11th Circuit: Money in Rothstein law firm accounts can't be forfeited to feds
Posted Jun 12, 2013 09:25 pm CDT
In a decision that may benefit ordinary creditors of a defunct Florida law firm and cost those swindled by its imprisoned former managing partner, Scott Rothstein, a federal appeals court has ruled that funds in Rothstein Rosenfeldt Adler bank accounts are not subject to forfeiture by the feds.
That means the distribution of the money will be overseen by the Chapter 11 bankruptcy trustee in charge of the windup of RRA’s affairs rather than those at the helm in Rothstein’s criminal case, reports Bloomberg.
Reversing a lower court, the Atlanta-based 11th U.S. Circuit Court of Appeals explained in Wednesday’s opinion (PDF) that proceeds of Rothstein’s $1.2 billion Ponzi scheme were intermingled in law firm accounts with client receipts from legitimate work by RRA lawyers. They brought in some $12 million in revenue in the first 10 months of 2009 before the Rothstein fraud was discovered and the firm imploded.
Meanwhile, funds were commingled over a four-year period, the court said, making it difficult or impossible to allocate money between legitimate revenue and Ponzi scheme proceeds due to the “sheer volume of financial information available.”
However, there is still an option for the feds to pursue on the criminal-case front, the court noted: “The government, standing in Rothstein’s shoes, may appear in the Chapter 11 proceeding and lay claim to Rothstein’s share of law firm assets that survive bankruptcy,” wrote Circuit Judge Gerald B. Tjoflat for the appellate panel.
It appears that a Chapter 11 distribution plan may be approved at a hearing in July. Much of the money is coming from a $72 million settlement by TD Bank made in exchange for protection from lawsuits, Bloomberg notes.
Meanwhile, Rothstein is serving a 50-year federal prison term.
ABAJournal.com: “Imprisoned Ex-Attorney Says Cash Bribes, Call Girls at Law Firm Condo Aided $1.2B Ponzi Scheme”
ABAJournal.com: “Federal Jury Says TD Bank Must Pay $67M to Investors Swindled by Ex-Attorney Scott Rothstein”
ABAJournal.com: “Ex-Lawyer Steven Lippman Gets 3 Years, Says Ex-Partner Scott Rothstein ‘Played Me Like a Fool’”
South Florida Business Journal: “TD Bank’s Rothstein settlement with hedge funds valued at $70M”