Miami-Dade County

July 15, 2014

Feds to refund about $50 million to Ponzi schemer Rothstein’s victims

The U.S. attorney’s office unveils a plan that combined with other legal efforts will fully pay back burned investors of Ponzi schemer.

When everyone was crunching the staggering numbers after convicted Ponzi schemer Scott Rothstein stole more than $360 million from hundreds of investors, no one predicted they would be made whole.

Most thought burned investors might get dimes on the dollar if they were lucky — the pitiful compensation for victims in many Ponzi schemes.

But five years after one of Florida's biggest financial frauds, federal prosecutors announced Tuesday that authorities have recovered about $50 million from the seizure and sale of Rothstein's luxurious waterfront homes, exotic sports cars and other expensive extravagances.

That’s not all the chips in the pot, however. The U.S. attorney’s office said that “full restitution to the qualifying victims is possible through a combination” of selling off Rothstein’s ill-gotten assets and other legal efforts.

Prosecutors said a bankruptcy trustee for Rothstein’s defunct Fort Lauderdale law firm and other attorneys representing investment victims in civil lawsuits have recovered the rest of the lost money — mostly from the deep pockets of the disgraced lawyer's former banks, Toronto Dominion and Gibraltar.

“This case demonstrates our commitment to work tirelessly to return stolen assets to the victims of the financial crimes perpetrated by Scott Rothstein’s criminal network,” said U.S. Attorney Wifredo Ferrer in a statement.

Under a settlement, the federal government will distribute $28 million from the forfeiture in Rothstein’s criminal case to hundreds of investment victims on a pro-rated basis and another $21 million will be turned over to some of the creditors of the Rothstein law firm’s bankruptcy estate.

The settlement agreement, which still must be approved by U.S. District Judge James Cohn and the federal bankruptcy court, will be carried out by a receiver, Fort Lauderdale attorney Michael I. Goldberg.

“It is truly a phenomenal result in a Ponzi scheme case,” Goldberg said, crediting the “team effort” of federal prosecutors and bankruptcy lawyers over a nine-month negotiation. “It’s a very good day for the victims of Scott Rothstein’s fraud.”

Goldberg said that as the receiver, he already has enough money to pay the general unsecured creditors in full, referring to Rothstein’s investors from Florida, New York, Texas and other states.

That outcome would exceed the ongoing recovery effort of notorious Wall Street Ponzi schemer Bernard Madoff. The Wall Street Journal reported last week that a trustee recovered $9.82 billion of an estimated $17.3 billion in lost principal and has paid out about $5 billion to date.

Goldberg said he has paid out about $130 million so far to Rothstein’s victims with money recovered through the long-running efforts of bankruptcy trustee Herbert Stettin and his team at the Berger Singerman law firm in Fort Lauderdale. They also received tens of millions of dollars in fees for their work.

Goldberg said the additional money from the U.S. attorney’s office will go toward paying classes of creditors with lower-ranking claims.

In 2010, Cohn, the federal judge, sentenced Rothstein to prison for 50 years after he pleaded guilty to racketeering and other charges stemming from his sale of $1.2 billion in fabricated legal settlements to investors. Cohn also ordered the convicted con man to repay $363 million to some 320 victims of his investment racket.

Cohn allowed preferential treatment for about 40 clients of Rothstein's former law firm who received legal services. He noted they were different from the mostly wealthy investors, and should collect the actual money they had left in the Rothstein Rosenfeldt Adler law firm’s bank accounts — about $1.5 million.

At the time, prosecutors cautioned the judge that while they had seized about $60 million worth of Rothstein's assets, including his Fort Lauderdale Spanish-style mansion, fleet of Ferraris and other luxury cars, bank accounts, jewelry and watches, there would not be much bounty to distribute to all his victims. After liquidation, they warned there might be an estimated $25 million to $30 million to redistribute to former clients, investors and other creditors.

Assistant U.S. Attorney Lawrence LaVecchio told Cohn at the time that he wished the government had enough money to repay all of Rothstein's victims in full, but “practical realities” intervened.

“It's a very limited pot,” said LaVecchio, who has worked on the sprawling case with prosecutors Jeffrey Kaplan and Paul Schwartz, as well as FBI and Internal Revenue Service agents.

Although the prosecutor’s assessment was accurate at the time, Rothstein’s investment victims eventually benefited from the aggressive legal actions taken by the bankruptcy trustee’s team and other civil lawyers. They have won settlements and damages totaling hundreds of millions of dollars from TD Bank and Gibraltar, where Rothstein held trust accounts for his clients and investors.

That money, the bulk of the repayment, will continue to come in, along with “claw-back” funds from other investors who wound up profiting in the scheme.

Rothstein, who has testified in both civil and criminal proceedings, has left a wake of destruction. His 70-attorney law firm fell after the collapse of his Ponzi scheme in October 2009. Also, about 25 other defendants, including fellow partners Stuart Rosenfeldt and Russell Adler, have been convicted on fraud, money laundering or other charges.

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