ponzi scheme

Investigators with the U.S. Attorney's Office for the Southern District of Florida, the Federal Bureau of Investigation and the Internal Revenue Service are now focusing on co-conspirators who assisted now-disbarred Florida attorney Scott Rothstein carry out a massive $1.2 billion Ponzi scheme.

Rothstein allegedly ran a Ponzi scheme from 2005 through November 2009. Rothstein is believed to have engaged in a pattern of racketeering activity through his law firm, Rothstein, Rosenfeldt, and Adler, P.A., located in Ft. Lauderdale, FL. Specifically, it is alleged that RRA was the criminal enterprise through which Rothstein and co-conspirators fraudulently obtained approximately $1.2 billion from investors through bogus investment and other schemes.

Rothstein and co-conspirators, who have not yet been identified, used the funds obtained through the Ponzi scheme for their own benefit. This included, for example, using the money to fund and operate RRA, to make contributions to federal, state, and local political candidates, and generous donations to public and private charitable institutions.

The money was also used to pay for lavish gifts, including exotic cars, jewelry, boats, cash and bonuses to individuals and members of RRA, to hire local police officers to provide security, and to provide gratuities to high ranking members of police agencies. In addition, the money was used to purchase controlling interests in restaurants and other businesses, and to socialize with politicians and sports figures.

According to the authorities, these expenditures were calculated to enhance Rothstein's reputation and ability to solicit potential investors in the Ponzi scheme, provide an air of legitimacy and credibility to RRA, engender loyalty, and deflect law enforcement scrutiny.

"He spent his clients' money on real estate, cars, yachts, politics and philanthropy, all to create the illusion that he, his law firm, and his schemes were hugely successful," says Acting U.S. Attorney Jeffrey H. Sloman. "Now, the mansions, Ferraris, yachts, the law firm and his friends are gone. He sought to buy power and influence at the expense of his clients, and instead has potentially bought himself a lengthy prison sentence."

The extravagent lifestyle of Scott Rothstein has come to an abrupt halt. The Feds are seeking the forfeiture of $1.2 billion, including 24 pieces of real property, numerous luxury cars, boats, and other vessels, jewelry, sports memorabilia, business interests, bank accounts, and more.

Rothstein has been charged with five criminal charges ranging from racketeering to money laundering, mail and wire fraud. If convicted on all counts, he faces a total maximum sentence of 100 years.

Rothstein, 47, of Fort Lauderdale, FL, made his initial appearance in federal court yesterday before U.S. Magistrate Judge Robin Rosenbaum. He was ordered detained pending trial.

Rothstein's attorney, Marc S. Nurik, didn't return calls seeking comment.

The Acting U.S. Attorney for the Southern District of Florida, the FBI and the IRS have jointly announced the filing of a five-count Criminal Information charging disbarred Florida attorney Scott Rothstein with one count of conspiracy to violate the Racketeering Influenced Corrupt Organization (RICO) statute; one count of conspiracy to commit money laundering; one count of conspiracy to commit mail fraud and wire fraud; and two counts of wire fraud.

In addition, the Feds are seeking the forfeiture of $1.2 billion, including 24 pieces of real property, numerous luxury cars, boats, and other vessels, jewelry, sports memorabilia, business interests, bank accounts, and more.

Rothstein, 47, of Fort Lauderdale, FL, made his initial appearance in federal court this morning before U.S. Magistrate Judge Robin Rosenbaum. He was ordered detained pending trial. If convicted, he faces a total maximum statutory term of imprisonment of 100 years (20 years on each count).

Rothstein alleged ran a Ponzi scheme from 2005 through November 2009. Rothstein is believed to have engaged in a pattern of racketeering activity through his law firm, Rothstein, Rosenfeldt, and Adler, P.A., located in Ft. Lauderdale, FL. Specifically, it is alleged that RRA was the criminal enterprise through which Rothstein and others fraudulently obtained approximately $1.2 billion from investors through bogus investment and other schemes.

Rothstein and co-conspirators used the law firm to fraudulently induce investors to loan money to non-existent borrowers based upon promissory notes and requests for short-term bridge loans for business financing; and invest funds based upon anticipated pay-outs from purported confidential civil settlement agreements.

As part of the loan scheme, Rothstein and other co-conspirators solicited investors to loan money to purported RRA clients through promissory notes and short-term bridge loans. Rothstein falsely represented to the investors that the purported clients were willing to pay high rates of return on these loans. In the settlement agreement scheme, Rothstein and other co-conspirators allegedly solicited clients to invest in purported civil case settlement funds. Rothstein and his co-conspirators falsely told investors that these settlements ranged in amounts from hundreds of thousands to millions of dollars.

