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

Journal of Legal Economics, Vol. 18, No. 1, pp. 1-26, 2011

34 Pages Posted: 12 Apr 2010 Last revised: 29 Mar 2012

Lou Davis

University of Louisiana at Lafayette - College of Business Administration

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: November 14, 2010

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.

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

Suggested Citation

Davis, Lou and Wilson, Linus, Good Timing? How One Bank Cut Its Link to a $1.2 Billion Ponzi Scheme (November 14, 2010). Journal of Legal Economics, Vol. 18, No. 1, pp. 1-26, 2011. Available at SSRN: https://ssrn.com/abstract=1587743 or http://dx.doi.org/10.2139/ssrn.1587743

Lou Davis

University of Louisiana at Lafayette - College of Business Administration ( email )

Lafayette, LA 70504-0200
United States
(337) 482-5762 (Phone)

Linus Wilson (Contact Author)

University of Louisiana at Lafayette - College of Business Administration ( email )

Department of Economics & Finance
214 Hebrard Blvd., Room 326
Lafayette, LA 70504-0200
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

HOME PAGE: http://www.linuswilson.com

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