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Law Practice Management

Investors Sue to Force Rothstein Law Firm Into Involuntary Bankruptcy

Posted Nov 10, 2009 6:32 PM CDT
By Martha Neil

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Three investors who say they lost a total of more than $850,000 in a claimed Ponzi scheme allegedly operated by attorney Scott Rothstein filed a petition today to force his South Florida law firm into involuntary bankruptcy.

Their federal court filing, which was made by attorney Jeffrey Sonn, seeks to force a Chapter 11 bankruptcy of Fort Lauderdale-based Rothstein Rosenfeldt Adler, reports the Miami Herald.

Stuart Rosenfeldt, who has replaced Rothstein as CEO within the past week after requesting that the law firm be placed in receivership, could not immediately be reached for comment by the Herald. He is reportedly a 50-50 partner with Rothstein in the firm but has said he knew nothing about Rothstein's side investments. Although they made use of the law firm name, according to Rosenfeldt's earlier comments, they did not involve law firm clients.

Yesterday, federal authorities moved in under the power of a civil forfeiture action and seized millions of dollars worth of Scott Rothstein's personal property. Among the items they obtained were a red Ferrari convertible, a blue Rolls-Royce Phantom, multiple boats including an 87-foot yacht and four firearms, according to the Sun-Sentinel.

They also liened eight of his properties that may be worth more than $18 million, including a $6.45 million home in the Harbor Beach neighborhood, the newspaper states.

Forfeiture filings allege that Scott Rothstein and unnamed co-conspirators created fake documents to mislead investors into thinking they were purchasing securitized portions of income streaming in from confidential structured settlements of sexual harassment and workplace claims, reports the Sun-Sentinel.

But "no such settlement agreements had ever existed and the entire investment scheme was a fraud," the newspaper quotes from a filing by Assistant U.S. Attorney Alison Lehr. "These transactions constituted a 'Ponzi' scheme in which new investor money was utilized to pay previous investors in furtherance of the scheme."

The scheme, which reportedly could involve hundreds of millions of dollars, allegedly had been ongoing since 2005.

Rothstein admits he has made a serious mistake and owes investors money and has vowed to repay them, reports WSVN, based on an interview with Rothstein.

He has not been criminally charged.

Additional coverage:

ABAJournal.com: "Feds Seize Rothstein’s Ferrari, Boats in Ponzi Scheme Probe"

ABAJournal.com: "Rothstein Firm Is Running on Fumes, Newspaper Says"

Palm Beach Post: "Rothstein firm's allure was pay, not legal savvy"

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