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BofA pays to settle in Shapiro Ponzi scheme

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By Paul Brinkmann
August 17, 2012

A $5.9 million payment by Bank of America to settle possible claims in the Nevin Shapiro Ponzi scheme in now final.

U.S. Bankruptcy Judge Laurel M. Isicoff in Miami approved the settlement Aug. 10, along with a bar order that prevents any of the creditors in the Chapter 11 case from suing BofA (NYSE: BAC) in connection with the Shapiro scheme.

The settlement was arranged by Miami attorney Joel Tabas of Tabas, Freedman, Soloff, Miller & Brown, the trustee overseeing Shapiro’s former company Capitol Investments USA.

The bank’s payment will add to the recovery in the bankruptcy case, which had total liabilities of about $132 million according to schedules Tabas filed in April 2010.

Shapiro’s financial fraud, which had transactions totaling almost $1 billion, was uncovered in November 2009. He is best known as a former University of Miami athletics donor who held South Beach parties for football players. After his sentencing, he told YahooSports that 72 players received improper perks from him.

Tabas’ attorney, Gary Freedman, said he could not comment on the settlement, other than to say the trustee was pleased with it.

So far, Tabas has made one distribution to creditors, representing about 9 percent of the case’s total claims.

Freedman said he recently told the court that there would be another distribution by the end of 2012, possibly about $14 million.

The BofA settlement was not without some controversy. Miami Beach developer Eric Sheppard had considered objections to letting the bank off the hook for future lawsuits, according to court documents.

Sheppard, who developed Canyon Ranch Hotel & Spa Miami Beach, never sued BofA. He paid $700,000 to settle claims that he was an active participant in Shapiro’s scheme. But Sheppard alleged he was a victim who funneled $40 million into Shapiro’s fraud.

Sheppard’s attorney, Peter Russin, said Aug. 15 he had no comment on the BofA settlement.

Deal meant to stave off potential suits

BofA has not faced a lawsuit in the case yet, but the settlement referred to a draft of a potential lawsuit by Tabas. In court documents, the bank was accused of slow response to subpoenas for now-former CEO Ken Lewis and other records.

The bank denied stalling and entered private negotiations with Tabas.

Banks are often targeted as deep pockets in lawsuits related to Ponzi schemes and other financial frauds, when investor money has disappeared from bank accounts. TD Bank (NYSE: TD) was hit with a $67 million verdict in January after a Miami jury found it aided the Ponzi scheme of Scott Rothstein.

BofA denied any liability or wrongdoing in the Shapiro case.

Tabas said in court documents that almost $1 billion flowed through Capitol’s accounts at the bank, even though it was a grocery trading business that estimated annual sales at $50 million to $60 million.

Federal authorities estimated Shapiro’s scheme at more than $900 million in transactions, while he siphoned off about $35 million for personal expenses.

According to Tabas’ court filings, “BofA held accounts for [Capitol] from at least 2003 to 2009 …. During that time, hundreds of millions of dollars were funneled through the debtor’s bank accounts. Such activity raised a red flag at another banking institution, which restricted any activity in Capitol’s accounts there from 2003 forward.”

Shapiro told investors they were buying interest in a grocery diversion business. But he stopped doing legitimate business and used their money for personal expenses.

One expert previously told the Business Journal that BofA was apparently seeking to avoid trial and public scrutiny in the high-profile case.

“Even if BofA did absolutely nothing wrong, saving tons of legal dollars, bad publicity and a trial makes it good judgment to settle,” said Alan Kipnis, a Fort Lauderdale attorney with Arnstein Lehr who represents banks.

 

THE DETAILS:

Capitol Investments USA CEO Nevin Shapiro pleaded guilty to one count of securities fraud and one count of money laundering.

He admitted that more than 50 business investors lost a total of between $50 million and $100 million. He was sentenced to 20 years in prison and ordered to pay $82.66 million in restitution.

Shapiro’s expenses included $400,000 for floor-seat tickets to Miami Heat games, and $26,000 in mortgage payments for his Miami Beach home, which sold for $5.74 million after his arrest.