SCAMMED: Frum Community Hit Hard: Tens Of Millions Lost

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scamn.jpgBrooklyn, NY – A story sending shock waves through the Frum community of Flatbush,  involves approximately 100 million dollars – invested by prominent baalei tzedaka – that were allegedly lost in a scam with a lawyer living in Florida. The following are three articles (Miami Herald, Wall Street Journal, & CBS4) regarding this unfolding story:

MIAMI HERALD REPORT:

For years, Broward County’s socially and politically connected marveled at the astonishing success of Fort Lauderdale lawyer Scott Rothstein and wondered: How does he do it?

Answers may have begun to emerge Monday, even as the law firm Rothstein built and the image he cultivated as an altruistic philanthropist crumbled.

According to a lawsuit filed against him by his firm and its co-founding partner, Rothstein was running a covert investment scheme on the side, and may have walked away with “substantial sums” put up by investors.

The scope of the investment business is not known, but the Fort Lauderdale securities litigation firm Sonn & Erez said Monday it was investigating claims that Rothstein “may be involved in a $100 million investment that imploded.”

Rothstein attracted investors by promising huge returns and selling settlements he said he had reached in discrimination and whistle-blower cases, according to documents he gave to prospective clients.

But according to the lawsuit filed against him, at least some of those settlements did not exist, and investors say money they invested with Rothstein is now missing.

Alan Sakowitz, a Miami lawyer and developer, told The Sun Sentinel he had met with Rothstein as a potential investor three times beginning in August, but quickly became suspicious.

“I was convinced it was all a Ponzi scheme and I notified the FBI in detail how Scotty was hiding behind a legitimate law firm to peddle fake settlements,” Sakowitz said.

Rothstein’s confidential offerings obtained by The Sun Sentinel describe extremely high-paying but largely unregulated investment opportunities. One from August offered investors a 36 percent return in three months, far more than the troubled stock and bond markets.

Those documents say Rothstein’s firm sought out discrimination and whistle-blower cases, and used former cops to dig up incriminating evidence.

Sakowitz said Rothstein boasted of having sophisticated eavesdropping equipment and that former cops would sift through potential defendants’ garbage. With compromising evidence in hand, the firm urged the targets of the claims to pay a settlement without a public lawsuit.

“These types of cases are highly confidential and, thus, quite lucrative because the defendants place a high premium on keeping the details of the case confidential,” one investment offering said.

Once a settlement was reached, the defendant typically preferred to stretch out the payments over time. Rothstein offered clients a way to avoid waiting for the money by giving them a smaller lump sum up front, Sakowitz said.

Investors funded the payments to clients and would receive the full settlement amount in three to 12 months, with a guaranteed minimum 20 percent return, according to the investment offering.

Stuart Rosenfeldt, Rothstein’s co-founding partner, said Monday he feared that Rothstein had destroyed the reputation of the firm that just last week was considered a legal powerhouse in South Florida.

I think we’re going to go down in history in the same breath as [Bernie] Madoff,” he said.

WALL STREET JOURNAL REPORT:

A prominent Fort Lauderdale law firm is asking a Florida court to dissolve it amid allegations that substantial amounts of money are missing from accounts created by the firm’s co-founder, Scott Rothstein.

The possible dissolution of Rothstein Rosenfeldt Alder PA would amount to a repudiation of the politically well-connected Mr. Rothstein by his law partners and pose a potential embarrassment to the many Republican politicians in the state who have enjoyed his support. The 47-year-old attorney has boasted of a rags-to-riches ascent from a modest New York childhood in the Bronx to a lifestyle of luxury cars and sumptuous homes.

Mr. Rothstein didn’t respond Monday to requests for comment. In an email exchange with The Wall Street Journal last week, he said he had “nothing to hide at all.” Mr. Rothstein’s attorney, Marc Nurik, didn’t reply to requests for comment.

