REPOST: Insider Trading: Civil Or Criminal Crime?

This Forbes.com article give readers an insight on the difference between criminal and civil violations.

I suppose if you were looking to buy/sell publicly traded stocks based on inside information, you would probably want to do the kind that, if detected, would result in a civil penalty (fine) rather than a criminal one (jail and fine). Nobody wants the “Big F” (Felony). But what is the difference between a criminal violation of insider trading versus a civil one?

Raj Rajaratnam was sentenced to 11 years in prison as a result of trading on inside, confidential information related to publicly traded companies (namely Goldman Sachs). His profits were said to be over $80 million and his firm, Galleon Group, has since closed. William Marovitz, husband of then Playboy CEO Christie Hefner, traded on Playboy stock between 2004 and 2009 based on “pillow talk” inside information that allowed him to realize gains of over $100,000 trading on Playboy stock. For his infraction, Marovitz paid a fine without admitting wrongdoing. While Marovitz and Hefner have since divorced, he was never in jeopardy of spending a night in federal prison. So why is one person jailed and the other fined for essentially the same crime? It depends on a number of factors.

I reached out to Jordan Thomas, Labaton Sucharow partner and Chair of the Whistleblower Representation Practice and also a former Assistant Director and Assistant Chief Litigation Counsel in the Division of Enforcement at the SEC, for his perspectives. Thomas told me that in his experience the triggers for criminal insider trading charges were based on three primary factors:

1) Significance of wrongdoing (amount of money involved, the number of people affected by the trade and the duration of the activity)

2) Corroboration of others to prove a criminal case and provide evidence of wrongdoing (need someone to flip or have someone on tape)

3) Recidivists of any securities violations (always looking to clean up Wall Street)

The Department of Justice (DOJ) may get involved once the Securities and Exchange Commission (SEC) has initiated its investigation. Thomas said, “You can assume that there is regular communication between the SEC and the DOJ on cases. If the SEC believes there is enough information that could lead to a criminal conviction, the DOJ may undertake its own, independent, investigation to see if it leads to the same conclusion.”

The SEC is not the only organization feeding the DOJ with prospective criminal cases. The Financial Industry Regulatory Authority (FINRA), the largest independent regulator in the U.S., is also looking for insider trading activities and regularly makes inquiries on suspicious trades to brokerage firms and brokers. If those inquiries turn something up, they too share that information with either state or federal authorities.

As to whether prosecutors these days are more willing to go after criminal versus civil, Thomas said, “There is a quiet revolution in white collar criminal securities cases led by cooperators and whistleblowers. New enforcement tactics like wire taps, previously used in organized crime, has yielded powerful evidence of criminal intent.” One only has to look at the wire taps used in the prosecution of dozens of insider trading cases in the Southern District of New York to see how effective that has been in bringing cases and getting guilty pleas/verdicts. When the Feds had no tapes, there were plenty of cooperating witnesses willing to finger a defendant.

According to Thomas, both the SEC and FINRA now can analyze massive volumes of trades and detect red flags that start their investigations. With regard to Compliance departments within firms taking cases to authorities, Thomas said that his experience has been that while illegal actions are detected internally, those are rarely sent on to state or federal law enforcement. “Compliance departments who have discovered wrongdoing within the company, rarely report it to authorities. They typically give offenders their walking papers and allow them to go find a new job,” Thomas said, “which isn’t much of a consequence for someone who has seemingly been successful at making money on Wall Street.”

Michael Bachner, white collar defense attorney in New York who has seen his share of insider trading cases, also noted that both FINRA and the SEC are the stalking horses for criminal cases eventually taken over by the FBI or state criminal authorities. On why some cases go criminal, Bachner believes that the defendant’s role plays a big part. ”If the person targeted for insider trading [tips] is a lawyer or some fiduciary that had an obligation to keep information confidential, then criminal authorities will want to send a message to the profession that that type of behavior will not be tolerated,” Bachner said.

