Could Fraud and Money Laundering Litigation Impede Miami's Espirito Santo's Bank Sale?

Published 30 September 2014

With efforts underway to sell Miami's Espirito Santo Bank and its Portuguese parent, South Florida litigation claiming fraud and money laundering in federal district and bankruptcy courts potentially could give pause to any suitor.

"Our lawsuit was filed long before the bank was up for sale. It is not our intention to impede the sale, but we don't believe they can sell the bank or maximize the sale price without first dealing with our very serious lawsuit," said attorney Edward H. Davis Jr., a partner at Astigarraga Davis in Miami.

Davis represents Vanio Cesar Pickler Aguiar, the court-appointed trustee overseeing the wreckage of Brazil's defunct Bancos Santos.

The lawsuit claims the Miami bank aided and abetted the alleged looting of the South America bank.

The complaint filed in December 2013 was assigned to U.S. Bankruptcy Judge Laurel Isicoff in Miami and claims $116 million in damages. The litigation was unsealed in July.

An unrelated complaint filed Sept. 18 was assigned to Senior U.S. District Judge James Lawrence King in Miami.

Investment company Goldpoint Inversiones S.A. of Panama claims it was defrauded of more than $34.6 million after following the Miami bank's advice to purchase commercial paper from an arm of its Portuguese parent.

Banco Espirito Santo, the parent company, was seized in August by Portuguese regulators, dividing it into a "good" and "bad" bank. Ricardo Espirito Santo Silva Salgado, the president and founder, was named as a formal suspect in a money laundering investigation in Portugal.

Portugal's central bank has since appointed Lloyds Banking Group to prepare Banco Espirito Santo for a speedy sale. Negotiations to sell the bank's investment arm are already underway, according to the Wall Street Journal.

In the meantime, Miami's Espirito Santo Bank, which had $646 million in deposits before the takeover of its parent in Portugal, has hired Atlanta-based FIG Partners to help sell its operations.

Bankruptcy lawsuit

The bankruptcy suit was sealed in February and is an adversarial proceeding nested within the Chapter 15 authority granted to the Brazilian liquidator to pursue third-party claims on behalf of Banco Santos anywhere in the United States.

The bankruptcy complaint alleges Espirito Santo Bank in Miami, with the assistance of a private investment unit it set up in Uruguay, aided and abetted a money laundering scheme by the Ferreira family that controlled Banco Santos.

Subsidiaries of the Brazilian bank controlled by Edemar Cid Ferreira and members of his family used certificates of deposit to collateralize loans received from Espirito Santo Bank into shell companies also owned by the Ferreira family, according to the complaint.

Once the loans were received, the money was transferred to Ferreira family companies in Antigua and Barbuda. The loans went into default.

The 65-page complaint alleges this type of loan fraud is a common vehicle for money-laundering and occurred from 2000-2004 as part of the Ferreira family's illegal diversion of hundreds of millions to its personal holdings from the bank it controlled. Creditors have lost about $1 billion invested in banks owned or linked to Ferreira.

Motion to disqualify

Attorney Gary Freedman, a partner at Tabas, Freedman & Soloff in Miami, represents Espirito Santo Bank. He unsuccessfully moved in January to disqualify Davis' firm from the bankruptcy case.

Freedman said Davis' firm "surreptitiously met with and took the deposition of former high-level employees" of Espirito Santo Bank on matters that previously had been designated as privileged.

Freedman declined comment. He temporarily sealed the bankruptcy case, arguing the pleadings included privileged information from banking audits by federal and state regulators.

In a pending motion to dismiss the bankruptcy suit, Freedman said it took nine years for the plaintiff to bring claims against Espirito Santo Bank in violation of a five-year statute of limitations.

"And having nine years to investigate the Banco Santos fraud has not availed the trustee with the ability to plead a single cognizable claim against ESB," the motion states. "Resorting to statutory references and buzzwords, the complaint is devoid of the requisite specifics allowing him to proceed on the RICO counts and Florida law counts.

The plaintiff strongly contests the statute-of-limitations position. The complaint claims bank fraud, money laundering, mail fraud, wire fraud and civil racketeering violations.

second lawsuit

In the other lawsuit filed by Goldpoint Inversiones in front of King, the plaintiff alleges the Miami bank encouraged it to purchase short-term promissory notes financed by Espirito Santo Financiere S.A., also known as ESFIL, from Oct. 10, 2012, and Feb. 12, 2014.

Goldpoint Inversiones is represented by Miami attorney Laurence E. Curran III. He said offers of about 10 cents on the dollar have been made for the ESFIL commercial paper. He said the bank has not formally responded to the lawsuit.

"I can't imagine the senior people at the Miami branch didn't know the true financial picture of the Espirito Santo Financial Group," Curran said.

The lawsuit named Jorge Espirito Santo, a member of the Espirito Santo banking family, as the financial adviser Goldpoint relied on in making its investments. "Goldpoint would never had made its initial investment in ESFIL commercial paper in October 2012 nor any of the subsequent 47 investments, had the true financial situation of ESFIL and the Espirito Santo Group, and the accompanying risks of investing in ESFIL, been disclosed," he said.

The Financial Industry Regulatory Authority website states Jorge Espirito Santo was fired by the bank July 22 following an allegation of "failure to adhere to internal policies and procedures of the firm relating to customers of firm affiliates."