A spokesman for the law firm said it has launched an internal probe focused on a business Mr. Rothstein started that involved selling purported legal settlements to investors. He said the firm has contacted the U.S. attorney’s office in Miami. At least one of the investors-Banyan, a Fort Lauderdale investment firm-has also contacted the U.S. attorney’s office, which declined to comment on the matter.

The investors in the venture would pay cash upfront to people owed money from court cases in exchange for the right to collect the full amount of the settlement at a later date, a partner at the firm said, recounting a description of the business he said he got from Mr. Rothstein.

The partner, Stuart Rosenfeldt, said Mr. Rothstein told him that he was handling the sale of such settlements to investors and was earning attorney’s fees and commissions on the sales. According to the state court filing in which the firm is seeking dissolution, investors allege that Mr. Rothstein may have sold settlements that didn’t exist.

In an interview, Mr. Rosenfeldt said investors recently called him to say they were owed money. He said he found that Mr. Rothstein had created at least 26 trust accounts to hold funds from investors for the purchase of settlements. Mr. Rosenfeldt said he learned that on Oct. 23 the accounts contained about $500 million, but that the money was gone by Oct. 30. It isn’t clear where the money went.

“Scott was good at spending money, but he wasn’t that good,” Mr. Rosenfeldt said, alluding to Mr. Rothstein’s flamboyant lifestyle.

Mr. Rosenfeldt said Mr. Rothstein hasn’t been in the office since about the middle of last week, and when Mr. Rosenfeldt asked about him, Mr. Rothstein’s assistant said he had left, citing a family emergency. Mr. Rosenfeldt said he doesn’t know Mr. Rothstein’s whereabouts. Mr. Rothstein’s lawyer told Mr. Rosenfeldt his client would return to Fort Lauderdale Tuesday.

In a text message sent Saturday, Mr. Rothstein apologized to firm lawyers, Mr. Rosenfeldt said. In the note, according to Mr. Rosenfeldt, Mr. Rothstein described himself as “a fool” and said he was sorry for any harm he had done to his colleagues. Mr. Rosenfeldt declined to describe the entire message

Rothstein Rosenfeldt Alder, which Mr. Rothstein co-founded in 2002, focused on labor and employment matters, but it grew rapidly, hiring well-known local lawyers and former judges, who specialized in various practices, including real estate, mergers and acquisitions, and governmental relations. The firm currently has 70 lawyers and a total of 150 employees. It is “scrambling” to find money to pay employees, Mr. Rosenfeldt said.

The firm’s lawyers had no knowledge of the alleged improprieties, according to its filing.

“The future of the firm is currently being decided, but it will be separate from Mr. Rothstein,” said a firm spokesman.

Mr. Rothstein is known in South Florida for both his lavish lifestyle and his ties to state Republicans. Public records show he bought a home belonging to Miami Dolphins football star Ricky Williams in March 2005.

The house, on Castilla Isle in Fort Lauderdale, is appraised for tax purposes at $1.89 million. Another house on the street that public records show also belongs to Mr. Rothstein is appraised at $1.3 million. Public records also indicate that Mr. Rothstein has owned an enviable collection of cars, including a 2007 Lamborghini, a 2001 Bentley and a 2007 silver Rolls Royce.

He also has donated heavily to political causes. In 2008 alone, Mr. Rothstein and his firm contributed more than $175,000 to the Florida Republican Party, according to party officials.

“When I met Scott he was already rich,” Mr. Rosenfeldt said. “He told me he made a killing on stock.” But, Mr. Rosenfeldt adds, “I now have to examine everything [Mr. Rothstein] told me.”

CBS4 REPORT:

The attorney for missing Fort Lauderdale attorney Scott Rothstein says his client will return to South Florida “within the next 24 to 48 hours.”

Marc Nuric – an attorney with Rothstein Rosenfeldt Adler, who resigned from the firm to represent Rothstein – told CBS4 News Tuesday morning that Rothstein will be coming home to address the allegations that he stole hundreds of millions of dollars from the law firms’ clients and from investors in what has been described as an elaborate Ponzi scheme involving investments in bogus structured settlements.

