Sunday, June 9, 2013


Failing to identify, and interdict, a Ponzi scheme being run by your bank clients, can get expensive, when well-heeled Ponzi victims sue your entity, due to not only losses, but additional funds lost, due to trustee "claw-back" suits, taking back the profits received from the schemer. TD Bank has settled yet another of such suits, which arose out of Scott Rothstein's $1.2bn Ponzi scheme to cheat investors, using the discounted sale of interests in bogus lawsuit claims.

This action, brought in US District Court, by New York-Based Platinum Partners Value Arbitrage Fund LLP, will reportedly cost TD Bank $18m, in payments to Platinum, $26m in payments to the trustee for the bankruptcy for Rothstein's law firm, and additional funds, said to total $70m. This is serious money for any bank to shell out, and bank shareholders tend to have a very narrow view of such payouts.

The case continues to be a teachable moment in the principle that banks must always check out any
extremely-successful client, who seems to be on the fast track for success, as the possibility that the client could be running a cleverly-disguised Ponzi scheme, always exists. Instant success, whilst laudable, may be occurring through financial crime, so periodically check your best clients for Ponzi red flags:

(1) Is the client's business successful, and did this success occur in a very short period of time ?
(2) Is instant success not normal in the client's business or profession ?
(3) Does the client appear to be lavishly spending his profits in a very high-profile manner ?
(4) Is the client not the "workaholic" that such success generally requires ? is he known for being on the social circuit ?
(5) Has the client not been in his occupation for a substantial period of time  ?

Ensure that your best clients are periodically subject to updated due diligence, just to be sure.

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