By Susannah Nesmith - Jan 3, 2012 2:42 AM GMT+0700
Scott Rothstein, the Florida lawyer sentenced to 50 years in prison for running a $1.2 billion Ponzi scheme, said officials at three Manhattan hedge funds helped him prop up the fraud in its final months, according to transcripts of a court deposition.
Rothstein, 49, said his scheme began to collapse early in 2009, when he could no longer pay customers. Officials at Platinum Partners Value Arbitrage, Centurion Structured Growth LLC, and Level 3 Capital Fund agreed not to tell potential new investors he failed to make payments to them, he testified.
“The funds were going to give us a positive credit rating,” he said in testimony released Dec. 28. “We were going to use as much of the new money coming in to pay them off, and in fact that’s what we did.” Rothstein was later asked about “false exculpatory e-mails” he had sent to co-conspirators. Eliot Lauer, a lawyer for Platinum and Centurion, asked Rothstein if he was correct in saying no such e-mails were sent to the hedge funds. Rothstein told Lauer he “did not consider your clients to be co-conspirators.”
Rothstein, who has been disbarred, was questioned with the approval of U.S. Bankruptcy Judge Raymond B. Ray in Fort Lauderdale, Florida, on how the scheme worked and who knew about it, as victims seek money from those with knowledge of the fraud.
Behind Closed Doors
The questioning took place behind closed doors in a Miami courtroom. Transcripts are being released on the website of the plaintiffs’ law firm Conrad & Scherer.
Rothstein said that, in hopes of a reduced sentence, he was telling prosecutors about everyone involved in his scheme and about police officers and others whom he bribed with cash or encounters with prostitutes.
A recommendation from Centurion, Platinum and Level 3 would have been a lie because he had stopped paying them, Rothstein said. He said Meir Nordlicht, Platinum’s chief investment officer, and Jack Simony, a portfolio manager, agreed to help.
“My only concern was that, at the end of the day, they would lie for us,” Rothstein said. “That was my concern. They didn’t want this to blow. I didn’t want it to blow up. I had been assured by Mr. Simony and Mr. Nordlicht that they would not let it blow up.” Ray Casas, a spokesman for the funds, said Rothstein gave inconsistent accounts and the executives didn’t lie about the fraud.
‘Absolutely False’
“Mr. Rothstein’s claims that the funds or their managers would lie for him are absolutely false and are flatly inconsistent with his unequivocal statement that the funds were not his co-conspirators,” Casas said Dec. 29 by e-mail. “He admits he has no knowledge that anyone at the funds lied for him, and not a single one of the dozens of investors in Rothstein’s scheme has said that the funds recommended the investment to them.”
Rothstein, Casas said, “also complained to one of his alleged co-conspirators -- but not the funds -- that the funds were refusing to talk to new investors. This is not the conduct of a hedge fund looking to lure in new investors.”
Casas cited an exchange in which Lauer, the fund lawyer, questioned Rothstein about a conversation with Nordlicht.
“Your best recollection is that if prospective investors or new investors would contact him, he would not give it a bad rating?” Lauer asked.
‘The Right Thing’
“No, he said he would do the right thing,” Rothstein replied.
Rothstein acknowledged that he wasn’t present when anyone from the hedge funds spoke to new investors. He said the investors told him they had received positive reviews from the funds.
Simony and Nordlicht haven’t been charged with any crime.
Victims believed they were buying stakes in settlements of sexual and employment discrimination claims that Rothstein’s firm, Rothstein Rosenfeldt Adler PA, had investigated for possible lawsuits. The cases and settlements were fictional.
The scheme collapsed at the end of October 2009 and Rothstein briefly fled to Morocco. He returned and surrendered to federal authorities. After pleading guilty in January 2010 to five counts of wire fraud, conspiracy and racketeering, he was sentenced to 50 years in prison.
He is in the federal witness-protection program because of assistance he provided to prosecutors investigating organized- crime figures, according to court papers.
‘Die in Prison’
“If I lie and get caught lying, even a little bit, I will die in prison,” he said when attorney Sam Rabin questioned his credibility. Rabin represents a former T.D. Bank regional vice president who Rothstein said helped him pull off the fraud.
Rothstein’s firm was forced into bankruptcy by his investors. More than 30 lawsuits were filed by the bankruptcy trustee and groups of investors.
The confidence man was questioned by William Scherer, an attorney for a group of investors that sued Centurion, Platinum and Level 3 claiming they knew of the scheme and should disgorge money they took before the law firm’s bankruptcy.
The three funds invested a total of $180 million and had about $100 million at stake when the scheme almost collapsed in the spring of 2009, Scherer said.
“And at the end of the crash, they got it all back except about $18 million?” the lawyer asked.
“Yes,” Rothstein replied. He recalled that “they were just $18 million shy,” he said.
Client Losses
Scherer said his clients lost $180 million.
The three funds sued TD Bank, a U.S. unit of Canada-based Toronto-Dominion Bank, where Rothstein claimed to have settlement funds in escrow accounts. The funds claimed bank employees gave false statements saying the accounts contained “hundreds of millions of dollars.”
The bank asked for dismissal of the case, saying the claims are “factually vacant and legally insufficient.”
Seven of Rothstein’s employees and associates have been charged to date in the scheme. Five pleaded guilty and were sentenced. A federal prosecutor attended the deposition and kept Rothstein from answering some questions because of the investigation.
Investors with claims against the law firm are trying to find out where Rothstein spent sizable amounts of cash he kept in the office, with an eye to claiming that some was paid to abettors of the fraud and should be returned.
A lawyer asked Rothstein what he spent money on.
“Money laundering, extortion, physical violence,” he said. “Influencing law enforcement, influencing bankers, influencing businessmen, influencing business owners, a whole myriad of things.”
Rothstein said he bribed law officers and judges and that he laundered money for organized-crime figures. The prosecutor didn’t allow him to name anyone.
Rothstein said he paid for female “escorts” for police officers and didn’t worry about being caught.
He said he tried to stop his employees’ dealing in marijuana, which he said was common at the firm.
“In the office, in the garage, outside the office, I had some partners that couldn’t come to work without smoking pot,” he said. “I also found out they were actually dealing drugs in the office. I actually tried to put a stop to that.”
Rothstein said he worried the drug dealing might get someone’s attention. He didn’t worry about the prostitutes in the office.
Police Department
“The police also were sleeping with my escorts,” Rothstein said. “Broward sheriff’s office, Fort Lauderdale Police Department weren’t going to bother me.”
Representatives of the departments yesterday didn’t immediately reply to messages requesting comment.
Rothstein went on: “Pot, not a great idea in the office. It troubled me, probably because they were actually dealing the pot out of the office while I was in the middle of running a several-hundred-million-dollar Ponzi scheme.”
The bankruptcy case is In re Rothstein Rosenfeldt Adler PA, 09-34791, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale). The investors’ suit is Razorback Funding LLC v. Rothstein, 09062943, Circuit Court, 17th Judicial Circuit, Broward County, Florida (Fort Lauderdale). The hedge funds’ suit against TD Bank is Platinum Partners Value Arbitrage Fund LP v. TD Bank NA, 0:11-cv-61835, U.S. District Court, Southern District of Florida (Fort Lauderdale).
To contact the reporter on this story: Susannah Nesmith in Miami at susannahnesmith@yahoo.com.
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.
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