Rothstein falsely represented to investors that these settlements could be purchased at a discount and would be repaid over time to the investors at full face value. In addition, investors were told that these funds would be held in the trust account of RRA. In both instances, the Information alleges that the purported investment vehicles never existed, but were part of an elaborate Ponzi scheme in which new investors' money was used to repay money owed to earlier investors.

According to the authorities, to execute this four-year fraud scheme, Rothstein and his co-conspirators allegedly used multiple bank accounts at TD Bank, N.A., Gibraltar Private Bank and Trust, and other financial institutions to deposit and launder investors' money. As well, to perpetuate and conceal the fraud, Rothstein and his co-conspirators created and caused the creation of false bank documents, false on-line bank account information, and false settlement agreements and promissory notes, which were shown to investors as proof that the settlement and loan monies existed. In fact, however, there were no settlement funds or loan clients and the bank accounts only contained "Ponzi" scheme funds.

To further fund the Ponzi scheme, Rothstein and other co-conspirators allegedly defrauded clients of RRA in a civil suit initiated by RRA on their behalf as plaintiffs. Without the clients' knowledge, RRA settled the lawsuit in favor of the defendant, thereby obligating the clients to pay $500,000 to the defendant in the civil lawsuit. To perpetuate and conceal the fraud, Rothstein and other co-conspirators created a false federal court order, purportedly signed by a Federal District Court Judge, stating that the clients had won the lawsuit and were owed a judgment of approximately $23 million. The false court order also stated that the defendant in the civil suit had transferred the funds to the Cayman Islands to avoid paying the judgment. Rothstein and other co-conspirators falsely advised the clients that to recover those funds, the clients were required to post bonds. In this way, Rothstein caused the clients to wire transfer approximately $57 million to a trust account he controlled, purportedly to satisfy the bonds.

Rothstein and other co-conspirators used the funds obtained through the Ponzi scheme for their own benefit. This included, for example, using the money to fund and operate RRA, to make contributions to federal, state, and local political candidates, and generous donations to public and private charitable institutions. The money was also used to pay for lavish gifts, including exotic cars, jewelry, boats, cash and bonuses to individuals and members of RRA, to hire local police officers to provide security, and to provide gratuities to high ranking members of police agencies. In addition, the money was used to purchase controlling interests in restaurants and other businesses, and to socialize with politicians and sports figures. According to the authorities, these expenditures were calculated to enhance Rothstein's reputation and ability to solicit potential investors in the Ponzi scheme, provide an air of legitimacy and credibility to RRA, engender loyalty, and deflect law enforcement scrutiny.

"Attorneys, like elected officials, hold a special position of trust in our society, and owe a corresponding duty to deal honestly with their clients and to promote their clients' best interests," says Acting U.S. Attorney Jeffrey H. Sloman. "This attorney breached that duty and stole approximately $1.2 billion from clients and investors. He spent his clients' money on real estate, cars, yachts, politics and philanthropy, all to create the illusion that he, his law firm, and his schemes were hugely successful. Now, the mansions, Ferraris, yachts, the law firm and his friends are gone. He sought to buy power and influence at the expense of his clients, and instead has potentially bought himself a lengthy prison sentence."

Added John V. Gillies, Special Agent in Charge of the Miami Office of the FBI: "Scott Rothstein appeared to be a charismatic, reputable attorney one could trust to invest one's money and make a sizeable profit. We now know it was all smoke and mirrors. Rothstein used investors' monies to pay for his extravagant lifestyle. The FBI and its partners will aggressively investigate people who swindle money from others, whether it involves more than a billion dollars or hundreds of thousands of dollars."

Daniel W. Auer, IRS Special Agent in Charge, says "We will continue to move forward with this investigation, wherever it leads, and we will bring to justice those who defrauded the American public and members of our community out of their hard-earned money."

Sloman commended the investigative efforts of the FBI and the IRS in connection with this investigation and thanked the Department of Justice's Organized Crime and Racketeering Section for their assistance. Sloman also noted the cooperative efforts of the Securities and Exchange Commission, Miami Regional Office. The case is being prosecuted by Assistant U.S. Attorneys Lawrence LaVecchio, Paul F. Schwartz, Jeffrey N. Kaplan, and Alison Lehr.

Rothstein's attorney, Marc S. Nurik, didn't return calls seeking comment.

