U.S. Attorney: Rothstein Ponzi Money Went To Politicians, Charities; ‘High-Ranking’ Police Officers Received ‘Gratuities’

In a criminal information and news release dripping with the word “co-conspirators,” federal prosecutors, the FBI and the IRS said Ponzi proceeds were used to grease wheels in law enforcement and pollute the worlds of business and politics in South Florida.

Former attorney Scott Rothstein of Fort Lauderdale was arrested for racketeering yesterday. He was arraigned, denied bail and jailed. Residents are waiting for other shoes to drop in what is shaping up to be a scandal of monumental proportions.

No co-conspirators were named immediately. But even police officers were involved and received “gratuities,” prosecutors said.  Politicians received donations designed to evade campaign-finance laws.

One crime targeted at clients of Rothstein’s law firm involved $57 million, fraudulent legal documents, forgeries and a claim a lawsuit had been won when it actually had been settled against the interests of the clients, prosecutors said.

“To perpetuate and conceal the fraud, defendant 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. Defendant Rothstein and other co-conspirators falsely advised the clients that to recover those funds, the clients were required to post bonds. In this way, defendant Rothstein caused the clients to wire transfer approximately $57 million to a trust account he controlled, purportedly to satisfy the bonds.”

But that was only a single element of a colossal fraud, prosecutors said.

“Rothstein and other co-conspirators used the funds obtained through the Ponzi scheme for their own benefit,” prosecutors said. “This included, for example, using the money to fund and operate [the Rothstein Rosenfeldt Adler (RRA) law firm], 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,” prosecutors continued. “These expenditures were calculated to enhance defendant 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.”

Acting U.S. Attorney Jeffrey Sloman of the Southern District of Florida said the crime was epic and had stained the legal profession.

“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,” Sloman said. “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,” Sloman said. “[Rothstein] sought to buy power and influence at the expense of his clients, and instead has potentially bought himself a lengthy prison sentence.”

The New York Times reported that Rothstein, who was disbarred by the Supreme Court of Florida last week, was overheard yesterday giving legal advice to people with whom he shared a holding cell before his arraignment.

Rothstein, 47, faces up to 100 years in prison if convicted of racketeering and associated crimes such as mail fraud, wire fraud and money-laundering offenses.

A veteran FBI agent said Rothstein’s world was filled with artificial realities.

“Scott Rothstein appeared to be a charismatic, reputable attorney one could trust to invest one’s money and make a sizeable profit,” said John V. Gillies, Special Agent in Charge of the Miami Office of the FBI.

“We now know it was all smoke and mirrors,” Gillies said.

Daniel W. Auer, IRS Special Agent in Charge, said the investigation is ongoing.

“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,” Auer said.