TD Bank Agrees to Pay $52.5 Million Over Ponzi Accounts

Toronto-Dominion Bank (TD), Canada’s second-biggest lender, will pay $52.5 million to settle U.S. regulatory claims related to accounts held by a Florida man who is serving a 50-year prison sentence for running a Ponzi scheme.

TD Bank, the Toronto-based lender’s U.S. unit, agreed to turn over $37.5 million to the Office Comptroller of the Currency and $15 million to the Securities and Exchange Commission to resolve complaints stemming from its ties to Scott Rothstein’s fraud, according to statements from the two agencies today.

Frank Spinosa, a former regional vice president who was sued by the SEC, falsely represented to investors in 2009 that TD Bank had restricted the movement of funds in accounts held by Rothstein, whose fraud unraveled later that year, regulators said. Spinosa is fighting the SEC’s claims.

“Financial institutions are key gatekeepers in the transactions and investments they facilitate and will be held to a high standard of accountability when their officers enable fraud,” Andrew Ceresney, co-director of the SEC’s enforcement division, said in a statement. “TD Bank through a regional vice president produced false documents on bank letterhead and told outright lies to investors.”

Photographer: Brent Lewin/Bloomberg

Toronto-Dominion Bank's TD Canada Trust headquarters stands in Toronto. Close

Toronto-Dominion Bank's TD Canada Trust headquarters stands in Toronto.

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Photographer: Brent Lewin/Bloomberg

Toronto-Dominion Bank's TD Canada Trust headquarters stands in Toronto.

Rothstein used forged court documents and phony bank records to sell wealthy investors stakes in what he said were payouts in confidential sexual-harassment and workplace-bias lawsuits. At least 10 people, including Rothstein’s wife, were convicted of crimes connected to the $1.2 billion fraud.

Investor Restitution

TD Bank, which Rothstein used to launder the proceeds of his fraud, got an order barring lawsuits after agreeing to settle with the bankruptcy trustee for as much as $72 million and with a group of investors for $54 million. The bank has paid more than $600 million in restitution to investors harmed by the fraud, the OCC said.

“Mr. Spinosa did not know about the fraudulent conduct,” his attorney, Samuel Rabin Jr., said in a statement. “He is now being vilified for discharging his duties as a banker and for various deficiencies within TD Bank’s internal administrative and compliance functions.”

Ali Duncan Martin, a spokeswoman for TD Bank, said in an e-mail that the company works very closely with regulators to ensure that it complies with applicable laws and regulations.

“TD Bank is pleased to resolve these regulatory concerns and to put the Rothstein matter behind us,” Duncan Martin said.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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