Miami, FL – Federal authorities on Monday were conducting a criminal investigation into high-profile Fort Lauderdale attorney Scott Rothstein, who is suspected of operating a Ponzi scheme by selling tens of millions of dollars in fabricated legal settlements to investors.
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Rothstein — known for giving hundreds of thousands of dollars to state politicians and as the co-sponsor of a golf-tournament benefit with former Gov. Jeb Bush on Friday — hired a lawyer over the weekend from his own firm.
Rothstein was out of town and could not be reached for comment. News of the investigation spread from South Florida to Tallahassee.
“Nobody can really be surprised by this spectacular fall — the question wasn’t whether it would happen, but when,” said Michael Goldberg, a Fort Lauderdale attorney who specializes in serving as a receiver for the courts in Ponzi cases. “How Rothstein was able to generate this kind of money practicing law seemed impossible to anyone familiar with law firm economics.”
On Monday, political candidates and parties that received campaign contributions from Rothstein and his law firm were debating whether to return the money.
The state’s chief financial officer, Demoractic gubernatorial candidate Alex Sink, said she was giving back an unspecified amount of donations. Records show she received $2,050.
“These are very serious allegations,” Sink’s campaign said. “The campaign is returning or donating to charity Mr. Rothstein’s and his wife’s personal contributions, as well as contributions from the account of his law firm and AAMM Holdings, LLC.”
Rothstein, his wife and employees and relatives of employees of his law firm have contributed $100,550 to Republican Gov. Charlie Crist’s Senate campaign since the governor announced in May, according to campaign finance records. Rothstein’s law firm is one of Crist’s top contributors.
Also on Monday, a former top federal prosecutor in South Florida representing Rothstein’s firm filed a motion asking a state judge to have an independent receiver figure out the potential losses suffered by Rothstein’s investors.
Rothstein “has declined to resign despite the asserted and substantial irregularities because he purports to hold a 50 percent share of the law firm,” states a complaint filed in Broward Circuit Court by Kendall Coffey, the former U.S. attorney in Miami, who was hired to represent the Rothstein Rosenfeldt Adler firm in Fort Lauderdale.
The complaint seeks an emergency appointment of a receiver and dissolution of the firm.
The complaint states: “It is with surprise and sorrow that the attorneys of Rothstein Rosenfeldt Adler, P.A., have learned that Scott W. Rothstein, the managing partner and CEO of the firm, has, according to assertions of certain investors, allegedly orchestrated a substantial misappropriation of funds from investor trust accounts that made use of the law firm’s name.”
“A review of the firm’s records undertaken over this past weekend indicates that various funds unrelated to the direct practice of the law cannot be accounted for,” the complaint further says, “circumstances suggesting that investor money may have been misused by Rothstein who controlled all such accounts.”
But after questions from Broward Circuit Judge Jeffrey Streitfeld, Rothstein’s partner, Stuart Rosenfeldt, agreed to consider taking on the financial investigation himself. Streitfeld told Coffey to file a new motion in the morning and that he will hold a hearing at 4:30 p.m. Tuesday. By that time if Rothstein hasn’t surfaced to object, Streitfeld indicated that Rosenfeldt could fulfill the role of what he had intended for a receiver.
The firm says it will continue to represent clients, asserting that their trust accounts were not affected by Rothstein’s alleged scheme. It was founded by Rosenfeldt and Rothstein in 2002 and currently employs more than 70 lawyers.
“I’m very sad,” Rosenfeldt said after the hearing. “I’m just very sad to see a beautiful thing we built fall apart.”
Rosenfeldt said he first learned of the allegations when friends of Rothstein’s contacted him Friday afternoon to report that Rothstein had stlen money from them. He said he had since exchanged some text messages with Rothstein, but Coffey cut him off from describing them in detail.
Charles Jones, a spokesman hired to represent the firm Monday, said that the law firm is open for business. “Everything is running as normal, employees are handling client issues,” he said.
Still, suspicion swirled around the law firm on Las Olas Boulevard, with rumors flying about whether Rothstein would return to town.
According to the complaint filed Monday, a review of the law firm’s records undertaken this past weekend showed various funds controlled by Rothstein could not be accounted for. “Some investors allege that defendant Rothstein may have been fabricating nonexistent structured legal settlements for sale to investors,” the claim states.
Rothstein’s alleged misconduct was done without any knowledge of any other attorneys at the firm, the complaint says. “And, in fact, Rothstein actively endeavored to hide the existence of the scheme,” it says, noting that Rosenfeldt and other lawyers only learned about the allegations several days ago.
Broward Chief Judge Vic Tobin sent an e-mail at 6:45 a.m. to judges about the Rothstein case.
`’I learned of some very distressing news yesterday. . . ,” Tobin wrote. “Whoever draws the case try to set the motion today because of the amount of clients and money involved. Also, if you have a case with the firm, please be patient. I don’t know if the lawyers will come or not and if they do come, there is no money at this point to go forward with the case or pay firm employees.”
Tobin also wrote that there may be “multiple filings of receivership motions” and that creditors may also file a motion.
News crews were outside the law firm’s Las Olas Boulevard office in Fort Lauderdale Monday. They were not allowed access to the firm’s office. No one was answering the phone at the firm.
Also Monday, Fort Lauderdale Police Chief Frank Adderley suspended the round-the-clock security detail at Rothstein’s Fort Lauderdale home. Rothstein hired off-duty police officers in April — at a charge of $45 an hour — to guard his home 24 hours a day, police spokesman Sgt. Frank Sousa said.
Sources told The Miami Herald that the FBI and other federal investigators are examininga Rothstein-controlled investment company run under the mantle of his law firm.
Rothstein is suspected of selling “structured settlements” in multiple cases, ranging from hundreds of thousands of dollars to millions of dollars, sources said. Rothstein allegedly claimed that his law firm anticipated the settlements and that investors who bought them at a discount stood to make from 20 percent to 52 percent returns.
He also allegedly dipped into the trust accounts of investors to pay off earlier investors and also himself, sources said.
Rothstein could not be reached for comment on his cellphone or by e-mail Sunday.
“Everything is running as normal, employees are handling client issues,” he said.
Marc Nurik said he stepped down as a lawyer from the firm in recent days at Rothstein’s request to represent Rothstein individually.
Nurik would not elaborate on the nature of the allegations Sunday, but said that rumors that Rothstein had fled town are false.
It amazes me over and over and over, how these individuals remain so entrenched in their criminal behaviour, that they remain oblivious of their overly expected downfall.
I know a few heimsher people that lost money by this Ponzi Scheme once again we trusted people with crazy returns without doing proper research
Since when are we such believers (a friend of mine told me a interesting story about his 74 year old grandmother who called Kupat Hair for a shidduch for a grandson and hit option 4 (for children) by mistake and is just had twin boys at 75 year old) since when are we so stupid that anyone could sell us the Brooklyn bridge
We hear that some the biggest baalei tzedoko and recognizable names in the heimishe oilam lost a lot of money.
Most of the money here was from Brooklyn.
Olam Hafuch Raitah…
unbelievable, the biggest chutzpah is that the money solicited from the heimishe oilam in Brooklyn was done by heimeshe gentleman who are well respected and this is not the first time that they have burned peoples money– be ehrlich and not naive SHUVU return their money
The outrage is that people still believe there are ways to do no work and still make a living.