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September 2, 2010 |
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| November 05, 2009 |
By: Jordana Mishory and Julie Kay |
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he signature of flashy Fort Lauderdale attorney Scott Rothstein — two sharp lines and several loops — appears across pages of documents “unconditionally” guaranteeing his law firm, Rothstein Rosenfeldt Adler, would pay investors under confidential agreements.
Three South Florida limited liability companies attached these documents to a lawsuit filed Tuesday claiming Rothstein and the firm owed them $4.2 million in overdue payments on settlement investments.
The Broward Circuit Court suit filed by FDS Investments USA, BWS Investments and BBMSW Investments USA is believed to be the first filed by investors claiming they were fleeced by Rothstein. Investors who have surfaced are claiming losses of $400 million or more.
Rothstein is accused of soliciting investors to buy shares in settlements he helped put together. Investors would pay a fraction of a settlement’s value up front in exchange for the full amount in installments.
The settlements ostensibly came from confidential disputes that did not produce lawsuits or official complaints, making them untraceable in public records.
A prospective investor told the Daily Business Review that he was solicited to invest in a whistle-blower dispute between a defense contractor and employees who took hush money to cover up manufacturing flaws.
The lawsuit filed by Aventura attorney Daniel Serber of Serber & Associates contends payments due at the end of October were never paid. He said in an interview that he sent demand letters last week to Rothstein and the firm, and Rothstein replied by e-mail late Friday saying he was out of the country.
Serber said his clients are considering amending the lawsuit to name others at the law firm as defendants. Serber said his clients dealt with the firm’s general counsel, David Boden, who holds a New York law license.
Boden’s business card lists him as a shareholder and general counsel of the firm. A source speaking on a condition of anonymity said Boden lives at one of four houses owned by Rothstein on Castilla Isle in Fort Lauderdale.
Boden did not return calls for comment left at the law firm. A woman who answered the phone in Boden’s office said he is still with the firm also known as RRA.
The prospective investor who spoke with the Review said he also dealt with Boden on the investment offering.
Rothstein’s partner, Stuart Rosenfeldt, who is now running the firm, stood up for Boden, whose name has come from investors twice.
“David is an honorable, ethical, decent man who would never knowingly break the law,” Rosenfeldt said in an interview.
Storm Clouds
Several other attorneys are lining up to potentially sue the firm on behalf of investors.
Fort Lauderdale attorney Bill Scherer of Conrad & Scherer estimates investors he represents have lost almost $75 million invested in the past several months. He would not comment further. The only client he named was Doug Von Allmen, who became rich as a beauty supply distributor to salons. He could not be reached for comment.
Attorney Jeffrey Sonn of Sonn & Erez said he represents fleeced investors but would not identify them.
Broad and Cassel’s Miami managing partner, Mark F. Raymond, said he is talking to eight to 10 investors who have lost tens of millions of dollars.
“The number changes with every ring of the phone,” he said. He said he will have to sort out who his clients will sue, including potential feeder funds and brokers who could have liability. He said he has heard of three brokers involved so far, one in Miami Beach and two in Fort Lauderdale.
“The thing that is striking to me is how he was able to pull it off principally in the spring of 2009 at the height of the disclosures surrounding Madoff,” Raymond said.
Rosenfeldt, said he is aware he could face liability as a 50 percent equity partner of the firm. He said bankruptcy for the firm could be an option but he could not be tied down. Rothstein held the other half as well as the financial reins.
“Obviously, the law is the law. I own half this institution whether I knew what [Rothstein] was doing or not,” Rosenfeldt said. “What more concerns me is that my name was in the firm. I value my reputation for integrity, and I don’t want to see it damaged. The money is just money. The worst I can do is go broke.”
Rosenfeldt said the firm has malpractice insurance, but he doesn’t know the carrier.
Former Miami-Dade Judge Herbert Stettin was named receiver in charge of the firm’s finances Tuesday, and he was scheduled to meet Rosenfeldt at the firm’s Fort Lauderdale office for the first time late Wednesday.
‘No Business Acumen’
The former head of Rothstein Rosenfeldt Adler’s consulting arm, acerbic Republican political operative Roger Stone, blasted his former boss and the investors Wednesday on his StoneZONE blog.
“Having spent time with Rothstein, I am at a loss to understand why a serious investor would give huge sums of money to a venture he created,” Stone wrote. “Rothstein had no prior business success, no business acumen nor track record that would engender confidence in an investor. He could not read a balance sheet. He could not write or read a business plan. Rothstein was a lawyer, not an entrepreneur.”
Rosenfeldt said he will be closing RRA Consulting as soon as he has a chance. He said Stone’s access was revoked Tuesday. Stone said he was already gone.
Rosenfeldt said some clients are concerned, but the only one who left was one of Rothstein’s who owed hundreds of thousands of dollars. He declined to elaborate.
Rothstein’s star plummeted quickly when news of possible fraud surfaced. He reportedly traveled to Morocco last week and returned Tuesday.
While he was gone, he apparently considered suicide.
A member of the firm, speaking on condition of anonymity, read a text message Rothstein sent early Sunday to six people at the firm.
“Sorry for letting you all down. I am a fool. I thought I could fix it but got trapped by my ego and refusal to fail, and now all I have accomplished is hurting the people I love. Please take care of yourselves, and please protect Kimmy (his wife). She knew nothing. Neither she nor any of you deserve what I did. I hope God allows me to see you on the other side. Love, Scott.”
In the receivership complaint filed Monday, the law firm said the partners were not aware of what was going on, and many of the settlements may have been fictitious.
Due Diligence
Structured settlements often arise in personal injury cases, giving the injured party installment payments over time.
Sonn, who handles a number of securities cases, said the descriptions offered by Rothstein’s investors do not match a typical structured settlement. Instead, he said Rothstein appears to have been operating an advanced investment settlement offering. He said structured settlements require court approval to alter, and the settlements offered by Rothstein were not the product of court cases.
Fort Lauderdale attorney Richard Zaden said an undisclosed client told him in June that he had been asked to invest $100 million with Rothstein and he was asked to look over the deal.
Zaden sent a three-page letter to a Rothstein intermediary asking for detailed information. He wouldn’t name the contact except to say it was at a Pennsylvania law firm. He said he never dealt directly with Rothstein.
Terms of the deal called for investors to collect 10 percent to 15 percent on the installment settlements. Zaden was told “all the New York firms” had performed due diligence on Rothstein’s plan, and Zaden would just be “another set of eyes.”
He asked to see the due diligence reports but didn’t get them. He also never got answers to his three-page letter. Specifically, he wondered whether the business violated Bar ethics rules.
“I couldn’t see how it was in the best interests of the client,” he said. “It’s more in the best interest of the investor. It’s hurting the client.”
Zaden also inquired about Rothstein’s compensation from the third party and was told, “Scott is just taking a legal fee.”
“That also didn’t make sense to me,” Zaden said. “Where was all his money coming from?”
Over the months, Zaden would send e-mail to the Pennsylvania lawyer inquiring whether he should close the file or get answers to his questions. He was continually encouraged to keep the file open — until Friday. This time, his e-mail, “Should I close the file,” was met with a one-word response. “Probably.”
When word of trouble leaked out Saturday, Zaden’s client called him to say, “We dodged a bullet. Rothstein’s in Morocco, and the money’s gone.”
Zaden said he has not spoken to any law enforcement investigators.
“I probably will be questioned at some point,” he said. “I just wanted to have a comfort level that these deals were real.”
Jordana Mishory can be reached at (954) 468-2616. |
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