As to whether civil cases deter criminal behavior, both Thomas and Bachner said that those involved in insider trading cases that result in civil charges rarely offend again. As Bachner put it, “Insider trading crimes are typically crimes of opportunity with a rational person making an irrational decision to act.” If civil litigation is so effective, it makes one wonder what is the purpose of these long prison terms associated with criminal prosecution of insider trading? I’ll leave that one for another day.

In the meantime, there are so many people with access to inside information that need to stay diligent. Bankers, lawyers, analysts, and executives are all part of mergers, purchases, earnings preparation and operational strategies. Bachner’s observation is a one you should take to heart …. insider trading is a crime of opportunity, a crime of passion undertaken at a moment of weakness. If you trade on inside information, the chances that you will get caught have gone up significantly and your odds of going to prison are just a coin flip away.

Stay Strong!

Evan Granowitz was named as a Southern California Rising Star in 2009 and 2010 by the Super Lawyers magazine. Follow this Twitter page for more updates.

Winning smart: The advantages of litigation

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The United States is said to be a far too litigious society—a country where remedies for perceived injustices are commonly pursued through the legal system.

As a form of dispute resolution, litigation is based on taking action through the courts, which involves a formal process, formal rules of evidence, and formal discovery. Furthermore, it also takes into account public records and the decision of the judge and jury. During the process, the courts are concerned with the application of public policy and strict adherence to the law of the land.

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Although commonly perceived as expensive and time-consuming, the advantages of litigation are mainly related to its nature, which involves transparency, compliance, uniformity, and binding final resolutions.

In addition, litigation is also considered as an effective legal method for highly charged issues. It allows the plaintiff to file lawsuits under a structure of rules that require facts, evidence, and arguments in support of the claim. The methods can be extraordinarily effective in clearing up obfuscation during arguments or debates.

Many companies today litigate to protect and advance their business interest. One of them is the multinational technology corporation Apple Inc. that has been a participant in various legal proceedings and claims since it began operations.

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Evan Granowitz is a recognized civil litigator in Southern California who counsels and represents clients in all facets of litigation. Learn more about him by visiting this Twitterpage.

The difference between arbitration and litigation

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Arbitration or litigation?

These are two of the most common choices confronting opposing parties in a dispute. Some would agree on arbitration because of its efficiency, while some parties would insist on litigation because of its benefits.

The choice is not a simple one to make. Hence, it is important to understand the subtle but significant distinctions between arbitration and litigation.

In simpler terms, litigation is a win or lose battle that involves a relevant state and federal courts to resolve “disputes,” which require a party to seek an attorney and file a lawsuit in court. The process of litigation is conducted in a courtroom where the judge or jury makes the final decision.

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In many cases, litigation is proven as an effective means to secure economic, social, and cultural rights for many companies and individuals as judges are bound to apply the rules of evidence and follow all relevant case law and Court rules.

Arbitration, on the other hand, involves a third party serving as an intermediary between the two disputants. In the pursuit of a dispute resolution, both parties have to agree to the matter adjudicated by the independent third party, who makes a legally binding judgment.

Some parties use arbitration because it is more private and is generally more time efficient than litigation. Moreover, others consider it less costly because it requires fewer expenses on counsel and meetings.

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An experienced professional in the field of law, Evan Granowitz is a Southern California-based civil litigator who works for Wolf Group LA. Know more about his experience and background by visiting this Linkedin profile.

REPOST: The essential cases every law student should know

From McLibel to Lord Denning's case, this article from The Guardian listed down the cases the every law student should know:

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Cases capture human stories, shape public debate and establish new expectations of the state. Their wider effect can reflect society's consciousness but often lead to new laws. Cases and judges' decisions are a law student's bread and butter. Here are a few you will come across:

Care for thy neighbour:

In 1932 Mrs Donoghue launched the modern law of negligence, after finding her ginger beer less than appealing. Known to generations of lawstudents as the "snail in the bottle" case, it is best known for Lord Atkin's famous neighbour principle. In declaring we should take reasonable care to avoid harm to those we foresee can be affected, he established when we owe duties to each other. Accidents and injuries were forever to be reshaped into claims and compensation.

