Securities Law Blog

Scott Rothstein pled guilty on January 27, 2010 to federal charges that he ran a $1.2 billion Ponzi scheme. Rothstein, a disbarred attorney and founding partner of the South Florida law firm Rothstein Rosenfeldt Adler, was charged with wire fraud, money laundering, conspiracy and racketeering. The career of one of Florida’s most flamboyant attorneys thus ends in the collapse of yet another massive fraud.

Rothstein’s scheme was operated by using faked legal statements. He attracted investors by promising huge returns on investments in legal settlements he claimed would pay out over time. Prosecutors say most of the settlements never even existed, and that Rothstein operated the Ponzi scheme using money from new investors to pay old investors. Rothstein also offered investments in short-term business loans that offered large financial returns, most of which never existed as well.

The Rothstein Rosenfeldt Adler law firm is heavily linked to the founder’s Ponzi scheme. In a single year the firm earned $8 million but somehow paid its 150 employees $18 million in salaries. According to Assistant U.S. Attorney Alison Lehr, the additional $10 million came from the operation of funds produced by the Ponzi scheme.

Also under investigation are 50 of the 70 attorneys formerly employed with Rothstein Rosenfeldt Adler, and the Florida Bar is examining possible irregularities involving client trust accounts. Along with former Rothstein associates, bankers and any others who may have been involved could face criminal charges, according to published reports.

Following Rothstein’s December 1st arrest, several investors filed lawsuits in an attempt to get their money back, one case demanding more than $100 million in damages.

Authorities are seeking to recover millions of dollars that Rothstein and his wife donated to charities and close to $400,000 contributed to local political parties and candidates, in order to help repay dozens of cheated investors. Some of Rothstein’s extravagant assets are also being seized including two dozen homes, 20 exotic cars, three boats, numerous bank accounts, and over 300 pieces of jewelry.

With sentencing set for May 6, Rothstein could face a maximum sentence of 100 years in federal prison and at least $1.5 million in fines.