Rothstein Charges Released: ‘It Was All Smoke And Mirrors’

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Charges released this afternoon against Scott Rothstein, who was arrested earlier today, provide new details on how his alleged Ponzi scheme worked. He plead not guilty this morning.

The five-count criminal information seeks forfeiture of $1.2 billion, including bank accounts and no less than 24 luxury cars. The full 34-page document, released by the U.S. Attorney for southern Florida, can be read below (see page 23 for the car list).

“Scott Rothstein appeared to be a charismatic, reputable attorney one could trust to invest one’s money and make a sizeable profit,” said Miami FBI agent John Gillies, in a statement today. “We now know it was all smoke and mirrors.”Besides big donations to politicians like Gov. Charlie Crist, here’s how Rothstein allegedly used the money:

The money was also used to pay for lavish gifts, including exotic cars, jewelry, boats, cash and bonuses to individuals and members of RRA, to hire local police officers to provide security, and to provide gratuities to high ranking members of police agencies. In addition, the money was used to purchase controlling interests in restaurants and other businesses, and to socialize with politicians and sports figures. According to the information, these expenditures were calculated to enhance defendant Rothstein’s reputation and ability to solicit potential investors in the Ponzi scheme, provide an air of legitimacy and credibility to RRA, engender loyalty, and deflect law enforcement scrutiny.

And here’s how the alleged Ponzi scheme worked:

As alleged in the information, in the loan scheme, defendant Rothstein and other co-conspirators solicited investors to loan money to purported RRA clients through promissory notes and short-term bridge loans. Defendant Rothstein falsely represented to the investors that the purported clients were willing to pay high rates of return on these loans. In the settlement agreement scheme, Rothstein and other co-conspirators allegedly solicited clients to invest in purported civil case settlement funds. Rothstein and his co-conspirators falsely told investors that these settlements ranged in amounts from hundreds of thousands to millions of dollars. Rothstein falsely represented to investors that these settlements could be purchased at a discount and would be repaid over time to the investors at full face value. In addition, investors were told that these funds would be held in the trust account of RRA. In both instances, the information alleges that the purported investment vehicles never existed, but were part of an elaborate Ponzi scheme in which new investors’ money was used to repay money owed to earlier investors.

To execute this four-year fraud scheme, Rothstein and his co-conspirators allegedly used multiple bank accounts at TD Bank, N.A., Gibraltar Private Bank and Trust, and other financial institutions to deposit and launder investors’ money. As well, to perpetuate and conceal the fraud, Rothstein and his co-conspirators created and caused the creation of false bank documents, false on-line bank account information, and false settlement agreements and promissory notes, which were shown to investors as proof that the settlement and loan monies existed. In fact, however, there were no settlement funds or loan clients and the bank accounts only contained “Ponzi” scheme funds.

To further fund the Ponzi scheme, defendant Rothstein and other co-conspirators allegedly defrauded clients of RRA in a civil suit initiated by RRA on their behalf as plaintiffs. Without the clients’ knowledge, RRA settled the lawsuit in favor of the defendant, thereby obligating the clients to pay $500,000 to the defendant in the civil lawsuit. To perpetuate and conceal the fraud, defendant Rothstein and other co-conspirators created a false federal court order, purportedly signed by a Federal District Court Judge, stating that the clients had won the lawsuit and were owed a judgment of approximately $23 million. The false court order also stated that the defendant in the civil suit had transferred the funds to the Cayman Islands to avoid paying the judgment. Defendant Rothstein and other co-conspirators falsely advised the clients that to recover those funds, the clients were required to post bonds. In this way, defendant Rothstein caused the clients to wire transfer approximately $57 million to a trust account he controlled, purportedly to satisfy the bonds.

Here’s the full document:

Federal Charges Against Scott Rothstein, December 1, 2009

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