Florida Lawyer Rothstein Charged in $1.2 Billion Ponzi Scheme

David Voreacos, Carlyn Kolker and Susannah Nesmith, Bloomberg, December 2, 2009

Scott Rothstein (above), a disbarred South Florida lawyer, pleaded not guilty to U.S. charges alleging he ran a $1.2 billion fraud that paid for his lifestyle and donations to Governor Charlie Crist and other politicians.

Rothstein, 47, faces 100 years in prison if convicted of two counts of wire fraud and three conspiracy charges filed yesterday. Prosecutors say his law firm was a racketeering enterprise that fleeced investors in a Ponzi scheme. Authorities seek forfeiture of $1.2 billion in cash, real estate, luxury cars and boats, jewelry, sports memorabilia and a guitar collection.

“This case is a glaring example of greed run amok, of someone who gave up all principles for a lifestyle he could not afford,” acting U.S. Attorney Jeffrey Sloman said yesterday at a news conference in Miami. “Now, the mansions, Ferraris, yachts, the law firm and his friends are all gone.”

Rothstein made an initial appearance yesterday in federal court in Fort Lauderdale wearing handcuffs, a black T-shirt and blue jeans. He pleaded not guilty, and U.S. Magistrate Judge Robin Rosenbaum ordered him held without bail before a possible trial.

Prosecutors said the Ponzi scheme began in 2005 and bankrolled his Fort Lauderdale firm, Rothstein Rosenfeldt Adler PA. Rothstein and his coconspirators gave to the campaigns of local, state and federal politicians in a way that evaded limits on such donations and disguised the true source of the money, prosecutors alleged in document known as a criminal information. Many of the contributions have since been returned.

Lawsuit Settlements

Rothstein, who waived possible indictment by a grand jury, told investors they could buy discounted stakes in settlements of sexual harassment and whistleblower lawsuits, prosecutors said. He told investors they would collect the full proceeds.

The alleged fraud may be the largest in Miami history, John Gillies, the agent in charge of the city’s Federal Bureau of Investigation office, said at a news conference yesterday.

In another scheme, Rothstein settled a client’s lawsuit without their knowledge, obligating them to pay $500,000, prosecutors said. He created a false court order and forged a federal judge’s signature to show they won the case and were owed $23 million by defendants who hid the money in the Cayman Islands. Rothstein bilked the clients by saying they had to post a $57 million bond to recover the judgment, prosecutors said.

He used the money from the alleged scheme to buy 18 properties in Florida, two in Narragansett, Rhode Island, two condominiums in Manhattan, and an apartment in Brooklyn, prosecutors said. He also had a white Lamborghini, red Ferrari Spider, 304 pieces of jewelry, and a collection of sports memorabilia.

‘Who Is Complicit’

The probe into Rothstein’s co-conspirators is continuing, Sloman said.

“Our investigation is trying to figure who is complicit and who is a victim,” Sloman said.

Rothstein and his co-conspirators told investors that their investments were kept in trust accounts where the funds were verified by independent sources, including a financial adviser, prosecutors said. They fabricated so-called lock letters from an unnamed bank executive stating that account funds were intended only for specific investors.

“Defendant Rothstein and other co-conspirators prepared and used altered bank statements, purportedly issued from a well-established international financial institution, to fraudulently convince potential and current investors that funds had been received from the purported defendant companies and were maintained in trust accounts,” prosecutors said.

TD Bank

Rothstein and his firm had 38 bank accounts at TD Bank and four accounts at Gibraltar Private Bank and Trust that were used in the alleged scheme, prosecutors said.

TD Bank is cooperating with the government investigation, spokeswoman Rebecca Acevedo said in an e-mail statement.

“TD Bank has been transparent in providing information regarding accounts that Mr. Rothstein and his law firm held at the bank,” Acevedo said.

Gibraltar spokesman Peter Whalen didn’t return a call seeking comment yesterday.

Investors sued TD Bank on Nov. 20, saying the bank was the “epicenter” of the alleged fraud. The bank denied the claims.

Rothstein attorney Marc Nurik, who entered the plea on his client’s behalf, didn’t contest the judge’s detention order. After the hearing, Nurik said Rothstein has not decided whether he may plead guilty in the future.

“At this point we are weighing our options,” said Nurik, who added that Rothstein isn’t cooperating with prosecutors. “I am providing a certain amount of limited information to the government.”

‘Remorseful’

Nurik said the “actual loss” from the alleged scheme was less than $500 million, rather than the $1.2 billion cited by prosecutors.

“Scott feels very remorseful about what happened in this situation,” Nurik said. “My client wishes to see that legitimate investors get paid their money back.”

Rothstein agreed to be disbarred in November by the Florida Supreme Court following a state bar association probe.

The 70-lawyer firm he co-founded collapsed after partners there said they found evidence that Rothstein was running an illegal side business. The firm, which sued him on Nov. 2, is being dissolved in U.S. Bankruptcy Court in Fort Lauderdale.

The case is U.S. v. Scott Rothstein, 09-60331, U.S. District Court, Southern District of Florida (Fort Lauderdale).