Scott Rothstein Arrested by Federal Authorities in Florida
Scott Rothstein, the disbarred Florida-based attorney who is alleged to have operated a massive Ponzi scheme, was arrested this morning by Federal authorities. He has been charged with five criminal counts, including conspiracy to violate the Racketeering Influenced Corrupt Organization (RICO) statute; conspiracy to commit money laundering; conspiracy to commit mail fraud and wire fraud; and two counts of wire fraud.
If convicted, Rothstein faces a total maximum statutory term of imprisonment of 100 years (20 years on each count).
Rothstein is believed to have operated a massive Ponzi scheme since 2005. Rothstein's law firm, Rothstein, Rosenfeldt and Adler, P.A., was located in Fort Lauderdale, Fla.
Rothstein's attorney, Marc S. Nurik, didn't return calls seeking comment.
According to an amended complaint filed on November 27th in the U.S. District Court, Southern District of Florida by the U.S. Attorney's office, Rothstein solicited clients to investment in settlements, into which putative plaintiffs in civil cases involving sexual harassment and other labor-related issues, had entered into confidential settlement agreements with putative defendants. The potential investors were told that these settlements, which existed in blocks ranging from hundreds of thousands to millions of dollars, could be purchased at a discount and repaid to the investors at face value over time. Clients who agreed to invest were directed by Rothstein or others to wire transferred funds to a trust account managed by Rothstein's firm.
For example, in September 2009, one potential investor was told that he could purchase a settlement valued at $450,000 for $375,000 which would be repaid in increments of $150,000 per month for the following three months, amounting to a yield of 20% over the period (or an annual percentage yield in excess of 80%). The FBI has determined that the investment scheme never existed and was a fraud. In reality, the investment was nothing more than a Ponzi scheme in which new investor money was used to pay previous investors, according to the civil complaint.
Rothstein used the investors' funds to fund bank accounts, purchase luxury vehicles and numerous homes, and an equity investment in Gianni Versace's South Beach mansion, called Casa Casuarina. Rothstein also used $5 million of his investors' funds to buy a luxury condominium at One Beacon Court (151 East 58th Street), coincidentally the same building where now-imprisoned attorney Marc Dreier owned a condo, and also the complex that houses Bloomberg LP. Rothstein was also brazen enough to o donated some of the funds to political campaigns.
The U.S. Attorney in Florida is suing for forfeiture of various real and personal properties, acquired, owned, obtained, funded or purchased in whole or part by Rothstein. The government is also seeking to seize numerous vehicles, including a Bentley convertible, multiple Ferrari's, several Rolls Royce's, a Hummer, a Bugatti, a Maserati and a Lamborghini. Also mentioned in the civil action are multiple bank accounts, several of which are overseas, including $16 million in cash at a Banco Populaire in Morocco.
The government is also going after Rothstein's equity investments in numerous restaurants including Bova Ristorante, Bova Cucina and Bova Prime, Cafe Iguana in Pembroke Pines, Fla. in addition to many campaign contributions he made totaling more than $151,000. Donations made to the Republican Party of Florida and a $9,600 campaign contribution made to the Florida Governor Charlie Crist, have already been voluntarily turned over to government authorities. Also targeted are Rothstein's charitable contributions, including a $800,000 charitable donation made to Joe DiMaggio Children's Hospital and a $1 million donation made to Holy Cross Hospital
Alison W. Lehr, the Assistant U.S. Attorney which filed the civil complaint, declined to comment. Alicia Valle, Special Counsel to the U.S. Attorney in Florida, was not able to comment at presstime.