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

Journal of Legal Economics 18(1): pp. 1-26.

Abstract:

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