More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
The Securities and Exchange Commission on Monday charged TD Bank and a former executive with violating securities laws in connection with a massive South Florida-based Ponzi scheme conducted by Scott Rothstein, who is now serving a 50-year prison sentence.
The SEC alleges that TD Bank and its then-regional vice president Frank A. Spinosa defrauded investors by producing misleading documents and making false statements about accounts that Rothstein held at the bank and used to perpetuate his scheme.
Without admitting or denying the SEC’s findings, TD Bank agreed to pay $15 million and cease and desist from committing or causing any violations of Sections 17(a)(2) and (3) of the Securities Act. The SEC filed a complaint against Spinosa in U.S. District Court for the Southern District of Florida.
The SEC coordinated the filing of its cases with the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, which today announced their own actions against TD Bank.
The SEC says that Spinosa falsely represented to several investors that TD Bank had restricted the movement of the funds in these accounts when, in fact, Rothstein could transfer investor money however he desired. Spinosa also orally assured investors that certain accounts held balances totaling millions of dollars, but each account actually held zero to $100.
“Financial institutions are key gatekeepers in the transactions and investments they facilitate and will be held to a high standard of accountability when their officers enable fraud,” said Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement, in a statement. “TD Bank through a regional vice president produced false documents on bank letterhead and told outright lies to investors, failing in its gatekeeper role.”
Eric Bustillo, director of the SEC’s Miami Regional Office, added in the same statement that “Spinosa played a key supporting role in Rothstein’s Ponzi scheme by providing false comfort to investors that their money was safe and secure in the accounts at TD Bank. He enabled Rothstein to con investors into believing he couldn’t move their money when he could, and that the bank was holding money that it wasn’t.”
A TD Bank spokesperson told ThinkAdvisor that TD Bank has reached agreements with the OCC, SEC and FINCEN. "These agreements resolve each agency’s concerns regarding TD’s customer relationship" with Rothstein. TD Bank, the spokesperson said, "is pleased to resolve these regulatory concerns and to put the Rothstein matter behind us. TD works very closely with our regulators to ensure that it complies with all applicable laws and regulations."
In previous enforcement actions, the SEC has charged two feeder funds to the Rothstein Ponzi scheme.
According to the SEC’s order and complaint, Rothstein claimed to represent plaintiffs who had reached purported legal settlements that were confidential and payable over time by large corporate defendants.
He claimed that the purported plaintiffs were willing to sell their periodic payments to investors at a discount in exchange for one lump-sum payment.
“The legal settlements were fake and the plaintiffs and defendants were not real. Rothstein told investors that the purported defendants had deposited the entire settlement amounts into attorney trust accounts. Rothstein opened 22 such accounts at Commerce Bank and TD Bank (the two merged in 2008) from November 2007 to October 2009,” the SEC states.