Foreign detainees

Known as the Belmarsh decision, there is no modern case that better sets the boundary between national security and civil liberties. Decided by a panel of nine law lords, the 2004 decision became an important milestone in judges protecting both the rule of law and human rights. In a challenge to the Labour policy of indefinitely detaining foreign terrorist suspects without charge, the majority declared the British state acted illegally and in a discriminatory way. In his powerful rejection, Lord Hoffman stated "The real threat to the life of the nation… comes not from terrorism but from laws such as these."

Spanish fisherman

Providing the legal backdrop to a decade of EU-scepticism is the 1991 case of Factortame, this case on the rights of Spanish fisherman to fish in British waters is a mainstay on any public law course. It confirmed the priority of European laws over UK acts of parliament and thus struck a blow against parliament's legal supremacy. In so doing it provoked much constitutional debate about the extent of EU legal powers - and Britain's relationship with Europe as a whole.

McLibel

Officially the longest case in English legal history, this ten year David v Goliath libel battle exposed the price of justice when corporations take on individuals. The fast food giant sued green campaigners David Morris and Helen Steel for libel over a stinging pamphlet criticising the their ethical credentials. McDonalds walked away with both a win and a PR disaster. The European court of human rights later declared in 2005 that the pair, who were unfunded and were representing themselves, had been denied their right to a fair trial.

Jodie and Mary

In the year 2000 the plight of conjoined twins made front page news. The question was whether it was justified to separate and knowingly "kill" the weaker Mary in order to save her stronger sister Jodie, given both were destined for a premature death. In spite of parents favouring non-separation, doctors wanted a declaration that such an operation would be lawful. In a maze of ethical and legal conflicts, Lord Justice Wardrather hollowly declared that "this is a court of law, not a court of morals."

After admitting to sleepless nights, the judges allowed the doctors to separate. Lord Justice Brooke declared the situation as one of necessity, allowing the option of a lesser evil. The stronger twin survived and made a full recovery. The thankfully rare case, otherwise found in philosophy debates, demonstrates the relationship between law and morality, perhaps one of the first questions on a legal theory course.

Domestic abuse

A year after marital rape was declared rape in 1991, came the case ofKiranjit Ahluwalia, who had been abused for over a decade by a violent husband. She was convicted of murder after setting her husband alight as he slept. In recognising long-term domestic abuse and the possibility of a slow-burn anger that led to her snapping, the case was a cause célèbre for feminist and domestic abuse groups. Though finally the decision in the end was based on diminished responsibility, it was seen as a benchmark for tackling the gender bias in the criminal law and raising public awareness of domestic abuse. Ahluwalia's conviction was reduced to manslaughter, and she was freed.

Pinochet

International human rights law received a global TV audience in 1998 after former Chilean dictator General Pinochet was arrested in London. Under the rules of universal jurisdiction, he was detained following a Spanish extradition request facing charges of crimes against humanity. The law lords declared that there could be a limit to the immunity enjoyed by heads of states. Though Pinochet was never extradited, the case sent out a strong message about accountability for leaders who commit human rights abuses,before the international criminal court was established.

The case is also well known among lawyers when after the first hearing it was disclosed that that one of the ruling law lords, Lord Hoffmann, was a director of Amnesty International, a party to the cases. The entire hearing had to be repeated to show that "justice must not only be done but be seen to be done."

The internet age 

Injunctions, twitter, privacy and the extra marital activities of footballers were all the rage in early 2011. Nothing struck up more attention than theapplication for an injunction by Ryan Giggs against the Sun. His name was widely tweeted and the situation became more farcical when MP John Hemming revealed his name in the House of Commons. The debate forced the law to react to an age of the internet and social media. The case followed a long line of celebrity court battles in the 2000's, and became another marker in the debate between balancing freedom of expression and the right to a private life.

