Scott Rothstein scandal: One year later

He rose quickly and fell even faster

By Jon Burstein and Paula McMahon, Sun Sentinel

10:15 AM EDT, November 1, 2010

Fallout from the largest fraud in South Florida history continues after the dark secret behind Scott Rothstein's success was revealed a year ago this week.

The Ponzi schemer now sits in prison with limited contact from the outside world. The disgraced lawyer and business impresario who once held court at his now-shuttered Bova Prime restaurant is now reviled as a total fraud.

The attorneys who had been on his Fort Lauderdale law firm's payroll cringe when they hear his name. His former law partners at Rothstein Rosenfeldt Adler have become the subject of scorn with colleagues questioning how they had no idea Rothstein was using the law firm as the front for his $1.4 billion investment fraud.

His wife, Kim Rothstein, faces a massive IRS lien that her attorney says has kept her from getting a job.

The Rothstein drama captivated Fort Lauderdale—the implosion of his law firm, the details of his extravagant lifestyle and his dramatic return from Morocco, where he had fled as it became clear his colossal scam was unraveling.

Within eight months, Rothstein, 48, was arrested, pleaded guilty to the fraud and was sentenced to 50 years in federal prison.

While Rothstein's name has been wiped from buildings and billboards, the path of financial destruction left in his wake remains. With the one-year anniversary of the scandal, questions still loom.

Where is Rothstein now?

This is the most common question asked about Rothstein. His name and inmate number have vanished from the U.S. Bureau of Prison's inmate locator webpage. While conspiracy theories abound on the Internet, attorneys in civil and criminal cases involving Rothstein say there's no question he is behind bars.

Rothstein's lawyer, Marc Nurik, scoffed last week at the notion that anyone could believe Rothstein is anywhere but prison. The defense attorney said he can't give any details where Rothstein is incarcerated.

Fort Lauderdale attorney, William Scherer, who is representing investors who lost more than $165 million with Rothstein, said he's in constant contact with the Ponzi schemer through Nurik. Rothstein is being kept in protective custody in an undisclosed prison, Scherer said.

Scherer said Rothstein continues to help attorneys trying to recover investors' money. Rothstein began cooperating with the federal government almost immediately after he came back from Morocco.

Rothstein will come back to Broward County—as early as next year—for more court appearances.

He will be Scherer's star witness in a civil case against more than 30 people and companies accused of aiding or allowing Rothstein's Ponzi scheme. That case could go to trial sometime in 2011.

Rothstein will inevitably ask U.S. District Judge James I. Cohn in Fort Lauderdale to reduce his prison sentence because of his cooperation. He also could be brought into any of the ongoing bankruptcy cases as well as future criminal cases filed against co-conspirators.

Why have only Rothstein and the law firm's chief operating officer Debra Villegas been arrested so far?

Legal experts say it's no surprise there haven't been more arrests. Criminal cases of this size and complexity can take years for federal authorities to investigate and bring to trial, they say.

"You have to reconstruct transactions and, when you get below the top people, you have to be able to show evidence of criminal intent," said Bruce Reinhart, a former federal prosecutor who now specializes in white-collar criminal defense. Reinhart said it's one thing to accuse a Rothstein confederate of illegal acts but "the government has to prove it and there's a very high standard of proof."

Villegas, who loyally served by Rothstein's side for 17 years, pleaded guilty to a money laundering conspiracy charge and was sentenced earlier this month to 10 years in prison. While both she and her former boss cut deals with the government, other defendants might not, said former U.S. Attorney Jeffrey Sloman.

"Since there are no statute of limitations problems, (prosecutors) will not indict before they have all the evidence they believe they need and can obtain to succeed at what will likely be a hotly-contested trial," Sloman said.

Will investors get at least some of their money back?

Yes. There are three avenues for investors —through restitution in the criminal case, lawsuits filed by the bankruptcy attorneys against those who pocketed Ponzi money and Scherer's lawsuit before Broward Circuit Court Judge Jeffrey Streitfeld.

"I tell (my clients) the bucket looks to be half full and we have yet to fight," Scherer said. "My optimism level with a year's worth of experience is far greater than a year ago."

It's estimated between $300 million and $400 million was lost. The federal government has seized Rothstein's personal assets, which rough estimates have placed around $30 million.

Attorneys for bankruptcy trustee Herbert Stettin have made dozens of demands to get money back from investors and other entities who profited. They have filed about 25 "clawback" lawsuits seeking more than $87 million.

Then there is the Scherer lawsuit with defendants including two banks—TD Bank and Gibraltar Bank—that he says failed to have safeguards to stop Rothstein's dubious financial transactions.

What happened to Rothstein's wife?

Kim Rothstein, 36, is still living in Fort Lauderdale, "keeping a low profile," said one of her attorneys, Scott Saidel.

She appears to be poised to settle a $1.1 million lawsuit filed against her by the bankruptcy trustee, alleging her life of luxury complete with shopping sprees and plastic surgery treatments was financed with Ponzi money. In addition, the Internal Revenue Service has filed a $10 million lien against her and her husband for unpaid taxes.

Saidel said that because of the lien, Kim Rothstein has been unable to work since her income would be subject to garnishment by the IRS. He did not go into details on how she is supporting herself and how she spends her time.

"She's doing well all things considered," Saidel said. "Life is difficult for Kim because she still has to deal with the repercussions of the situation and a large number of people in the area who seem to want to hold her responsible in some way for Scott's misdeeds."

What happened to the attorneys of Rothstein Rosenfeldt Adler?

The implosion of Rothstein's law firm left 70 attorneys not only out of jobs, but with the stain on their resumes that they had worked for the biggest conman in South Florida. Some landed positions with other law firms, while others hung out their own shingle or joined forces to start small firms.

The Florida Bar has investigated 64 complaints against 49 RRA attorneys, said Francine Walker, a Bar spokeswoman. All but four attorneys have been cleared by the Florida Bar of any wrongdoing. Those still under investigation are Rothstein's name partners, Stuart Rosenfeldt and Russell Adler, as well as senior partner Steven Lippman and longtime Rothstein legal associate Howard Kusnick. If they are found to have committed serious ethical breaches, they could face disbarment.

The firm's general counsel David Boden, a licensed attorney from New York, remains under investigation by the legal disciplinary system there.

Stettin filed lawsuits against Adler, Rosenfeldt and Lippman seeking to recover a combined $18 million the three attorneys received from RRA. Lippman has reached a $700,000 settlement. The lawsuits against Rosenfeldt and Adler are pending.

Will Fort Lauderdale ever see a scammer like Rothstein again?

Rothstein's Ponzi scheme placed him in what federal prosecutors described as "the pantheon of fraudsters."

Scammers have long flocked to South Florida to capitalize on its wealth and its retirees, avoid paying state income taxes and buy houses protected by state law from seizure to pay off people they owe money.

"I would hope that as a community we are learning to ask more questions about meteoric financial rises, yet I'm uncertain if anything has really changed (after Rothstein)," said Kendall Coffey, a former U.S. attorney who represented Rothstein's law firm after the Ponzi scheme was uncovered.

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