Wifredo A. Ferrer, United States Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office; and Daniel W. Auer, Special Agent in Charge, Internal Revenue Service (IRS), Criminal Investigation Division, announced today’s sentencing of attorney Scott Rothstein, 47, of Fort Lauderdale, in connection with the operation of a $1.2 billion Ponzi scheme through the defunct Ft. Lauderdale law firm Rothstein Rosenfeldt and Adler, P.A (RRA). Today’s sentence follows Rothstein’s January 27, 2010 guilty plea to one count of conspiracy to violate the racketeering influenced corrupt organization (RICO) statute (Count 1); one count of conspiracy to commit money laundering (Count 2); one count of conspiracy to commit mail fraud and wire fraud (Count 3); and two counts of wire fraud (Counts 4 and 5).
U.S. District Court Judge James I. Cohn sentenced Rothstein to 50 years in prison, to be followed by three years of supervised release. The court’s sentencing order also incorporated the previously issued preliminary order of forfeiture, which ordered the forfeiture of Rothstein’s interests in real property, vehicles, bank accounts, and investments, among other properties.
According to court records and statements made in court, from around 2005 through November 2009, Rothstein engaged in a pattern of racketeering activity through the RAA law firm, located in Ft. Lauderdale. During his plea, Rothstein specifically admitted that RRA was the criminal enterprise through which he and others fraudulently obtained approximately $1.2 billion from investors through bogus investment and other schemes. Defendant Rothstein used RRA to fraudulently induce investors to: (1) loan money to non-existent borrowers based upon promissory notes and requests for short-term bridge loans for business financing; and (2) invest funds based upon anticipated pay-outs from purported confidential civil settlement agreements. Rothstein falsely represented to the investors that the purported clients were willing to pay high rates of return on these loans.
In the settlement agreement scheme, Rothstein and other co-conspirators solicited clients to invest in purported civil case settlement funds. Rothstein and his co-conspirators falsely told investors that these settlements ranged in amounts from hundreds of thousands to millions of dollars. Rothstein falsely represented to investors that these settlements could be purchased at a discount and would be repaid over time to the investors at full face value. In addition, investors were told that these funds would be held in the trust account of RRA. In both instances, the purported investment vehicles never existed, but were part of an elaborate Ponzi scheme in which new investors’ money was used to repay money owed to earlier investors.
To execute this four-year scheme, Rothstein and his co-conspirators used multiple bank accounts at TD Bank, N.A., Gibraltar Private Bank and Trust, and other financial institutions to deposit and launder investors’ money. As well, to perpetuate and conceal the fraud, Rothstein and his co-conspirators created and caused the creation of false bank documents, false on-line bank account information, and false settlement agreements and promissory notes, which were shown to investors as proof that the settlement and loan monies existed. In fact, however, there were no settlement funds or loan clients and the bank accounts only contained “Ponzi” scheme funds.
To perpetuate the Ponzi scheme, defendant Rothstein and other co-conspirators defrauded clients of RRA in a civil suit initiated by RRA on their behalf as plaintiffs. Without the clients’ knowledge, RRA settled the lawsuit in favor of the defendant, thereby obligating the clients to pay $500,000 to the defendant in the civil lawsuit. To conceal the fraud, defendant Rothstein and other co-conspirators created a false federal court order, purportedly signed by a U.S. District 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.
According to statements made and documents filed in support of Rothstein’s guilty plea, Rothstein and other co-conspirators used the funds obtained through the Ponzi scheme for their own benefit. This included, for example, using the money to fund and operate RRA, 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.
U.S. Attorney Wifredo A. Ferrer stated, “This rags-to-riches-to-jail saga is a humbling reminder of what can happen when greed and ambition run amuck. Rothstein manipulated and abused the trust of all whom he knew—his friends, family, business partners, legal colleagues, political figures, and even charitable organizations—to enhance his reputation, standing, and power in the community. All that he had accomplished crashed and burned when his elaborate Ponzi scheme fell apart. Today’s sentence punishes the defendant for his thievery, and hopefully brings some sense of justice to the victims of this massive fraud.”
“While our investigation continues, this chapter in the Rothstein saga is coming to a close with important lessons for all to learn,” said John V. Gillies, Special Agent in Charge of the FBI Miami Division. “For those that are entrusted with other people's money: do the right thing. For those that entrust people with their money: don't be fooled by the promise of unrealistic returns. The common element for both is greed—don't let it get the best of you.”
“Unfortunately today’s sentencing does not immediately offer complete financial restitution for the victims of South Florida’s largest Ponzi scheme,” said Daniel W. Auer, Special Agent in Charge of the IRS, Criminal Investigation Division. “Victims can rest assured that IRS-CID, together with our law enforcement partners at the U.S. Attorney's Office and the FBI will continue to relentlessly pursue forfeiture proceedings relating to Rothstein’s criminally-derived assets.”
Mr. Ferrer commended the investigative efforts of the FBI and the IRS in connection with this investigation. Mr. Ferrer also noted the cooperative efforts of the Securities and Exchange Commission, Miami Regional Office. The case is being prosecuted by Assistant U.S. Attorneys Lawrence D. LaVecchio, Paul F. Schwartz and Jeffrey N. Kaplan. The forfeiture proceedings are being handled by Alison Lehr, Evelyn Baltodano-Sheehan, and Michelle Alvarez.
A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the United States District Court for the Southern District of Florida at www.flsd.uscourts.gov or http://pacer.flsd.uscourts.gov.