Roe v Wade 

From across the Atlantic arguably no case better demonstrates the political and social impact of judicial decisions. The landmark decision in 1973 upheld a woman's right to an abortion. Synonymous with abortion in the USA. Hundreds of thousands march on the US supreme court on the anniversary of the decision each year.

Any of Denning's cases 

In our common law system, many judges leave their mark on a particular area of law. However clichéd, no judge will live longer in the memory of law students than the controversial Lord Denning. He demonstrates the power of personality in a subject that is often seen technical, dry and rule-based. In the words of Lord Irvine, "the word Denning became a byword for the law itself." Denning reminds us that all cases are eventually decided by individuals who are made up of values and personal perspectives that make them who they are. Students, you are encouraged to think, debate and learn the law in the same spirit. Good luck.

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REPOST: Some NSA Opponents Want to 'Nullify' Surveillance With State Law

Here's an update about the anti-surveillance resolution from USNews.com:

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The National Security Agency has an Achilles heel, according to some anti-surveillance activists. The key vulnerability, according to members of the OffNow coalition of advocacy groups: The electronic spy agency's reliance on local utilities.

The activists would like to turn off the water to the NSA's $1.5 billion Utah Data Center in Bluffdale, Utah, and at other facilities around the country.

Dusting off the concept of "nullification," which historically referred to state attempts to block federal law, the coalition plans to push state laws to prohibit local authorities from cooperating with the NSA.

Draft state-level legislation called the Fourth Amendment Protection Act would – in theory – forbid local governments from providing services to federal agencies that collect electronic data from Americans without a personalized warrant.

No Utah lawmaker has came forward to introduce the suggested legislation yet, but at least one legislator has committed to doing so, according to Mike Maharrey of the Tenth Amendment Center. He declined to identify the lawmaker before the bill is introduced.

"We are still very early in the campaign, and this is in fact a multi-step, multi-year long-term strategy," says Maharrey, whose group is part of the OffNow coalition along with the Bill of Rights Defense Committee and a handful of other groups.

The campaign is looking beyond Utah, Maharrey adds.

He says a Washington state lawmaker has also committed to introducing the legislation and says state politicians in five other states have expressed interest in doing so without committing to it.

The city of Bluffdale successfully competed to supply water to the new NSA data center with an eye toward future economic development and offered discounted rates, The Salt Lake Tribune reported Nov. 30. The city is reportedly charging the NSA a rate of $2.05 for every 1,000 gallons of water, significantly less than the typical rate for high-volume consumers of $3.35 per 1,000 gallons.

KSL-TV reported in July the center will use up to 1.7 million gallons of water a day when it's fully functional, in part to cool mega-computers that collect and store data from around the world. The data-hub is encountering some problems, the Wall Street Journal reported Oct. 7, with meltdowns obliterating thousands of dollars of equipment at the million-square-foot facility.

At the federal level, the USA Freedom Act sponsored by Rep. Jim Sensenbrenner, R-Wis., and Sen. Patrick Leahy, D-Vt., would significantly curtail the most controversial NSA practices made public in June by whistle-blower Edward Snowden. Despite appearing poised to pass the House of Representatives, the bill has little chance of becoming law because of opposition from President Barack Obama, who supports the NSA's phone and Internet surveillance programs.

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This Evan Granowitz blog site offers more relevant news about the legal industry.

A municipality in legal limbo: Detroit files for bankruptcy eligibility

For a municipality to be undermined by serious financial trouble, its debts take on an insurmountable nature. With no way to break loose from those debts, its local government could file for bankruptcy eligibility as its saving grace. This is why the city of Detroit decided to file for Chapter 9 bankruptcy petition on July 18.

