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Posted on Tuesday, 11.03.09

SCOTT ROTHSTEIN

Scott Rothstein allegedly ran covert investment scheme

Scott Rothstein promised investors gigantic returns built on legal settlements in sex-discrimination and whistle-blower cases, according to documents.

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Feds probe prominent Broward attorney Scott Rothstein

BY SALLY KESTIN, JON BURSTEIN AND BRITTANY WALLMAN

Sun Sentinel

For years, Broward County's socially and politically connected marveled at the astonishing success of Fort Lauderdale lawyer Scott Rothstein and wondered: How does he do it?

Answers may have begun to emerge Monday, even as the law firm Rothstein built and the image he cultivated as an altruistic philanthropist crumbled.

According to a lawsuit filed against him by his firm and its co-founding partner, Rothstein was running a covert investment scheme on the side, and may have walked away with ``substantial sums'' put up by investors.

The scope of the investment business is not known, but the Fort Lauderdale securities litigation firm Sonn & Erez said Monday it was investigating claims that Rothstein ``may be involved in a $100 million investment that imploded.''

Rothstein attracted investors by promising huge returns and selling settlements he said he had reached in sex-discrimination and whistle-blower cases, according to documents he gave to prospective clients.

But according to the lawsuit filed against him, at least some of those settlements did not exist, and investors say money they invested with Rothstein is now missing.

Alan Sakowitz, a Miami lawyer and developer, told The Sun Sentinel he had met with Rothstein as a potential investor three times beginning in August, but quickly became suspicious.

``I was convinced it was all a Ponzi scheme and I notified the FBI in detail how Scotty was hiding behind a legitimate law firm to peddle fake settlements,'' Sakowitz said.

Rothstein's confidential offerings obtained by The Sun Sentinel describe extremely high-paying but largely unregulated investment opportunities. One from August offered investors a 36 percent return in three months, far more than the troubled stock and bond markets.

Those documents say Rothstein's firm sought out sexual-discrimination and whistle-blower cases, and used former cops to dig up incriminating evidence.

Sakowitz said Rothstein boasted of having sophisticated eavesdropping equipment and that former cops would sift through potential defendants' garbage. With compromising evidence in hand, the firm urged the targets of the claims to pay a settlement without a public lawsuit.

``These types of cases are highly confidential and, thus, quite lucrative because the defendants place a high premium on keeping the details of the case confidential,'' one investment offering said.

Once a settlement was reached, the defendant typically preferred to stretch out the payments over time. Rothstein offered clients a way to avoid waiting for the money by giving them a smaller lump sum up front, Sakowitz said.

Investors funded the payments to clients and would receive the full settlement amount in three to 12 months, with a guaranteed minimum 20 percent return, according to the investment offering.

Stuart Rosenfeldt, Rothstein's co-founding partner, said Monday he feared that Rothstein had destroyed the reputation of the firm that just last week was considered a legal powerhouse in South Florida.

``I think we're going to go down in history in the same breath as [Bernie] Madoff,'' he said.

Sun Sentinel staff writers Peter Franceschina and Harriet Brackey contributed to this report.

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