Investors in disbarred attorney Scott Rothstein’s $1.2 billion Ponzi scheme filed two lawsuits against Bank of America Corp. and several of its top executives, alleging the bank knew about the fraud but deliberately kept quiet about it.
The lawsuits were filed Monday in Broward Circuit Court by Fort Lauderdale attorney William Scherer of Conrad & Scherer. He is seeking $389 million plus punitive damages and attorney fees on behalf of 80 money-losing investors.
“Bank of America knew about this Ponzi from 2007 on and let it go,” Scherer said. “As a community, that’s pretty interesting.”
William Halldin, a Bank of America spokesman, said, “There’s no basis for these claims, and we intend to vigorously defend ourselves on this matter. The implication in the lawsuit was that there was a relationship between Mr. Rothstein and Bank of America, and there was no such relationship.”
Scherer previously sued and settled with two banks where Rothstein kept his money, TD Bank Group and Gibraltar Private Bank & Trust. In 2012, he reached a $170 million settlement with TD Bank and a $10 million settlement with Gibraltar for dozens of victims in the Razorback and Beverly groups.
Bank of America has previously not been implicated, sued or linked to Rothstein settlement financing fraud.
Scherer said he is filing the suits now because the allegations were just discovered. The statute of limitations is four years from either the incident or the discovery of new information, he said.
The suits allege Bank of America executives raised numerous red flags about Rothstein before the fraud collapsed but ignored them to induce him to deposit his money at the North Carolina-based bank.
Named in the suit are Frederick Perry, a Bank of America senior vice president; Mark Maller, then Bank of America’s Broward County president; Brian Mormile, a Bank of America private wealth manager; and Douglas Divirgilio, Bank of America’s regional president of private banking.
Rothstein is serving a 50-year federal prison sentence for masterminding the fraud from his defunct Fort Lauderdale law firm, Rothstein Rosenfeldt Adler. Several other lawyers, employees and associates have been charged in the scheme.
One of the lawsuits details how one of the biggest victims of the scam, the Von Allmen family, lost $82 million. The Von Allmens were longtime customers of Bank of America and turned to the bank for advice on investing with Rothstein, according to the suit.
Halldin said the Von Allmens “had no investing relationship with us and did not make the investment through us.”
The bank performed due diligence reviews of Rothstein’s purported investments in 2007, 2008 and 2009, which confirmed “that it was a scheme to defraud,” one of the lawsuits stated.
“The bank including Perry knew that Rothstein was ‘dirty,’ a ‘crook,’ a ‘bad guy’ ‘of dubious provenance,’ that ‘it was never believed to be if but rather when Rothstein would be caught doing something illegal,’ that Rothstein’s law firm was ‘a known bad entity,’ that Rothstein’s investment scheme offered returns that ‘were too good to be true’ and ‘couldn’t get past the sniff test’ and that the bank should ‘stay away from’ Rothstein,” states the suit.
The lawsuit quoted Perry as writing an email to his superiors the day after news spread about the fraud, “On numerous occasions we have made our suspicions known to clients interested in doing business with him or his firm.”
Yet the bank decided in 2009 not to make its suspicions known to the Von Allmens and “actively concealed what they knew about the Rothstein fraud,” according to the suit.
When former Bank of America senior vice president John Abbuhl warned other bank executives about his Rothstein concerns, he was ridiculed and forced to resign, Scherer alleges in his suit. An affidavit from Abbuhl is included in the suit, and he is a prospective witness.
The suit includes emails sent among Bank of America executives asking, “Is anyone familiar with the law firm Rothstein Rosenfeldt?” Perry’s reply said, “Stay away from these guys.”
Other Bank of America executives were instructed not to send email about Rothstein to avoid a paper trail, the suit alleges.
George Levin, who headed Banyon Investments, Rothstein’s primary feeder fund, was later denied a loan to buy a private jet due to his affiliation with Rothstein, according to the suit.
Due to Bank of America’s alleged concealment of the fraud, victims wound up keeping Rothstein’s Ponzi scheme afloat for six more months, investing an additional $565 million, the lawsuits maintained.
The suits also allege Perry repeatedly lied when he was deposed by Scherer in 2011 in the TD Bank case. Perry made 34 substantive changes to his deposition and “tampered with the errata sheets’ standard declaration on penalty of perjury to add the words ‘to the best of my recollection,’ ” states the suit.
The suits were filed on eight grounds: breach of fiduciary duty, constructive fraud, fraud, negligent misrepresentation, aiding and abetting fraud, conspiracy to defraud, aiding and abetting breach of fiduciary duty and violation of Florida’s Securities and Investor Protection Act.
The bankruptcy trustee for Rothstein’s law firm is wrapping up the case.