Rothstein Ponzi Victims Sue Bank of America For $385 Million, Punitive Damages

Rothstein Ponzi Victims Sue Bank of America For $385 Million, Punitive Damages

Victims of Scott Rothstein's massive $1.2 billion Ponzi scheme have sued banking juggernaut Bank of America (the "Bank"), claiming that, despite knowing of the fraud, the Bank and its executives shepherded investors to Rothstein's scheme with the hopes of landing Rothstein as a banking client.  In two lawsuits filed in Fort Lauderdale state court totaling more than 200 pages (the "Lawsuits"), nearly 100 investors that entrusted nearly $400 million with Rothstein asserted a variety of claims against the Bank and executives Frederick Perry, Mark R. Maller, Brian Mormile, and Douglas DiVirgillio, including aiding and abetting fraud, conspiracy, and violations of Florida's Securities and Investors Protection Act. In addition to seeking compensatory damages in the amount of their investments, the victims are also seeking punitive damages based on their claims that "the Bank....[has] concealed, covered up, and possibly destroyed documents for obvious reasons: to avoid massive liability and a public relations nightmare."

According to the lawsuits, the Bank first became aware of Rothstein's fraudulent investment scheme in 2007, when a client, Frank Preve, sought to have the Bank provide $6.5 million in credit financing collateralized on an Interest in Trust Account ("IOTA") account maintained by Rothstein's law firm that purportedly was used to hold settlements from secret sexual-harassment settlements.  After performing extensive due diligence on the credit request, including an analysis of the legal aspects of Rothstein's purported business and a spreadsheet showing Rothstein's account balances and alleged rates of return, the Bank allegedly concluded that Rothstein's investment scheme was likely fraudulent and certainly illegal.  The complaint contains numerous communications from and between Bank executives, in quotations from a sworn statement provided by a Bank employee, including that:

  • The Rothstein investments "seem too good to be true," Para. 154;
  • The Rothstein investments "couldn't get past the sniff test," Para. 155;
  • "[I]t was never believed to be 'if' but rather 'when' he would be caught doing something illegal," Para. 157;
  • Rothstein was "dirty," a "crook," a "bad guy," and his firm RRA was a "known bad entity," Para. 157; and
  • Rothstein's scheme offered returns that "were too good to be true," and colleagues were warned to "[s]tay away from these guys."

Following the denial of the credit request in 2007, the complaints allege that this information was logged in the Bank's internal "pipeline report" - thus becoming available to all relevant bank employees.  

The Bank again was faced with conducting due diligence on Rothstein's scheme in December 2008, when it was approached by another client for a personal loan to purchase a Gulfstream G550 jet.  The client proposed using as collateral his Banyon Fund investments, which were fully invested with Rothstein.  The Bank again conducted an exhaustive due diligence review, which included an email sent from a Bank Senior Vice President to a number of Bank executives, including Perry and Maller, asking if anyone was familiar with Rothstein's law firm.  In a reply that day, Frederick Perry responded to all executives with a one sentence reply: "Stay away from these guys".  Another executive, Maller, emailed Perry and another employee included on the email chain, asking them to "discuss face to face rather than via email on this," presumably to avoid creation of an email chain.  As a result of these conversations and the Bank's due diligence review, the request for the personal loan was ultimately denied.  

The Complaints allege that the Bank and its executives failed to ever voice their opinions concerning their suspicions of Rothstein to the Plaintiffs.  Indeed, instead of warning the Plaintiffs, the Bank and its executives are accused of leveraging their ability to induce the Plaintiffs to invest in Rothstein's scheme to convince Rothstein to keep some of his funds on deposit with the Bank.  When a large client sought to invest nearly $86 million with Rothstein, several Bank executives are accused of "going along" with the investment decision, despite their previous concerns about Rothstein's scheme.  Indeed, another employee later provided a sworn statement that he reminded one of the Defendants, Perry, about his fiduciary duty to apprise the client of the previous decision to decline a loan based on suspicions about Rothstein, and that that statement was "shrugged off."  Perry then stated that "We've [Perry and the Bank] done a full background on Scott and he's super clean, squeaky clean."  The employee was later pressured to quit in July 2009, while Perry is alleged to have later enlisted the investor that made the $86 million investment to inquire about "the potential for there being some business Scott & I could do together."  Rothstein later testified at his deposition that Perry's pursuit of his business was persistent, and that Perry "tried to shake me down right to the end."  Ultimately, Rothstein ended up opening depository accounts in late 2009 - days before the scheme collapsed.

According to the lawsuits, the Bank's failure to adequately warn clients resulted in an additional $565 million being invested with Rothstein between May 2009 and October 2009 - a significant portion of which was comprised of investments by the Plaintiffs.  

The Lawsuits are brought by William Scherer, a prominent South Florida lawyer who previously successfully represented a group of investors in obtaining significant settlements against two other banks that called Rothstein a client.  This included a $170 million settlement with TD Bank Group and a $10 million settlement against Gibraltar Private Bank & Trust. 

Beverly Complaint - Bank of America

Von Allmen Complaint - Bank of America

 For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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