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The New York Times reveals that the trial over the city’s eligibility for Chapter 9 bankruptcy, feasible or not, provoked varying interpretations of events. On one hand, the lawyers of the financially distressed city claim that unions and retirees are to be blamed for delaying negotiations. On the other hand, unions and retirees believe that the bankruptcy filing was a collaboration of several entities, including Michigan Governor Rick Snyder, to gain and maintain control over the city. Moreover, the unions plead the court to order the disapproval of the bankruptcy as it may reduce retiree benefits.

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As Detroit marches to bankruptcy, its efforts to prove its eligibility for the biggest municipal bankruptcy in US history ended in the Nov. 7 trial. Unfortunately, there was no ruling from the judge on whether Detroit can remain under court protection from creditors who can’t fully challenge the debt restructuring process of the city.

Bloomberg relates that US bankruptcy judge Steven Rhodes will issue a ruling only as soon as Detroit lawyers and their opponents submit their respective legal briefs stating how labor will be potentially affected by his decision. The judge also asked the city and state lawyers to answer allegations against Governor Rick Snyder and emergency manager Kevyn Orr for acting “in bad faith” prior to the filing of the case.

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To pronounce eligibility for bankruptcy, the court needs to see a full proof of the city’s insolvency and acts of good faith when it decided that negotiations with creditors were nothing but futile.

Attorney Evan Granowitz specializes in bankruptcy among other areas. For more information about the subject, visit this Facebook page.

REPOST: Stop-and-frisk judge fights removal from case

Read what Judge Shira Scheindlin fights for from this The Guardian article:

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A US judge has asked an appeals court to reinstate her to a closely watched case regarding the constitutionality of the New York police department's "stop-and-frisk" tactic, saying she was unfairly removed from it a week ago.

In a highly unusual request, US District Judge Shira Scheindlin asked the 2nd US circuit court of appeals to reverse its ruling of 31 October when a three-judge panel removed her from the case, saying she "ran afoul" of the judicial code of conduct in part by granting media interviews.

Two months ago Scheindlin became a hero of civil rights and civil liberties groups when she struck down parts of stop-and-frisk, ruling that it amounted to "indirect racial profiling" that resulted in the disproportionate and discriminatory stopping of black and Hispanic people.

In that ruling she also appointed a federal monitor to oversee changes in NYPD practices.

The city appealed and the appeals court ruling last week to remove her from the case and to freeze her decision was at least a temporary victory for Mayor Michael Bloomberg and the NYPD. The city has argued that stopping, questioning and frisking suspicious people has led to a steep decline in crime rates.

The issue played a role in the campaign for mayor of New York City in which candidate Bill de Blasio, who won in a landslide on Tuesday, blasted stop-and-frisk as unfair.

The three-judge panel's ruling had no implications for the merits of the case and instead was a rebuke of Scheindlin. The judges said they would rule on the merits of the case upon hearing the city's appeal of Scheindlin's ruling next March.

Scheindlin, in the motion filed on Wednesday by her attorney, Burt Neuborne, noted that the judge had never been accused of running afoul of the code of conduct by any of the parties in the case at the district court level, nor in oral arguments before the appeals court.

Moreover the appeals court should have notified Scheindlin in advance that it intended to disqualify her and she should have been given a chance to respond before the ruling was made, her lawyer said in the court brief.

"Since nobody asked for her disqualification, and the disqualification came from the court itself, this is her chance to ask: 'Before you do this to me, let me at least get a chance to explain myself,'" Neuborne told Reuters.

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REPOST: Toronto paying millions in lawsuit claims

This online article talks about the different civil lawsuits faced by the City of Toronto over the years, with "slipping and falling on public property" as one of the biggest categories. Read more:

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The City of Toronto has spent more than $200 million to settle civil lawsuits since 2000, and the payouts are getting richer, a municipal database obtained by the Star shows.

Litigants range from people alleging they were struck by golf balls to prisoners claiming they were assaulted in police custody.

