U.S. Attorney: Lawyer's Ponzi Scheme "Greed Run Amok"

Firm Founder Arrested in Billion Dollar Ponzi Scam
The Daily Business Review by Jordana Mishory and John Pacenti - December 1, 2009

MIAMI, FL - Whether it was facilitating his $1.2 billion Ponzi scheme, forging judge’s signatures on bogus documents or hiding political contributions, federal prosecutors said Tuesday that the one-time power-wielding attorney had plenty of help perpetrating arguably the biggest scam in Florida history. In a 34-page criminal information filed Tuesday, the U.S. Attorney’s Office indicated that Rothstein’s arrest in the morning hours may not be the last in the case. He had plenty of help targeting his friends and clients of his firm, prosecutors said. The document is peppered with the notation “co-conspirators” among the numerous allegations levied against Rothstein. It confirms that the investigators are looking hard at the fallen attorney’s political contributions to an array of candidates, including Rothstein’s good friend, Florida Gov. Charlie Crist. Acting U.S. Attorney Jeffrey Sloman and top federal officials promised Tuesday that the investigation is far from over. “We are looking at all aspects of this case,” he said. The criminal information charges Rothstein with racketeering conspiracy, money laundering, and mail and wire fraud. It contends he ran the Ponzi scheme out of the Fort Lauderdale office of his now-defunct law firm, Rothstein Rosenfeldt Adler, as well as other locations. The government does not identify the co-conspirators and Sloman refused to elaborate at a Tuesday afternoon news conference. Rothstein pleaded not guilty Tuesday — four weeks after returning to Fort Lauderdale after fleeing to Morocco as investors started to raise questions about his investment business. A conviction on all charges could result in 100 years behind bars. The case is assigned to U.S. District Judge James I. Cohn. The government confirmed through its filing that RRA employees accepted large work-related bonuses shortly after being instructed to make large campaign contributions to political candidates. “Such conduct was designed to conceal the true sources of the contribution and to illegally circumvent campaign finance laws,” according to the filing signed by Sloman and three assistant U.S. attorneys. Prosecutors say Rothstein also used his many corporations to launder illegal funds generated from the Ponzi scheme in order to make political contributions.

Co-conspirators engaged in helping solicit potential investors through misstating facts and falsely assuring them that the funds existed to pay returns on these investments, prosecutors say. The co-conspirators also created and transferred funds between a number of accounts at different financial institutions. Wearing a faded designer T-shirt and blue jeans, Rothstein appeared nonchalant as he stood in handcuffs and leg restraints before U.S. Magistrate Robin Rosenbaum, who ordered him held without bail because he is a flight risk. Assistant U.S. Attorney Paul Schwartz said in court that Rothstein wired $16 million to an account in Morocco before fleeing there on a chartered jet with $400,000 to $500,000 in cash. Schwartz declared the forging of documents with the names of federal judges “goes to the heart of our justice system.” Walking into court, Rothstein pointed at a reporter-packed gallery and later swiveled in his chair surveying the audience that came to observe his first court appearance. Jeffrey Sonn, an attorney with Sonn & Erez who represents several investors and firm clients allegedly fleeced by Rothstein, said the one-time power broker appeared to be in a surreal state. “It was like watching a megalomaniac come to grips that he is going to jail,” said Sonn, who observed Rothstein’s first appearance in court. It did seem he was resigned to his fate. Rothstein waived his right to a grand jury indictment and to contesting detention. At a Miami press conference, Sloman said Rothstein was shockingly brazen in his crimes by forging judges’ names and bilking his own clients. “That is a height of chutzpah,” Sloman said. “This is one of a small handful of cases in which a law firm has been named as a RICO [racketeering] enterprise.” The government contends Rothstein took millions in investor money in a scheme that focused on the sale of fabricated confidential settlements of whistle-blower and harassment legal disputes made by lawyers at Rothstein Rosenfeldt Adler. Rothstein told investors he “rigorously screened” agreements and used the Internet and toll-free telephone numbers to attract cases. He ensured investors that the accounts were “verified on a regular basis.” The government claimed Tuesday that it was all smoke and mirrors. Rothstein created and maintained fictitious banking statements that falsely reflected funds held and fake wire transfers. Rothstein also sought investors to finance loans for firm clients, the government filing claims. The government also noted he forged judicial signatures as part of a scheme to fleece family friend and auto magnate Ed Morse out of $57 million — funds that went into paying the multiyear Ponzi scheme. Rothstein presented Morse a forged court order allegedly signed by a federal district judge saying he won a $23 million judgment. Rothstein allegedly told Morse he needed to post bonds of $57 million in order to obtain the money, which had been transferred to the Cayman Islands in order to avoid payment.

