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How Scott Rothstein rode $1.2 billion Ponzi scheme to wealth and power

Scott Rothstein pleaded guilty Wednesday to a $1.2 billion Ponzi scheme that helped support a flamboyant lifestyle and powerful political connections in south Florida.

By Staff writer / January 27, 2010

Kim Rothstein speaks publicly about the case for the first time, after her husband Scott Rothstein pleaded guilty to federal charges that he ran a $1.2 billion Ponzi scheme Wednesday, at the Federal Courthouse in Fort Lauderdale.

Amy Beth Bennett/Sun Sentinel/AP

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Fort Lauderdale, Fla.,

Among the high-flying lawyers in South Florida, Scott Rothstein always tried to fly a little higher, move a little faster, shine a little brighter.

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It wasn’t enough to drive a vintage 1967 red Corvette convertible. He also had a red Ferrari F-40 coupe, red Ferrari F430 Spider, yellow Mercedes SLR McLaren, black Bugatti Veyron, blue-gray Maserati, and a 2010 white Lamborghini.

On other days, Rothstein settled for his white Bentley or one of the Rolls Royces, silver or blue.

That was before federal agents revealed last fall that one of Fort Lauderdale’s most flamboyant residents was living a giant lie.

On Wednesday, Mr. Rothstein appeared in the federal courthouse here, a few blocks from his now-shuttered law office, and pleaded guilty to running a $1.2 billion Ponzi scheme from 2005 to 2009.

He is charged with five counts of federal racketeering, money laundering, and wire fraud, and faces up to life in prison.

The attorney who appeared in the courtroom Wednesday was not the jovial, well-tailored host who partied with national politicians, sports stars, and south Florida power brokers. He shuffled into the courtroom, dressed in tan prison garb and wearing leg irons and handcuffs. When the judge asked him to raise his right hand to swear an oath to tell the truth, Rothstein had to raise both hands since they were shackled.

Ponzi scheme of fake legal settlements

Three months ago, Rothstein fled the US for Morocco in late October after wiring $16 million dollars overseas. Federal agents were closing in on his scam, and there were suggestions he might commit suicide. But he returned to south Florida soon after.

A month after he returned, he was arrested. Federal agents seized as much of his assets and property as they could locate. These included the cars, waterfront homes, an 87-foot yacht, 304 pieces of jewelry, bank accounts, and equity stakes in a long list of companies, including local restaurants. Agents even seized Rothstein’s American Express rewards points: 20,920,701 of them.

Federal agents are estimated to have found assets valued at about $100 million. That’s a long way from $1.2 billion.

“The rest of the money is in the Ponzi scheme,” said William Scherer, a local lawyer who has filed a lawsuit to recover money for Rothstein’s victims. “And he probably spent a large amount – living large and all that.”

Prosecutors say Rothstein specialized in selling investors a stake in confidential settlement agreements. The settlements were said to involve sensitive pre-litigation negotiations in embarrassing sexual harassment cases or whistle-blower cases that the parties wanted to keep quiet. The investments could be purchased at a discount and would be repaid to investors at full value over time.

But sometimes there were no settlement agreements and no real clients. Rothstein and others allegedly created false statement agreements, bank statements, assignments of settlement agreements and personal guarantees.

In one fraud, a counterfeit court order

In one instance, according to federal prosecutors, Rothstein defrauded actual clients who had hired his firm to file a lawsuit. Unbeknownst to the clients, Rothstein settled the suit, obligating the clients to pay $500,000 to the defendants.

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