(CN) – TD Bank and hundreds of its lawyers deserve sanctions for acting like Inspector Clouseau in their handling of claims related to a $1.2 billion Ponzi scheme, a federal judge ruled.
Scott Rothstein is serving a 50-year sentence after pleading guilty to conspiracy violations of federal anti-racketeering law and money laundering. The South Florida’ lawyer’s massive investment scam traded in fictitious structured settlements from purported high-profile lawsuits.
Texas-based Coquina Investments, one of Rothstein’s victims, claimed that TD Bank, through its former regional vice president and other employees, aided and abetted Rothstein’s fraud, and made fraudulent representations to investors.
The ensuing trial ultimately favored Coquina by the time it ended in January 2012, but Coquina said TD Bank and its attorneys also deserved sanctions for an alleged series of discovery violations.
“In this case, the end of a two-month jury trial signaled only the beginning of a barrage of filings making accusations of negligence and misconduct and admissions of incorrect statements to the court,” U.S. District Judge Marcia Cooke wrote.
Calling it “a case of too many cooks spoiling the broth,” the judge noted that TD Bank’s army of 200-plus attorneys, from Greenberg Traurig and another law firm, caused a host of discovery mishaps by failing to coordinate.
“As a result, it often times appears that this litigation was conducted in an Inspector Clouseau-like fashion,” Cooke wrote. “However, unlike a ‘Pink Panther’ film, there was nothing amusing about this conduct and it did not conclude neatly.”
Coquina claimed that TD Bank had doctored its CDD form, a document that the bank used to designate high risk accounts, by producing only a black-and-white version of the form, which was missing significant information present on the original form, including the document’s “high risk” banner, archive and editing history. Coquina had used the form during litigation to show that the bank knew Rothstein’s accounts were “high risk.”
The investor also claimed that TD Bank and its Greenberg Traurig attorneys denied the existence of a “standard investigative protocol” many times, only to admit it existed after the trial ended. The investigative protocol provided guidelines concerning reportable suspicious activity, and thus was responsive to Coquina’s request for documents.
Cooke agreed that TD Bank was responsible for several discovery violations, including the failure to produce relevant emails and documents on time.
TD Bank should have produced the CDD form in color format, to show all the relevant information, or at least should have realized that some information was missing due to formatting errors, according to the 30-page ruling.
And though there is no evidence that TD Bank intentionally altered the document, Coquina had been prejudiced by the incomplete production, the Aug. 3 opinion states.
As for the standard investigative protocol document, Cooke found that the bank and its lawyers had failed to adequately search for it.
Cooke criticized TD Bank’s attempt to “hide behind Greenberg Traurig’s mistakes” and to “wash its hands clean of any involvement in this production of documents.”
The bank’s in-house counsel had access to all the relevant information, but failed to provide it to Greenberg Traurig or opposing counsel, the ruling states.
Cooke also noted that the bank’s witnesses were unprepared, or “less than candid under oath,” and provided inconsistent testimonies.
“The discovery violations in this case resulted in Coquina’s diminished ability to prove that TD Bank’s actions were unreasonable and it had knowledge of fraud,” the ruling states. “Although the jury found in Coquina’s favor, Coquina now faces post-trial motions, which challenge the sufficiency of the evidence it put forth at trial on these issues. I will therefore direct that the facts that TD Bank’s monitoring and alert systems were unreasonable and that TD Bank had actual knowledge of Rothstein’s fraud be taken as established for purposes of this action.”
Cooke ordered TD Bank and Greenberg Traurig to pay Coquina’s attorneys’ fees and costs, but refused to impose sanctions against individual attorneys, finding their many mistakes were not intentional.