Scott Rothstein goes in for 50 years for $1.2 billion Ponzi Scheme

Scott Rothstein - Employment discriminationPhoto by flazingo_photos

Founding partner Scott Rothstein at Rothstein Rosenfeldt Adler (“RRA”) sent out an emergency email on October 17, 2009 to his lawyers.  He needed to know for “a very powerful client”, and quickly, which countries did not have extradition treaties with the United States or Israel.  This ‘client’ – an Israeli citizen who had renounced his United States citizenship – was about to be indicted for fraud, money laundering, and embezzlement.  Time was off the essence, he urged, who ended the email with his customary sign-off: “Love ya, Scott”.

The RRA lawyers responded, informing Rothstein that Morocco was the only country fitting that criteria.  Less than two weeks later, that ‘client’ boarded a chartered plane to Morocco with several million dollars in a duffel bag and his $1.4 billion Ponzi scheme collapsing.  That ‘client’ was Scott Rothstein himself.

The revelation is one of many in Chuck Malkus’s book, The Ultimate Ponzi: The Scott Rothstein Story.  Released in 2013, the book provides a better look into how a previously unknown south Florida employment lawyer came to exuberance and greed in what Malkus describes as “one of the most ruthless Ponzi schemes in United States history.”

According to the book, he had a $1 million wedding at the Versace Mansion in Miami and possessed over 200 luxury timepieces. He also owned a pair of $1.6 million Bugatti sports cars, and spent between $50,000 and $60,000 per month on prostitutes.

Rothstein’s fortunes were the legal equivalent of financial derivatives. Instead of selling financial securities,  Rothstein sold shares in sex and employment discrimination settlements, which were his specialty. To further propagate his scheme, he created false documents to show funding flows and court filings. His story had other sordid elements as well. A lawyer of his was murdered after the scheme was uncovered, and he is also said to have had close connections with the South Florida mafia.

The Florida Sun-Sentinel reported that four days later, he texted partners at his law firm, saying he wouldn’t see them again. “Sorry for letting you all down,” he wrote. “I am a fool. I thought I could fix it, but got trapped by my ego and refusal to fail, and now all I have accomplished is hurting the people I love. Please take care of yourselves and please protect my wife. She knew nothing. Neither did she, nor any of you deserve what I did. I hope God allows me to see you on the other side. Love, Scott.”

While Rothstein was out of the country, a Florida newspaper confirmed that investors had contacted federal prosecutors about his investment business, and that his law firm had contacted outside counsel.

Rothstein returned from Morocco on Tuesday, Nov. 3 and apparently met with federal prosecutors. Local investors filed their first lawsuit the same day, alleging losses of $3 million. The FBI and the IRS raided the offices of his law firm on Wednesday, Nov. 4. Documents filed by the IRS on Nov. 9 alleged a Ponzi scheme dating back to 2004.

In 2010, Rothstein was sentenced to 50 years for running a $1.2 billion Ponzi scheme after his return to the United States. The reduced sentence was handed down in exchange for cooperating with authorities to nab wanted criminals, which included several professional hitmen and gang members in South Florida.

The FBI estimates the loss to be up to a billion dollars from lucrative whistle-blower and employment discrimination cases. The investors would make up-front cash payments to individuals owed money from the court cases to buy the right to collect the full amount of the settlements later. The investor was guaranteed a minimum of 20 percent investment returns in as little as three months.

Photo by flazingo_photos

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