Ponzi Clawbacks has posted extensive coverage of the Scott Rothstein Ponzi case, and not just because of its monstrous $1.2 billion scale. Rothstein himself was sentenced to 50 years in federal prison in 2010, but criminal corruption probes, adversary suits and other civil recovery efforts are ongoing. Indeed, the rulings made in the aftermath of the fraud have set powerful precedents in the continuing development of ground rules in bankruptcy clawback litigation and investor claims.
Besides generating a billion-dollar crater for clawback litigation both in Florida and the wider United States, the Rothstein Ponzi bankruptcy is also notable for the extraordinary fact that victims will largely be recompensed for their losses – a rare occurrence in matters of investment fraud. The pivotal role of banks in the scheme has been crucial to making investors whole again, with TD Bank and Gibraltar Private Bank & Trust already found liable or settling in civil suits for over $500 million dollars combined. Now Bank of America is up for scrutiny for its own alleged facilitation of Rothstein’s scam. A new $385 million lawsuit against the financial giant charges that while Bank of America was highly suspicious of the Rothstein high-return structured settlements vehicle, it decided to encourage clients to invest anyway.
Key to pursuing the claim against Bank of America has been a whistleblower from within the ranks of the financial giant. Plaintiff’s attorney Bill Scherer, who has already recovered $200 million for victims, cites BofA Senior Vice President John Abbuhl as the one figure who spoke out against clients participating in the Rothstein scheme. When the wealthy Von Allmen family inquired about investing in 2009 (shortly before the scheme imploded), officials at the bank gave them the green light even though they had deemed Rothstein’s enterprise to be shady two years prior. As Scherer points out:
Senior Vice President John Abbuhl went to [other bank officials] while they were considering the Von Allmen business and said, ‘You have to tell him that we are suspicious what is going on is illegal,’…They told him to mind his own business.
Bank of America has called the claims “baseless” and will no doubt bring a formidable legal team to defend its position. Yet the case should prove another test of the liability of a financial institution in large-scale investment fraud. It poses the question: If banks owe their customers and the community at large due diligence and good-faith compliance, will they be made to answer for grave violations of this trust?
Michael A. Hackard, Meriam Hansen, Nou Lee and Jeremy Rutledge are experienced in prosecuting civil actions against Ponzi scheme perpetrators as well as defending and resolving clawback cases filed by Bankruptcy Trustees and SEC Receivers. If you have been a victim in a Ponzi scheme and face legal action, contact Hackard Law today.