The largest payment, for $4,454,909.69, stems from a 2001 incident in which a lifeguard was alleged to be at fault. The city did not release details of the case, or of any of the 3,062 settlements contained in the database. Many of the cases are covered by confidentiality agreements.

Almost one in four of the total tally — 773 — were related to road and sidewalk maintenance. Those settlements totaled $32,458,390.50.

The city’s response to inclement weather accounted for 640 lawsuits. On incident involving an icy driveway cost the city $439,345.74.

Police activity has resulted in at least 256 settlements, worth more than $27 million. That includes dozens of cases of use of force, false arrest and negligent investigation.

The city “self-insures” for all claims under $5 million — meaning it pays the claims with city money — and maintains a reserve fund to cover claims. The city buys insurance coverage to handle claims worth more than $5 million. Any claims that large would not show on the database.

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Shelley Carroll, who served as city budget chief from 2006 to 2010, said poor city services were partly to blame for the number of settlements.

“We’ve privatized the repair of the sidewalks that people are going to trip on,” she said.

“At a certain point do we have to ask ourselves: do we want prettier sidewalks … do we want to pay it out in the settlement — or fund it properly in the first place?”

Carroll added that the total cost of the settlements didn’t seem high.

“Two hundred million over the time span you’re looking at is not unreasonable … By and large we have reasonable lawsuits. We don’t have a nutty, litigious society like the United States.”

The number of settlements per year has not being growing — in fact, it has declined slightly — but the likelihood of getting a large settlement has increased. All five of the years with the highest average settlement have come since 2007. That includes three years — 2008, 2011, and 2012 — with an average settlement greater than $100,000. (The average for the past fourteen years, including so far in 2013, is just over $60,000.)

But Carroll said it wouldn’t be worthwhile to try to curb the amount paid in settlements.

“It’s kind of a mug’s game to set a dollar amount, because when you pay a big settlement for a good reason, it goes out the window.”

The database, which the Star obtained through a Freedom of Information request, shows the reasons the city pays out settlements in civil cases.

Slipping and falling is more likely to land you a settlement than tripping and falling: slips have resulted in 140 settlements, costing the city $5,230,771.35; trips have resulted in 107 settlements worth $4,657,259.75.

Beware the trees: arboreal misadventures are to blame for 57 settlements costing about $1.5 million. That includes 21 for trees that caused bodily injury and 36 for trees that caused property damage, though the portion of data obtained by the Star does not include descriptions of the incidents.

The city has paid settlements in 33 cases of discrimination leading to personal injury, amounting to $1,833,575.88.

The city has also settled 22 human rights complaints, including two for more than $200,000.

City vehicles, meanwhile, seem to engage in their fair share of bad driving, having led to 186 settlements worth almost $22 million, including 35 incidents of pedestrians being struck by city vehicles.

It isn’t clear what kinds of city vehicles have been involved in the collisions — whether police cars, snow plows, or TTC buses and streetcars. But the 24 settlements caused by a city vehicle entering intersections against the light suggests fire trucks and ambulances, which often run red lights.

The city has made 20 payouts over $1 million since 2000. 414 settlements were for six figures or more.

More than half of the money paid by the city in settlements is for “bodily injury”: $112,394,033.06 out of a total $202,350,522.41

In 2005, someone recouped a $25,000 bodily injury settlement from the city after being hit with a golf ball.

A 2002 sewer backup won the claimant more than $2.5 million for lost property alone. (It’s one of 92 settlements for sewer backups, totaling $6,365,371.98).

Legal costs also eat up a large proportion of the city’s settlement budget: more than $57,000,000 since 2000, or more than a quarter of the total cost of settling civil lawsuits incurred by the city in that time.

In 88 cases, the city had legal expenses in the six figures.

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REPOST: After Fraud, Regulators Go After a Bank

This New York Times article talks about the government action against TD Bank, who brought in connection with a customer's Ponzi scheme.

You can’t run a Ponzi scheme without a bank.

