Wednesday, December 2, 2009

White Collar: South Florida Attorney Charged in Massive Ponzi Scheme

The United States Attorney for the Southern District of Florida has charged Scott Rothstein, a Fort Lauderdale attorney, with operating a $1.2 billion fraud. The criminal information alleges that Rothstein and others committed racketeering violations, money laundering, and wire and mail fraud violations.

The government alleges that Rothstein used his now defunct law firm, Rothstein, Rosenfeldt and Adler as the basis of his fraud. The allegations are that Rothstein and co-conspirators sold purported settlements in sexual harrassment and whistle-blower suits to investors. According to the complaint, Rothstein sold these purported settlements at discounted rates. Allegedly, he told the investors that the plaintiffs would receive the investment money and relinquish the right to the settlement proceeds to the investors who would receive a longer term pay out. Rothstein allegedly told the investors that the plaintiffs wished to sell the settlements to avoid publicity and embarrassment. Moreover, he told the purported victims that there were no public court records because his law firm had settled the cases before filing the actions by threatening suits, explaining the that defendants could thereby avoid negative publicity.

One of the charges against Rothstein alleges a RICO conspiracy. RICO is an acronym for Racketeer Influenced and Corrupt Organizations. It is a statute that was orginally enacted to combat organized crime. However, it is frequently charged in cases of business crimes and fraud. The centerpiece of a RICO charge is the existence of an enterprise that is instrumental in the conduct of a pattern of racketeering. In the Rothstein case the government has charged the law firm as the RICO enterprise with wire fraud, mail fraud, and money laundering comprising the pattern of racketeering facilitated by the law firm.

At arraignment the government asked the court to remand Rothstein to custody pending further action, which will be either a plea to the information or a grand jury proceeding. (In the federal system, the government can only proceed based on a grand jury indictment unless the defendant voluntarily waives indictment.) It is likely that Rothstein will cooperate against his co-conspirators in attempt to reduce his ultimate sentence.

Finally, the government has also filed a count of forfeiture in the information. The count seeks,Italic upon conviction, the forfeiture of currency and property in the amount of $1.2 billion.

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