UPDATED 9 P.M. ET (U.S.A.) The alleged Ponzi scheme operated by Fort Lauderdale attorney Scott Rothstein is the stuff from which lawyer jokes are made. It is enough to make the Atticus Finch wing of the trade long for the days in which being a lawyer meant you were special — and being special meant you’d walk into a meeting with a client wearing your humble dress shoes, not your ostrich-skin boots, you drove a practical car, rather than a Ferrari, you understood that clients weren’t money machines — and perhaps especially understood that a fee paid in hickory nuts or collard greens by an impoverished client could make you feel as good as a big check from a wealthy one.
A consentual petition to disbar Rothstein has arrived at the Florida Supreme Court. The court has not acted on the petition, but a clerk’s order was issued to attorneys to file an original plus eight copies of any additional motions because of “significant public and media interest.”
Indeed, Florida is buzzing about the case, in part because it exposed a curious market in which purported sexual improprieties allegedly were presented by Rothstein as multimillion-dollar investment opportunities. Meanwhile, the case has dredged up embarrassing details from previous cases involving Rothstein investment clients or business contacts.
A company once owned by one of the victims of the alleged Rothstein Ponzi fraud, for example, had a history that included bringing a purported SLAPP (Strategic Lawsuit Against Public Participation) action to chill a consumer advocate when the company itself had been named a defendant in a case in which as many as 900 complaints from customers piled up in Florida in the 1990s.
The company, GGL Industries, once was owned by Florida businessman George Levin, a Rothstein investor and the registered manager of a Nevada company known as Banyon Investments LLC and other firms that used the Banyon name. There now are allegations that Frank J. Preve, who worked for one of the Banyon entities and had an office at the Rothstein Rosenfeldt Adler (RRA) law firm, played a role in the Rothstein Ponzi fraud.
GGL did business as Classic Motor Carriages, selling kit cars in the 1980s and 1990s. Customers complained about slow deliveries or partial deliveries. GGL ultimately was charged criminally with wire fraud. Charges were not brought against Levin, but the company was convicted and agreed to pay $2.5 million in restitution.
Various court actions against Rothstein have been filed this month. The lawsuits include spectacular allegations of fraud. Rothstein has not been arrested, but the FBI says the case could involve more than $1 billion.
Federal agents have seized property, and new allegations have surfaced that Rothstein transferred millions of dollars in real-estate holdings to shell companies only weeks prior to the exposure of the alleged scheme in October.
One property acquired for $1.75 million was sold to a shell company for $10. Another property — the residence of Debra Villegas, COO of the RRA law firm — was acquired for $475,000 and sold to Villegas for $100 and “love and affection,” according to real-estate records.
Worthy Of A Theoretical Seinfeld Movie?
Unlike Ponzi scheme cases in which it is easy to view victims as sympathetic figures, some of the alleged victims of the Rothstein Ponzi are being portrayed as out-of-touch greedsters and, in the case of Preve, for instance, fraudsters themselves.
Lawsuits have painted an ugly picture of how the alleged Ponzi scheme worked.
Some of Rothstein’s purported victims would seem to qualify as the inspirations behind out-of-touch-characters in a theoretical Hollywood production titled “Seinfeld: The Anything-Goes-If-It-Involves-Profits Years.”
Legal filings, for example, suggest the victims actually conducted detailed due diligence before choosing to participate in Rothstein’s scheme and determined that profits could be harvested from investments in lawsuits involving sexual indiscretions.
Like would-be Seinfeld characters, however, some of the victims either did not connect dots that plenty of people would find the premise of mining profits from purported sexual indiscretions bundled as securities both bizarre and offensive — or did connect the dots and decided that the profits were worth risking a PR catastrophe.
Even victims who purportedly lost tens of millions of dollars by investing in Rothstein’s alleged scheme are not generating much media sympathy because of the presence of Preve, allegedly a convicted felon who worked for Banyon and had an office at Rothstein’s law firm. There also is an allegation that Rothstein’s general counsel — David Boden — did not have a license to practice law in Florida.
A spokesperson for Levin told the Palm Beach Post that Levin did not know Rothstein was operating a Ponzi scheme and that “George Levin was first to contact the government when he smelled that something was not right with Mr. Rothstein’s purported investments.”