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, including one for the

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.

Bernie Madoff's last home may have sold strong, but it looks like the momentum is fading. His home in the Hamptons beat the listing price and ultimately moved for more than $9.4 million. Unfortunately for his victims, interest in his Manhattan penthouse and Palm Beach estate isn't as strong. The prices for both have been cut, as the Ponzi schemer moves from news to history. Both homes have been on the market for only two months.

The Manhattan home, on the Upper East Side, offers 4,000 square feet which the broker, Sotheby's International Realty, says is "perched atop a distinguished white-glove prewar cooperative." Originally offered at $9.9 million, the asking price has been slashed by $1 million. So, if you're looking for some new digs in the city, this should be perched atop your list. A 10 percent price drop after only two months in the game means that you could probably work the price down a little bit further. If you were a Madoff investor, think of it as recouping some of what was so wrongly taken from you.

The situation in Palm Beach, Florida isn't much better. The discount is only 7 percent, with the price plunging from $8.49 million to $7.9 million according to the Corcoran Group, which is handling the sale. This home is billed as "a return to classic Florida island living ... when Palm Beach was a less manicured tropical paradise." What does that mean? Does classical Florida island living have anything to do with defrauding the neighbors?

Madoff, now a resident of Butner, North Carolina, believed that the Manhattan apartment was worth only $7 million. He pegged the Palm Beach residence at $11 million.

When both properties move, the proceeds will go to Madoff's victims. Of the $65 million, roughly, that he took, $1.4 billion is said to have been recovered. Even when compared to the investor losses identified, $21.2 billion, it's but a drop in the bucket. The auction scheduled for Saturday may help a little bit, with Bernie's Mets jacket and Ruth's golf clubs going under the gavel.

Earlier I wrote about the Scott Rothstein Ponzi scheme in Florida but now another news story indicates that the fallout extends beyond just Rothstein's own properties. Casa Casuarina, Gianni Versace's South Beach mansion, is also caught in the crossfire. Rothstein, who is part owner of the property, has been accused of swindling investors in a Ponzi scheme which took in hundreds of millions of dollars.

Just a few weeks ago executive chef Wolfgang Birk moved from Washington D.C. to South Beach to take over the new Italian restaurant at Casa Casuarina but on Monday he was escorted out of the building by police along with the mansion's other employees. The restaurant was supposed to open this week. The employees are out of work and their payrolls will be hung up in court while Rothstein's complicated legal tangles are sorted out. Rothstein's Bova Group had taken over management of the entire property, including the hotel, restaurant, nightclub, and the private membership club. After Rothstein's illegal dealings were discovered Peter Loftin, Casa Casuarina's majority owner, asked that anything associated with Bova Group be taken out of the property in order to protect his property from anyone coming after Rothstein. An article on the Daily Pulp says that Loftin is looking into bringing in a new management company in order to reopen the property.

Rothstein had $1 million wedding at the property last year with Florida governor Charlie Crist in attendance. He has bought a small stake in the mansion and has left behind hundreds of thousands of dollars in unpaid bills relating to renovations for the restaurant and other areas.

Tony Bova, Rothstein's partner in the restaurant business also managed Bova Prime in Fort Lauderdale and was not part of the Ponzi schemer's machinations. The future of that restaurant is also uncertain and it could end up closing.

Is Florida the home of the Ponzi scheme. NBC Miami brings in the story of yet another Florida Ponzi schemer who has had his toys seized by federal agents. Fort Lauderdale lawyer Scott Rothstein has not been arrested yet but the IRS has filed documents saying that he has been running a scheme since 2005, swindling hundreds of millions of dollars from investors. The filing says that Rothstein and others created false bank records and created legal settlements that did not exist. According to the Sun-Sentinel, the documents show that Rothstein's clients believed they were buying blocks of structured settlements derived from sexual harassment and labor-related cases in which confidential agreements had been reached. As with other Ponzi schemes new investor money was used to pay previous investors.

Federal agents visited Rothstein's $6.5 million mansion and hauled away his sports car collection and yacht and placed liens on several of his properties. The video from NBC Miami shows flatbed trucks taking away hisRolls-Royce Phantom and Bentley convertible. A red Ferrari was taken from his office and his 80-foot yacht Kimberly, named for his wife was sailed off to a collection agency. So far at least one lawsuit has been filed by investors seeking to get back some of the money they have lost.

The latest in the Bernie Madoff saga is actually a bit of good news for his myriad victims. Reuters reports that they will receive more than $534 million in payouts, according to court-appointed trustee Irving Picard, who is trying to recover Madoff's assets.

