evidence after getting it before trial from TD Bank, has a black bar that obscures the words, according to the filing.

“TD Bank’s purposeful withholding of the true original RRA Customer Due Diligence Form constitutes evidence of willful bad faith,” according to the motion. Failure by the bank and its lawyers to say anything about the document being admitted into evidence “demonstrates both intentional malfeasance and a flagrant lack of candor to the court.”

Coquina, based in Corpus Christi, Texas, seeks “just and appropriate” sanctions and a referral to federal prosecutors for investigation of possible obstruction of justice charges.

TD Bank, Canada’s second-largest lender, doesn’t comment on litigation, spokeswoman Rebecca Acevedo said yesterday in an e- mail.

Copying Problems

In a court filing on April 12, the bank denied Coquina’s claims of “altering a key document and working a fraud on the court and the jury.” Rather, it blamed problems in the copying process during the pretrial exchange of evidence known as discovery. That process inadvertently blackened all colored headers, including the words “high risk,” on the documents.

“We sincerely regret this copying error,” said TD Bank in a motion filed by its law firm Greenberg Traurig LLP. “But it was that (i.e., an error), and not an effort to hide the ‘high risk’ designation.”

The filing also disputed Coquina’s claim that its case was harmed by the document, noting that other sections of the “customer due diligence” form showed that Rothstein’s firm was designated as high risk.

“Plaintiff was not misled or prejudiced as to the CDD’s ‘high risk’ designation; to the contrary, Plaintiff’s counsel saw that designation in two other places on that same CDD, and pointed out to the jury at the trial that this document stated ‘high risk,’” according to the filing.

Jury Deliberations

Jurors deliberated about four hours before reaching its verdict after a trial before U.S. District Judge Marcia Cooke.

“It was clear-cut for us,” the jury forewoman, Shonda Smith, said after the verdict. “We were all surprised at how much stuff they allowed to go through, all the deposits and transfers. At any point, someone could have stopped it.”

Coquina’s lawyer David Mandel on Jan. 17 urged the jury to award $32 million in compensatory damages and $140 million in punitive damages.

“They didn’t lift a finger,” Mandel said of the bank in closing arguments. “Once fraud was evident, it was their obligation to report it and stop it.”

The verdict was for $32 million in compensatory damages and $35 million in punitive damages, the type designed to punish.

“This Ponzi scheme would have been impossible if it weren’t for TD Bank’s actions,” Mandel said after the verdict, referring to the Miami unit.

In closing arguments on behalf of the bank, Holly R. Skolnick said the Coquina investment firm must have known that returns of 50 percent in a few months were too good to be legitimate.

‘It Had to Be Obvious’

“It was obvious to Coquina that these were fraudulent investments,” Skolnick, of Greenberg Traurig LLP, told jurors. “It had to be obvious. These deals make no sense.”

Skolnick couldn’t be reached yesterday for comment.

While running the fraud, Rothstein told victims that they were buying stakes in settlements of cases in which his law firm in Fort Lauderdale, Florida, had amassed evidence and confronted potential defendants in sexual and employment discrimination cases. The settlements were fictional, as were the cases.

Rothstein pleaded guilty to racketeering, money laundering and wire fraud and is serving a 50-year prison term. Eight people have been accused of helping him run the fraud.

In February, TD Bank agreed to settle a lawsuit with investors who claimed it aided in the Ponzi scheme. Barron’s and the Miami Herald reported that TD Bank would pay $170 million.

The case is Coquina Investments v. Rothstein, 0:10- cv-60786, U.S. District Court, Southern District of Florida (Miami).

To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Susannah Nesmith in Miami at susannahnesmith@yahoo.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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