In such a scheme, money that is supposed to be invested is really used to line the pockets of the Ponzi promoter or to pay previous investors. A lot of money has to flow through bank accounts, and it flows in ways that differ from what the promoter tells investors is happening. Banks are in a unique position to notice what is going on before the money is all gone.

But it is extremely rare for a bank to face sanctions for not noticing.

The typical judicial attitude was expressed last year when the United States Court of Appeals for the 11th Circuit upheld the dismissal — before a trial or any discovery of evidence — of a class-action suit against Bank of America by investors who had lost money in a pyramid scheme run by a promoter named Beau Diamond.

Even assuming that the plaintiffs could prove that Mr. Diamond “engaged in atypical business transactions, such as numerous wire transfers unrelated to any legitimate business activity,” the appellate court ruled, that would not be enough. The allegations in the suit were insufficient to render “plausible” a conclusion that the bank had “actual knowledge” of what Mr. Diamond was doing, so there was no need for a trial.

See no evil, face no liability.

That is why a joint regulatory action filed last week by the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, a part of the Treasury Department, seems so noteworthy. TD Bank, an American subsidiary of Canada’s large Toronto-Dominion Bank, agreed to pay $52.5 million to settle accusations that it had helped a Florida lawyer named Scott W. Rothstein commit one of the more brazen Ponzi schemes of recent years.

It is not clear, however, whether this represents a new attitude on the part of regulators to try to force banks to pay attention to possible Ponzi schemes — just as the Patriot Act requires them to monitor possible terrorist financing — or whether it is an isolated response to a particularly egregious case. Certainly the regulators had evidence, much of it provided by Mr. Rothstein in an effort to minimize his sentence, suggesting that one or more bank employees knew they were helping him deceive investors.

If regulators do not go after banks, the banks are usually home free. Some bankruptcy trustees for collapsed Ponzi schemes have tried to sue banks to recover money for defrauded investors only to have judges rule that because the trustee is standing in the shoes of the fraudster, such suits are not permitted. But when investors try to sue the banks, they can run up against rules limiting class-action suits and a Supreme Court decision saying that only the government — not victims — can bring suits contending that a bank, or anyone else, aided and abetted a fraud.

The Rothstein Ponzi scheme was created by a lawyer who had burst onto the Fort Lauderdale scene, living large and making highly publicized charitable donations. His firm, Rothstein, Rosenfeldt & Adler, employed 70 lawyers. He was vice chairman of a Florida Bar Association grievance committee that heard ethics complaints against lawyers. He was named to a committee to advise on state judicial appointments.

And he put together a $1.2 billion Ponzi scheme, according to the federal charges to which he pleaded guilty.

His scheme involved persuading investors to put money into “structured settlements.” Supposedly, these were settlements of cases that involved complaints like sexual harassment. The companies, he explained, had agreed to pay money over time to his clients in return for their silence. Those clients would sell the right to the payments in return for an upfront payment from the investor. He assured the investor that all the money had in fact been paid into escrow accounts he administered.

He spread the profits of the Ponzi scheme around, according to the federal charges, using money to “provide gratuities to high-ranking members of police agencies in order to curry favors with such police personnel and to deflect law enforcement scrutiny.” Political contributions were made with the money “in a manner designed to conceal the true source of such funds and to circumvent state and federal laws governing the limitations and contribution of such funds.” He sponsored fund-raisers for, among others, Gov. Charlie Crist, Senator John McCain and President George W. Bush.

For their first wedding anniversary, in 2009, he and his wife, Kimberly, attended an Eagles concert, where Don Henley dedicated a song, “Life in the Fast Lane,” to them. That cost him a $100,000 charitable contribution.

He kept a lot of the money for himself. After he was arrested, the government seized his car collection, which included four Mercedeses, three Ferraris, three Corvettes, two Rolls-Royces, one BMW, one Bentley, one Hummer, one Cadillac, one Bugatti, one Maserati, one Lamborghini and one Ford.

And he couldn’t have done it without the help of his bank.