“There has been more media and speculation than there has been process and pleadings,” said Nuric. “I’m not aware of any arrest warrant and we have not been formally informed there is even an investigation.”

Asked if he had been contacted by the FBI, Nuric refused to say.

Nuric said he did not know where Rothstein was – only that he was currently not in the United States.

“Everyone seems to think he is in Morocco, but I really don’t know,” Nuric said. “I have not asked him where he is.”

Rumors that Rothstein was in Morocco also highlighted the fact that the African nation does not have an extradition treaty with the United States.

Nuric said it was always Rothstein’s intention to come back to the United States.

“He always had a return flight,” Nuric said. “At this point I expect Mr. Rothstein to walk off of the plane on his own steam.”

(Source: Wall Street Journal / Miami Herald / CBS4)

14 COMMENTS

  1. I have read 10 different articles on this story and there is nothing to indicate that anyone in Flatbush/BP has lost anything.

    How do you say that the ‘Frum Community Hit Hard’?

    Avi

  2. THIS IS VERY TRUE!

    I PERSONALLY KNOW ONE PERSON WHO TOOKA HIT OF FIVE MILLION DOLLARS.
    DO SOME RESEARCH, AND FIND OUT FOR YOURSELVS. MAKE A FEW PHONE CALLS TO PEOPLE IN FLATBUSH AND YOU WILL HEAR IT FIRST HAND.

    WERE TALKING ABOUT VERY VERY VERY BIG BAALEI TZEDAKAH WHO LOST FORTUNES JUST NOW.

    ALSO, ONE MAJOR BAAL TZEDAKH, WHO HAS PROBABLY GIVER MORE THAN 50 MILLION TO TZEDAKAH IN THE PAST 15 YEARS WHO LIVES IN MONSEY TOOK A MAJOR MAJOR MAJOR MAJOR MAJOR BEATING

  3. DON’T FEEL BAD FOR BAL TZEDAKKAHS WHO INVESTS IN THIS SORT OF SCAMS. One should know better than to invest in an unethical and negative business. One who is a true bal tzedakkah also understands that Hashem wants you to invest smart and honest. This scam is a disgrace for all of the Jewish people. Another Jewish person committing a crime. Shame on us that we support this causes and later only to regret. We should inspire people to work honest and hard. There is no easy money in life. People who wants to be called bal tzedakkah needs to earn that phrase through honest dealing and leadership.

    I know people involved and its a disgrace for them, me and all of us. So lets not comment on people, because often we lose our values for the sake of a rich lifestyly that brings only sorrow not happiness.

    Now hashem will be with us through all all problems and diffculties, but REALLY SHAME ON US THAT DAY IN AND DAY OUT ANOTEHR JEWISH BROTHER DISGRACES THE NAME OF HASHEM.

  4. #8- very good reading. It certainly may be true as someone else says, but the article is does not give any support to the headline, therefore du host ah guteh kasheh.

    When will you all learn that your writing needs to be clear and supported by facts and not heresay? If you want the information you post to be taken seriously and build credibility for yourselves, I don’t see how you can’t be more careful with the content of the posts you make.

    Until I see a change, I don’t believe much that is written and certainly when it is not done with the guidance of our Einei Haeidah. Everything is up in the air until your derech is more proper.

  5. It is true and is a fact that some investors were big baalei tzedakah. However, the way they were to profit was through the misfortune of others. People were trying to benefit from money that should have gone to people who suffered their own misfortunes. It takes a person with real middas Sedom to have invested with Rothstein, so while I generally feel for people who have suffered a loss, in this case I truly see the Yad Hashem.

    The message here is crystal clear: Don’t try to profit off of the backs of others. Even when it works for a while, Hashem will cause a loss of equal and greater measure.

  6. #11 – I like your comment. I have been a midwesterner for almost 20 years now. Originally from the holy land – New York. Yes fellow New Yorkers, there are frum people all over the world.

    #17 How do you know that these baalei tzedakah were aware of the scam? Don’t judge them so quickly.

    Anyway, it’s a sad commentary on our community that this keeps happening.