Alleged Ponzi Scheme Facilitator May Be Liable

     MIAMI (CN) – The former vice president of a TD Bank subsidiary may be liable for aiding and abetting in securities fraud violations in south Florida, a federal judge ruled.
     The Securities and Exchange Commissions accused former Commerce Bank vice president Frank Spinosa last year of helping disbarred attorney Scott Rothstein in a $1.2 billion Ponzi scheme.
     Rothstein is serving a 50-year prison sentence related to his sale of fake discounted settlements out of his law firm.
     In exchange for discounted payments, Rothstein provided investors with promissory notes from his firm for supposedly full settlement amounts. Though he claimed the accounts held millions of dollars, they actually held less than $100.
     The SEC accused Spinosa of aiding and abetting Rothstein by telling investors the funds existed. It said Spinosa also executed “lock” letters stating that the accounts containing the settlement funds were restricted to allow distribution of funds only to a particular investor on Rothstein’s direction, and that he made false statements to investors in telephone and in-person meetings regarding the existence of the funds. Spinosa allegedly knew the statements were false, and that Rothstein could transfer funds from the accounts without restriction.
     Spinosa attempted to dismiss the claims by saying that the SEC had failed to plead fraud with sufficient particularity and that it failed to allege facts supporting all necessary elements of the causes of action.
     U.S. District Judge Kenneth Marra took issue last week with the vague statements that the SEC has cited as a basis for its fraud claims, but said the agency “will have leave to amend its pleading to include the names of the recipients of the misrepresentations, or to make other allegations that would allow defendant to identify the exact statements.”
     The SEC also failed to state that Spinosa made intentional misrepresentations to investors, “or that in providing this information he departed from the standards of care in an extreme fashion presenting a danger of misleading the investors that was either known to defendant Spinosa or was so obvious that he must have been aware of it,” according to the June 30 ruling.
     It must amend this pleading “if it wishes to base Count I on the alleged misrepresentations of the account balances as well,” Marra continued.
     The judge did uphold claims that Spinosa received money for the fraud since the complaint accuses Spinosa of receiving bonuses from his employer that were enlarged because of his allegedly fraudulent activity.
     As for the aiding and abetting claims, Marra found that the allegations “support an inference that defendant Spinosa knew of Rothstein’s wrongdoing because, if the court accepts the allegations as true, as it must at this stage, there is no legitimate purpose for defendant Spinosa’s actions.”

%d bloggers like this: