FBI: Rothstein Scheme Could Top $1B; Filing: Firm Spent $1.4M in Escrow Funds
Posted Nov 12, 2009 5:49 PM CDT
By Martha Neil
In an apparent death blow for Rothstein Rosenfeld Adler's reported plan to reconfigure its law practice without co-founding partner and accused Ponzi scheme operator Scott Rothstein, a Chapter 11 bankruptcy petition filed by several investors claims that the law firm improperly transferred $1.4 million of client funds from an escrow account to its operating account in late October.
A full-scale bankruptcy may now be the only option for the struggling South Florida firm, lawyers for investors allegedly fleeced of hundreds of millions of dollars by Scott Rothstein and RRA creditors tell the Daily Business Review in an article reprinted in New York Lawyer.
Meanwhile, documents reviewed by the business publication "indicate that Rothstein and the law firm typically guaranteed the investments made in Rothstein’s alleged Ponzi scheme," the DBR article states. "That could leave the law firm on the hook for more than $500 million."
A subsequent Daily Business Review article says the firm is dissolving and that Rothstein's co-partner, Stuart Rosenfeldt, who briefly served as RRA's chief executive officer after Rothstein's recent departure, has turned over the firm's operations to court-appointed receiver named at RRA's request.
At a bankruptcy court hearing today, the DBR reports, receiver Herbert Stettin told the judge that “It was a huge mess when I took over, and we are proceeding with our investigation. It looks like there were significant transfers of property and money that were improper.”
The tally of losses attributable to what federal authorities and news reports have described as a Ponzi scheme run by Scott Rothstein as a side business while formerly serving as RRA's chief executive officer could exceed $1 billion, the head of the local Federal Bureau of Investigation said at a news conference this morning, according to the Miami Herald.
Rosenfeldt has said that the investors in Rothstein's side business were not clients of the law firm.
Although Rothstein has not been criminally charged, an investigation by dozens of agents continues, says FBI Special Agent in Charge John Gillies. He also states: "I do not believe this was a one-man show," the newspaper reports, although he wouldn't discuss whether any other individuals could be involved in Rothstein's alleged scheme.
An exodus of attorneys from RRA also continues, with three lawyers joining Kopelowitz Ostrow in Fort Lauderdale among the latest departures, the Daily Business Review reports. Other RRA attorneys are expected to depart, too, some by forming their own law firms and others by accepting some of the numerous offers that are being made by other partnerships, according to attorney Kendall Coffey of Miami, a former U.S. attorney who is representing the law firm.
Founded by Rothstein and Rosenfeldt in 2002, the firm was reportedly run exclusively by Rothstein until he departed briefly for Morocco late last month.
A forfeiture filing by federal agencies against Scott Rothstein contends that he has been operating a Ponzi scheme since at least 2005, and that his claim to be selling investors blocks of structured settlements of employment discrimination and whistle-blower cases was without basis, according to Bloomberg and Reuters.
Additional and related coverage:
ABAJournal.com: ''Rothstein Firm Is Running on Fumes, Newspaper Says"
ABAJournal.com: "Feds Seize Rothstein’s Ferrari, Boats in Ponzi Scheme Probe"
ABAJournal.com: "Investors Sue to Force Rothstein Law Firm Into Involuntary Bankruptcy"
Miami Herald: "Rothstein accused of duping car mogul out of $57 million"