Scott W. Rothstein (born June 10, 1962) is an American former lawyer, convicted felon, and the former managing shareholder, chairman, and chief executive officer of the now-defunct Rothstein Rosenfeldt Adler law firm. He funded an extravagant lifestyle with a $1.2 billion Ponzi scheme, one of the largest in American history.
Early life Rothstein was born in The Bronx, New York, to Gay Boockvor Rothstein and Harvey Rothstein (1935–2012), who was a door-to-door salesman. He had one sibling, a younger sister. He attended classes for intellectually gifted children in elementary school, and Special Progress classes in junior high school. He joined the Boy Scouts and, from the age of eight, attended Hebrew school. At the age of 12, he began studying for his Bar mitzvah at Temple Judea. Here, it was discovered that he had an exceptional tenor voice and he joined the choir. Two years later, the family moved to Lauderhill, Florida, where Rothstein attended Boyd H. Anderson High School and sang in the school's choir, chamber choir and barbershop quartet. He also played guitar and began to write songs, however when it came time to choose a career, he chose law over music. In 1984, he obtained a Bachelor of Arts degree from the University of Florida; in 1988, he graduated as a Juris Doctor from Nova Southeastern University's Shepard Broad College of Law.
Career Rothstein partnered with attorney Howard Kusnick to form Kusnick & Rothstein, first in Plantation, Florida and then in Fort Lauderdale. At the time, Rothstein specialized in labor and employment litigation. In 1999, Rothstein joined with Stuart Rosenfeldt as a name partner at the Hollywood, Florida firm, Phillips Eisinger Koss & Rosenfeldt, which became known as Phillips Eisinger Koss Rothstein & Rosenfeldt. In 2001, Rothstein and Rosenfeldt left to start their own firm, Rothstein & Rosenfeldt. The firm soon included lawyer Russell Adler, when it became known as Rothstein, Rosenfeldt & Adler, or 'RRA'.
Over the next seven years, the firm grew to 70 lawyers and 150 employees, with offices in Boca Raton, West Palm Beach, Fort Lauderdale, Miami, Tallahassee, New York City and Caracas. The firm focused on labor and employment matters, civil rights, intellectual property, internet law, corporate espionage, personal injury, wrongful death, commercial litigation, real estate, mergers and acquisitions, and governmental relations, with a client list that included Citicorp, J. C. Penney, National Beverage, Silversea Cruises and Wells Fargo.
In August 2008, Florida Governor Charlie Crist appointed Rothstein as a member of the Florida's Fourth District Court of Appeal's Judicial nominating commission, a body which is responsible for selecting new judges for appointment to the Court.
Rothstein was a member of the Florida Bar and admitted by the United States Supreme Court. He had earned an AV Preeminent rating, the highest peer review rating awarded by the legal profession's information services company Martindale-Hubbell. The rating is a testament to an attorney's skill, communication, and integrity; fewer than 5% of lawyers achieve this distinction.
On November 17, 2009, the Florida Bar Executive Committee accepted Rothstein's request to be disbarred. The Florida Supreme Court entered the order on November 25, 2009.Order of Disbarment of Scott W. Rothstein, Florida supreme court.org. Accessed August 14, 2022. Rothstein was removed from the Broward County Grievance Committee, and his name was removed from the database of "The Best Lawyers in America".
Ponzi scheme In the mid-2000s, Rothstein entered into a business arrangement with two Fort Lauderdale men: George G. Levin and Frank J. Preve. Levin established a company called Banyan Income Fund, the sole purpose of which was to deal with Rothstein's 'settlement' business. In this complicated scheme, Rothstein sold victim investors 'discounted confidential settlement agreements'. Rothstein represented these as agreements entered into between plaintiffs and defendants in settlement of various legal claims, and told investors that their monies would be used to pay the plaintiffs a discounted percentage of the settlement award immediately, in exchange for the victim investors’ rights to receive the entirety of the settlement award over time. Investors were sworn to secrecy, and were guaranteed a minimum of 20% return on their investment, in as little as three months.
In 2007, Levin and Preve began raising money to purchase Rothstein's settlements by offering investors short-term promissory notes issued by Banyan. In 2012, the United States Securities and Exchange Commission charged Levin and Preve, asserting that they provided the biggest influx of investor funds into Rothstein's scheme, i.e. $157 million from 173 investors in less than two years.
Prosecutors alleged that Rothstein ran the scheme from his Fort Lauderdale office, and that his victims included his friends and clients. It was also alleged that he used the services of corrupt law enforcement officials, forged federal court documents, forged judges' signatures, and convinced others to pose as judges, to make the settlements look legitimate.