At the time the Ponzi scheme began, he was using a small bank, Gibraltar Private Bank and Trust. He later testified that he had “protection” from officers at that bank but that he was upset by the “amount of scrutiny we were getting from certain due diligence folks” at the bank’s headquarters. And as he began to persuade large investors, including hedge funds, to invest, some of them wanted him to use a larger bank to protect themselves from a possible bank failure while the bank held the money.

So he moved to Commerce Bank, which was later acquired by Toronto-Dominion. The Canadian bank kept Commerce’s slogan, “America’s most convenient bank.” Its systems generated warnings of suspicious activity, but the bank ignored them, thanks to an extremely cooperative bank officer, Frank A. Spinosa.

According to an S.E.C. suit filed against him last week, Mr. Spinosa falsely assured investors that only they could get money from accounts that he said held millions.

Mr. Spinosa’s lawyer, Samuel J. Rabin Jr., says his client “did not know about the fraudulent conduct perpetrated by Scott Rothstein” and “never purposefully acted in any way to advance Scott Rothstein’s many schemes.” In an interview, he painted his client as a salesman who did favors for an important customer who promised to introduce him to other people who could become big customers of the bank.

TD Bank initially disclaimed any responsibility, and it bitterly fought a suit filed by Coquina Investments, which lost more than $30 million in the scheme. The bank is appealing a jury verdict that ordered it to pay Coquina $67 million in damages, including $35 million in punitive damages. Mr. Spinosa cited his Fifth Amendment right against self-incrimination in refusing to testify in that case.

It later turned out that lawyers for TD had withheld evidence in the case and misled the judge in a number of instances. As punishment, the judge ordered the bank to pay Coquina’s legal fees.

The bank has since settled other cases filed by victims. Altogether, the mess has cost it $500 million, according to a report in The South Florida Business Journal, although the bank declined to confirm the figure. As a result of the bank’s payments, said Jordan Maglich, a Florida lawyer whose blog, Ponzitracker.com, follows such cases, “This is the first time I can recall that victims are getting 100 percent of their money.”

Mr. Rothstein is serving a 50-year prison sentence, and eight others have been sentenced to prison terms. Other cases are pending and Mrs. Rothstein will be sentenced next month after pleading guilty to charges she tried to hide $1 million worth of jewelry, including a 12-carat diamond ring, from federal marshals seizing her husband’s assets. She is expected to receive a prison sentence.

TD Bank says it has improved its procedures, which certainly seems appropriate. Perhaps, even if this case does not herald a wider crackdown by authorities, it will persuade other banks that ignoring signs of a Ponzi scheme is no longer a safe thing to do.

More legal updates may be found at this Evan Granowitz Facebook page.

Employee lawsuits: Handle with care

For many small businesses owners, the fastest way to deal with employee lawsuits is to settle. Giving in to the demands of the aggrieved party is seen as less of a problem than having to deal with litigation, even if the company did not actually break any laws.

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While many business owners may see legal hazards as a normal part of business, legal recourses are not the only way to handle matters related to employee complaints. Prevention is worth more than the cure and it is better for small companies to prevent issues from escalating to the point where court arbitration is necessary.

Knowing that the truth is on the company’s side should give the business owner an edge in handling employee complaints and lawsuits. This can be achieved by making sure that the company has complied to the letter with all the requirements of state and federal governments.

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Meanwhile, business owners should also ensure that all employee-related matters are handled with utmost care. Employees must know what is expected of them and they must also know when they are not meeting the company’s standards. While not required by law, small businesses can also document every instance of disciplinary action to help prove that termination, should it be the case, is justified.

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Finally, how erring employees are treated at the moment of termination can affect how they react to the notice. Taking measures to ensure that the employees feel the process had been fair can reduce friction and make the separation possibly amicable.

Atty. Evan Granowitz is one of the lawyers of the Wolf Group LA. Follow this Twitter account for more resources about business litigation.