Both Preve and Boden are alleged to have played pivotal roles in selling the scheme. Toronto Dominion Bank and bank personnel are alleged to have aided and abetted the scheme.
RRA, which employed 70 attorneys, has been decimated by the scandal. The firm effectively is out of business.
Perhaps the most spectacular allegation to date is that Rothstein told investors that he paid employees and “former F.B.I. and C.I.A. agents” to dig up dirt on the sexual infidelities of high-profile people — and then used the findings to extract multimillion-dollar legal settlements with the promise of confidentiality to the marks who had been targeted as defendants.
Investors funded the purported “settlements” with the understanding that the plaintiffs in the case wanted money up front and would accept less than the settlement was worth. In effect, investors got to keep the spread between the settlement amount they funded for plaintiffs and the purported actual settlement amount, which was higher.
Looking at it in a simple form for the sake of illustration, if a target perhaps was willing to pay $10 million to keep his name out of the newspaper — and if a plaintiff was willing to accept $2 million up front — Rothstein recruited investors to fund the purported $2 million settlement with the promise their profits would come when the case was settled over time for the higher amount.
Preve, who was convicted of bank fraud in 1985, helped Rothstein line up investors, according to a lawsuit filed by attorney William Scherer.
Preve’s bank-fraud fraud case in the 1980s had resulted in losses of $2.3 million, and Preve was placed on 10 years’ probation and fined $10,000 for falsifying documents, according to the lawsuit.
Rothstein’s deals perhaps best are described as “purported,” because there are allegations they were fabricated in whole or in part. Through a practice derisively described as “piggybacking,” Rothstein allegedly sued defendants or monitored news about wealthy people caught up in allegations of sexual improprieties — and then sold interests in settlements, whether or not he had an actual role in the cases or whether or not an actual settlement existed.
Victim’s Firm Has History Of Fling SLAPP Actions To Mute Critics
Adding to the drama is the presence of Levin, one of the purported victims of the Ponzi scheme. GGL, which sold classic-car kits, once was owned by Levin. GGL has a felony conviction for wire fraud. GGL’s history includes corporate run-ins with both state and federal prosecutors and the filing of a SLAPP lawsuit against the late consumer advocate Stuart Rado, who helped organize victims in the case in which Levin’s company was convicted of wire fraud.
Rado, according to court filings, had few financial resources and defended against the SLAPP lawsuit pro se. During the litigation, Rado was diagnosed with cancer. He lost the SLAPP case in which he was accused of violating the Florida Trade Secrets Act for sharing proprietary information about GGL customers, and died from the disease.
After Rado died, GGL attempted to collect an $80,000 judgment against him for the company’s legal fees even though it had pleaded guilty to a felony, which prompted a court filing by the federal government and an attached exhibit by Rado’s estate that accused Levin’s firm of hounding Rado beyond his grave.
The exhibit asserts Levin’s company systematically set out to destroy Rado financially for organizing fraud victims by subjecting Rado to an avalanche of legal filings — including notices sent to Rado only days after he was emerging from brain surgery.
“GGLs suits against Rado were brought for two purposes,” the estate said. “One was to stop Rado from informing defrauded customers of a practical and inexpensive way to possibly obtain restitution, and by stopping Rado, stem the flow of complaints to the Attorney General’s office. The other purpose was to put people on notice that what was happening to Rado could happen to them if they dared challenge GGL.”
The estate said the case against Rado was an orchestrated legal sham designed to silence him by making his net worth “go South” and to force him to “incur the expenses of defending two lawsuits over 4 years” — and to live “day-to-day with a barrage of pleadings, depositions and other legal maneuvers.”
GGL persisted even after Rado died, according to the estate.
UPDATED 9:06 P.M. EDT (U.S.A.) A man who filed for bankruptcy twice, has an unpaid federal judgment for running a fraud scheme in the 1990s and managed to rack up convictions for crimes such as grand larceny, wire fraud, mail fraud and bank fraud during his purported business career has been charged by the SEC with operating a $16 million Ponzi and fraud scheme in Philadelphia.