Swindle pitch Lawyer David Boden, who would serve 18 months for his part in the scheme, was present for some of the swindle pitches, and negotiated the final papers with the investors' lawyers. He stated that Rothstein would tell investors that RRA was the preeminent sexual harassment law firm in the country and said that he'd figured out a basic formula through which, for example, someone with a net worth of $10 million was willing to pay $2 million in cash to pay off their mistress. The key was the promise of confidentiality. Rothstein said that he would meet potential defendants and question them about affairs they had with any employees. The defendants would deny any such affairs. He would point to a piece of artwork on the wall, say that there was a television screen behind it, and tell the investor that he would show the defendant a video of him having sex with his mistress. He said that he would say to the defendant "We can either settle this now, or I can depose your wife, your mistress, you and your son about it." Since defendants often couldn't or wouldn't pay the entire settlement up-front, Rothstein told investors that his first harassment case involved a $3.5 million settlement and a million-dollar legal fee. Rothstein said that he assigned the settlement to a friend and the plaintiff settled for $3 million without going to trial. The friend was paid $3.5 million, resulting in a profit of $500,000.00 for the firm and its investors.
Rothstein also told potential investors that they could buy whistle-blower settlements with a 60% short-term investor profit. The arrangement would be completely secret; the investor would never know the name of the company or the whistle-blower. The settlement money would be deposited into a trust account at TD Bank, accessible only to the investor at the appropriate time. Boden would answer all questions and negotiate the contracts.
Although these concepts were extortionary and clearly not legitimate, the approach made sense to potential investors, whose consideration was that, with enough of these cases, Rothstein's firm could make huge sums of money and their own profits would be significant.
Partners' income strategy and Rothstein's returns The allegations were that George Levin ("GP") solicited each limited partner ("LP") to contribute at least $1 million. Initially, each LP contributed $250,000, subject to periodic capital calls up to the amount of their commitments. They were promised 12% annually (15% for first $100 million), to be paid quarterly. The general partner had to maintain a balance of not less than 10% of all contributions after any quarterly distributions. The general partner also gave a "clawback" guaranty to all LPs equal to their original contributions. LPs could not request redemptions during an initial one-year "lock-up" period and were required to give 90 days' notice for any withdrawals. Redemptions would be paid from GP's own capital account "to the extent available" with a 10% hold-back, but otherwise, only from the purchased lawsuits settlement stream. The LPs were warned that they could be taxed on the Partnership's income and realized gains even if no distributions were made. As long as reinvestments were ongoing, the ponzi scheme was facilitated.
Banyon paid Rothstein's firm at least $656 million, but the law firm anticipated $1.1 billion over a maximum 24-month period. It allegedly received and reinvested about $500 million. Levin expected to make 40% over 24 months but to only pay out 24%. Rothstein's law firm's IOLTA trust accounts, established "for the plaintiff" in the purported litigation settlements, were used to fund the phony settlement accounts. However, after the firm had paid its overhead, which included "gifts" to partners and money given to politicians, charities, and had paid for a massive advertising budget, as well as for Rothstein's personal lifestyle, there was a loss over three years of approximately $500 million.
The Great Recession of 2007–2009 saw a decrease in new investors and the scheme began running out of funds to pay existing investors. Rothstein initially staved off scrutiny by claiming that he was experiencing temporary issues with the Florida Bar, and convinced others to raise an additional $100 million. By early 2009, Rothstein had ceased making payments to investors.
Further to Rothstein's cooperation, approximately 30 people were convicted and jailed as a result of their participation in the scheme, and many more were implicated.ref name="Forbes 2014" In addition to Rothstein, Adler and Rosenfeldt were Rothstein's former partner Howard Kusnick, Rothstein's uncle William Boockvor, his financial advisor Michael Szafranski, his administrative assistant Denise Feiss, RRA's Chief Operating Officer Debra Villegas, RRA's Chief Finanical Officer Irene Stay, the firm Berenfeld Spritzer Shechter Sheer, which audited the Banyan Income Fund and, in particular, the TD Bank (United States). In 2015, Frank Spinosa, a TD Bank Regional Vice President, pled guilty to conspiracy to commit wire fraud and was sentenced to 30 months in prison.
Resolution By 2014, TD Bank had paid hundreds of millions of dollars to investors that sued the bank, and all of Rothstein's investors were made whole, with some making a profit.
Bankruptcy and creditor recovery Following Rothstein's arrest and guilty plea, his law firm Rothstein Rosenfeldt Adler, P.A. was placed into Chapter 11 bankruptcy in the Southern District of Florida (Case No. 09-34791), with Herbert Stettin appointed as the bankruptcy trustee. The involuntary petition was filed by defrauded investors represented by Genovese Joblove & Battista. The Official Committee of Creditors was represented by Akerman LLP and Kelley Kronenberg, while the debtor's estate was managed by lead counsel Jordi Guso of Berger Singerman. The proceedings generated hundreds of clawback actions against investors who had received payments from the scheme, with various South Florida firms representing affected creditor groups, including Stroock & Lavan LLP, Sonn & Associates, and the Law Office of Mark S. Roher, P.A. The case remained active for over a decade before its termination in January 2021.
Prosecution and sentencing How authorities came to know of Rothstein's activities is unclear. On November 3, 2009, Federal Bureau of Investigation and Internal Revenue Service (IRS) agents raided RRA's offices.