Taking arguments against TD Bank under advisement, Broward Circuit Judge Jeffrey Streitfeld on Monday said he would rule later this month on whether to sanction the bank or refer its officers for a criminal investigation.
Streitfeld said the sole purpose of the hearing was to enforce the integrity of the court.
The judge has been concerned about the extent to which TD Bank may have deliberately hidden evidence during discovery in the lawsuit filed by Razorback Funding LLC, one of many investor groups that sued TD Bank for handling most of Scott Rothstein’s Ponzi scheme accounts at his Fort Lauderdale law firm, Rothstein Rosenfeldt Adler.
Bank officers were named as defendants in several lawsuits for allegedly acted as agents, giving the scheme the appearance of legitimacy. Officers also allegedly disregarded anti-money laundering alerts produced by the bank’s internal computer system.
Evidence to support those allegations was offered during a Miami federal trial in a case filed by Coquina Investments LLC, and U.S. District Judge Marcia Cooke ultimately sanctioned TD Bank for discovery violations.
A few weeks before a scheduled 2012 trial, Razorback’s law firms—Conrad & Scherer in Fort Lauderdale and Kozyak Tropin & Throckmorton in Miami—reached a $170 million settlement with TD Bank.
The bank’s discovery violations in the Coquina trial happened shortly thereafter. Since then, the Razorback attorneys have been seeking sanctions.
In previous hearings, Streitfeld was reluctant to consider sanctions if it meant reopening the case and potentially overturning the settlement. Streitfeld has refused to consider the wrongdoing in the Coquina trial unless it could be directly connected to the Razorback case. He agreed to an evidentiary hearing if it were limited to providing the court an opportunity to defend its integrity.
“I do believe ultimately this is criminal in nature,” Streitfeld said of the ongoing inquiry. “There is no open case. You’ve settled. Those settlements cost TD Bank a lot of money.”
He asked the plaintiffs attorneys what they could show that justified sanctioning TD Bank.
Adam Moskowitz of Kozyak Tropin said the bank’s defense in the Razorback case was affected by four areas of discovery misconduct. The bank hid emails between Frank Spinosa, the bank officer who oversaw the Rothstein accounts, and Kevin Gillen, who was then TD’s president of Florida operations. The emails indicated Gillen’s knowledge of Spinosa’s involvement in Rothstein’s business.
The bank also hid money laundering alerts on the Rothstein accounts, issued a copy of the law firm’s customer due diligence form that blacked out the words “high risk” on a document given to plaintiffs and hid its internal investigative protocol, Moskowtiz said.
TD Bank repeatedly insisted the plaintiffs had been given all the pertinent documents when for months it was obvious an initial discovery log was woefully lacking, he said. A second log produced in May 2011 had hundreds of documents, but crucial evidence was withheld.
Streitfeld said this caused him concern. He recalled a 19-month period where no documents were forthcoming.
“It would be one thing if someone came forward and said we acknowledge this was wrong … as opposed to continuing to suggest everything’s OK,” the judge said.
Streitfeld also indicated he found credible the video deposition of Jack Scarola, a West Palm Beach partner at Searcy Denney Scarola Barnhart & Shipley who was retained by the plaintiffs as a punitive damages expert witness. Scarola said the defense actions appeared specifically designed to conceal the extent of the bank’s involvement.
Andrew Hall of Hall, Lamb and Hall in Miami, the RRA bankruptcy trustee’s punitive damages expert, called the bank’s acts “reprehensible in nature.”
“The defense strategy should have been, ‘You get me somebody that’s going to accept responsibility,’ ” Hall said in video deposition.
Streitfeld questioned Peter Covington, a Charlotte, N.C., partner at McGuireWoods, the law firm retained after TD Bank fired Greenberg Traurig when the discovery violations came to light. Streitfeld asked what obligation the obligations of a lawyer to hand over an unaltered versions of a document when an altered version has been produced.
Covington said he didn’t know but suggested the plaintiffs should request the unaltered version.
Streitfeld asked how Greenberg Traurig didn’t notice the problem, and Covington said he couldn’t speak for Greenberg Traurig.
Covington argued the Razorback attorneys were making too much of procedures they knew little about. Referring to the high risk header on the RRA law firm’s customer due diligence form, he said all law firm accounts are classified high risk.
As for the many money laundering red flags on the RRA accounts, Covington said this was due to a series of “artificial exercises.” He said the bank was experimenting with several methods to improve its compliance.
Covington said there was no conspiracy and no evidence that the bank intentionally tried to defraud the court.
“We paid the money, and I think we’re done,” he said.