The sum is less than one-eighth of the $4.44 billion of claims that Picard has so far deemed valid and is less than 3% of the $21.2 billion of losses suffered by holders of 2,335 Madoff accounts. These losses are up from the $13 billion the government estimated in June, when Madoff was sentenced to 150 years in prison.

Picard, a partner at the law firm Baker & Hostetler LLP, said he has reviewed 2,861 direct customer claims, allowing 1,558 and rejecting 1,303. He said 15,974 customer claims were submitted and noted that he has recovered $1.4 billion of Madoff assets, an amount that should reach $1.5 billion by year end.

Picard has filed lawsuits to recover $15 billion from Madoff investors he calls "net winners." Of the 4,903 accounts at Madoff's firm on December 11, 2008, when Madoff was arrested, 2,568 received more money than they deposited, he said.

Picard also said he will pursue the recovery of $7.2 billion from the estate of billionaire philanthropist Jeffry Picower, who recently drowned in a swimming pool at his Palm Beach, Fla., home following a heart attack.

The Securities Investor Protection Corp, a federally chartered agency that supervises the liquidation of brokerages, has been "the only source of distributed funds" to victims so far, agency president Stephen Harbeck said, adding that the $534.25 million of committed advances is more than in the SIPC's 321 combined prior liquidations since 1970. Federal law limits SIPC protection to $500,000.

The world's most accomplished Ponzi schemer -- right up until he got caught, that is -- finally lost his beach home. Bernie Madoff's Montauk house moved for $9.41 million, according to the U.S. Marshals Service, more than the $8.75 million for which it was listed. It sold on Friday, and the buyer is not being named. It only took a month to make the transaction happen.

Joseph Guccione, U.S. Marshal for the Southern District of New York, calls this "another step forward for the government," and though he didn't mention anything about the victims, one assumes that it's progress for them, too. After all, it would be nice if they got even a taste of this cash.

Several bidders tried to get their hands on Madoff's former home, which measures 3,000 square feet and has four bedrooms and three bathrooms. The losers can have another shot at Madoff glory, though, as properties in New York and Palm Beach, Florida, are listed. The former is on the market for $9.9 million, and the latter is listed for $8.49 million.

Madoff was unable to take a last walk through the halls of the Long Island residence, of course, because he's otherwise detained committed in Butner, North Carolina. But, he's adapting, having already thrown down on the block and earned himself some props.

Last month, J. Ezra Merkin Ascot Partners LP sold his art collection, which included a hefty dose of works by Mark Rothko, for $310 million. The buyer still isn't known, which is the norm in the art market. But, there are some breadcrumbs along the way which Bloomberg News considered worth following. Interestingly, Merkin's Ascot Partners LP had invested a considerable amount of cash with Ponzi scam artist Bernie Madoff.

Along the way, Merkin's agent, TLIA, LLC, picked up $26.5 million of the $37.5 million in fees. The company is registered to a retired art collector and advisor, Ben Heller, age 83. He isn't talking. PaceWildenstein, which represents the Rothko estate, nabbed the other $11 million. Again, no comment. Yet, TLIA's piece of the commission is a bit high, according to art advisor Liz Klein, but she notes that answers are impossible without the full set of facts. Given the generally silent art market, we're unlikely to get all the facts anytime soon.

Like Merkin, Heller was a Madoff victim - $3.4 million in a charitable trust and $10 million of his own cash went down the drain.

Madoff is far from the only Ponzi schemer around. A court-appointed receiver is looking to sell off a wine collection, a private jet and two Cadillacs as part of a way to pay back victims of an alleged Ponzi scheme that hundreds invested at least $68 million in since 2004. According to court documents, the assets belong to several people, including businessman William Wise whose Millennium Bank on the island of St. Vincent is said to have sold fake certificates of deposit at much-higher-than-average interest rates. The SEC says the Millennium deposits, rather than being used for banking investments, were sent to an account in California that served as a personal piggy bank for the defendants and from which they made modest Ponzi payouts to investors.

Receiver Richard Roper has made a request to the U.S. District Court in Texas to go after $250,000 in wine Wise allegedly has stored in St. Vincent and elsewhere, several cars including a pair of 2009 Cadillac Escalades and a $5.7 million Challenger 601-1A jet named "Spirit of Millennium" (could this be it here?) Newsday reports that Judge Reed O'Connor in Texas already granted the SEC's request for an asset freeze and emergency relief for investors.