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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.

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Rothstein then created a fraudulent court order purportedly signed by a federal judge, prosecutors say. The order said that Rothstein and his clients had won the lawsuit and were owed $23 million. But it added that the defendants had transferred their funds to the Cayman Islands, making recovery difficult.

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Rothstein then told his clients that to recover the funds they would need to post bonds to be held in a Rothstein-controlled trust account. The clients wired $57 million into the Rothstein account, according to court documents.

When the clients became anxious about the money, Rothstein allegedly created a false order from a federal magistrate mandating a later date for the return of the clients’ money.

Federal charges refer to “co-conspirators” who acted with Rothstein, but no one else has yet been indicted.

“We intend to pursue every lead,” US Attorney Jeffrey Sloman said, outside the courthouse. He said the government did not know where the rest of the $1.2 billion was and how much might be recovered.

Powerful political connections

Not all of Rothstein’s illicit gains went into his pocket. He had a reputation as an effective political fundraiser.

According to court documents, Rothstein paid large bonuses to employees at his law firm. Before receiving the bonuses, the employees were told to make significant contributions to political candidates in their own names. The maneuver was apparently designed to bypass campaign finance laws.

The Republican Party of Florida has turned over to federal agents at least $145,000 in prior political contributions from Rothstein, documents show. Florida Gov. Charlie Crist (R) has turned over at least $9,600 in Rothstein contributions.

In August 2008, Governor Crist named Rothstein to the Judicial Nominating Commission for Florida’s Fourth District Court of Appeals. A signed photograph with Crist was among a recent auction of some of Rothstein’s possessions. “Scott, you are Amazing,” it says.

Also on the auction block were photos of Rothstein and his wife, Kim, with John McCain; a framed photo and thank you note from Sarah Palin; a signed photo with Joe Lieberman; and a photo with New Mexico Gov. Bill Richardson (D).

A shaken family

On Wednesday, after watching his son plead guilty, Harvey Rothstein walked slowly from the courtroom with tears in his eyes. “He helped a lot of people,” he said.

Rothstein donated $800,000 to the Joe DiMaggio Children’s Hospital and $1 million to Holy Cross Hospital. Those funds will be turned over to authorities.

Outside the courthouse, Rothstein’s wife, Kim, read a prepared statement. She said it was the saddest day of her life, and that she knew nothing of her husband’s illegal activities.

“I am not being investigated,” she said. “The evidence to date clearly shows that I was neither involved in – nor had knowledge of – Scott’s business activities.”

At the end of her statement, a reporter shouted out, “Did you enjoy spending the money?”

She did not reply.

US District Judge James Cohn has set sentencing for May 6.


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