Good Timing? How One Bank Cut Its Link to a $1.2 Billion Ponzi Scheme

Abstract:     
On September 17, 2009, Boston Private Financial Holdings (BPFH) sold its Coral Gables, Florida based Gibraltar Private Bank & Trust subsidiary for $93 million. On October 27, 2009, Scott Rothstein fled to Morocco on a private jet before turning himself in to authorities. Mr. Rothstein has subsequently pled guilty to running a $1.2 billion Ponzi scheme with substantial deposits at Gibraltar Bank. Scott Rothstein had a 5 percent equity stake in the group that bought Gibraltar Bank from BPFH. Investors cheered the news of the sale producing a 27 percent one-day return after the Gibraltar Bank sale was released, adding over $100 million of market value overnight. Using a geometric Brownian motion model of the stock price, we find there was almost no chance that this was a random swing in the stock price. This sale, nevertheless, may not shield BPFH from legal liability from Mr. Rothstein’s four-year Ponzi scheme.

Number of Pages in PDF File: 34

Keywords: banks, Bernard L. Madoff, Boston Private Financial Holdings, BPFH, deposits, fraud, Gibraltar Private Bank & Trust, money laundering, Ponzi scheme, SEC, Scott Rothstein, TD Bank

JEL Classification: G01, G12, G13, G14, G21, G33, K13, K14, K22

working papers series