Rothstein, who was permanently disbarred by the Florida Supreme Court last week, also created a false order by a U.S. magistrate judge to avoid repaying the money to Morse.
Rothstein and his co-conspirators used the money to enrich themselves, as well as help run the law firm, prosecutors said. He also lavished gifts including “exotic cars, jewelry boats, loans, cash and bonuses” to firm members as part of a plan to generate worker loyalty and enhance the firm’s prestige. The money was also donated to charities and used to pay police departments for security. “Ponzi scheme funds were also used to provide gratuities to high ranking members of police agencies in order to curry favor with such police personnel and to deflect law enforcement scrutiny of the activities of RRA and defendant Rothstein,” government papers say. The government contends Rothstein continued to bulk up the law firm and used it to legitimize the credibility of the scheme. As for himself, Rothstein lived like a king. He bought expensive properties, fast cars, jewelry, cash and his ownership interest in a number of companies, including the posh Versace Mansion in South Beach. “This case is a glaring example of greed run amok,” Sloman said. “Now the mansions, the Ferraris, the yachts, the law firm, his friends are all gone. He sought to buy power and influence at the expense of his clients and instead has potentially bought himself a lengthy prison sentence.” Rothstein was arrested in the early morning hours by agents who took him to FBI headquarters in North Miami Beach. The arrest comes almost a month after the Ponzi scheme Rothstein had allegedly been running since 2005 began to unravel. His law firm removed him as CEO before it was thrust into Chapter 11 bankruptcy. Creditors filed suits against him seeking their money back. A group of investors claiming losses of $100 million also claimed in a lawsuit that TD Bank and its local officials were part of the scheme. TD Bank has denied the allegations. The circumstances of Rothstein’s arrest indicate he is cooperating with authorities, white-collar criminal defense attorneys say. Miami attorney Richard Sharpstein of Jorden Burt said the only time a defendant tends to waive a right to a grand jury presentment is when an agreement with prosecutors has been reached. “There’s either a deal, a plea negotiation ongoing or some kind of negotiation,” Sharpstein said of the waiver. He also said the fact that Nurik didn’t contest detention indicates that cooperation. Sharpstein said Rothstein could be helping point the finger at others who were involved in the scheme, and showing where funds were kept to help compensate victims. “All roads lead to Scott’s lengthy incarceration and obvious cooperation, because he has no other choice at this point,” Sharpstein said. He said the size of the Ponzi scheme is “off the charts” when it comes to sentencing guidelines, and Rothstein would be facing maximums across the board.

Former acting U.S. Attorney Guy Lewis said Rothstein will most likely be facing a life sentence.
“It’s likely that Scott will be carried out [of prison] in a box,” said Lewis of the Lewis Tein law firm in Miami. He said a judge probably won’t find much sympathy in an attorney at the center of a mammoth Ponzi scheme. “There is one single sole opportunity for him to mitigate his sentence and that is cooperation,” Lewis said. He said a charge by way of information instead of indictment usually indicates a negotiated settlement. Nurik has denied that a deal is in place. Lewis and Sharpstein hypothesized that the government didn’t want Rothstein or Nurik to talk about cooperation while the investigation is under way. Nurik told reporters outside the Fort Lauderdale courthouse that his client was calm and accepting his fate well. “Scott is a strong individual, and he is taking it like a man,” Nurik said. But he acknowledged Rothstein’s mental state is “not good” and that he feels “very remorseful.” He also told reporters that the actual loss to investors was less than $500 million. “Legitimate investors,” he added, would receive their money back. He did not elaborate on how.