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Photograph by Charles Trainor Jr./Miami Herald/MCT/Getty Images
Rothstein was a major fundraiser for the Republican Party in Florida Photographs by Zumapress/Newscom (4)
“All Ponzi schemes do the same thing: They explode at the end,” says convicted con man Scott Rothstein. While his $1.2 billion Ponzi scheme blew up in 2009, the debris is still falling to earth. In an attempt to get his 50-year sentence reduced, Rothstein is naming accomplices and detailing exactly how his scheme worked.
The now-disbarred South Florida lawyer is in protective custody while he cooperates with government investigators. And he’s testifying in civil lawsuits, brought by investors and the court-appointed trustee of his bankrupt law firm, to recover money from banks and hedge funds that allegedly aided the fraud. Over two weeks of depositions in December, Rothstein implicated lawyers, hedge funds managers, bankers, police officers, and his uncle. “His testimony fills in the blanks and ties everything together into a nice, neat package,” says attorney Charles H. Lichtman of Berger Singerman, who represents the trustee. Richard A. Sharpstein, a veteran criminal defense lawyer and former Florida state prosecutor, calls the case “the greatest show on earth. It has just everything—sex, drugs, rock ’n’ roll, bribery, greed at the highest levels.”
In a related trial where Rothstein didn’t testify, an investor group sued Toronto-Dominion Bank, saying it led Rothstein victims to believe their money was safe as he depleted accounts. On Jan. 18 a jury ordered the bank to pay the group $67 million. The bank is disappointed with the verdict, says a spokeswoman, Rebecca Acevedo, “and is considering all of its options.”
For four years, Rothstein persuaded investors—mostly hedge funds and wealthy families in New York, Florida, and Texas—to buy stakes in what he said were payouts from settlements of sexual-harassment and workplace discrimination lawsuits. The suits weren’t real: He’d fabricate the cases from scratch, using forged documents and elaborate ruses, such as having an accomplice pose as a bank officer. The scheme fell apart just after Halloween in 2009 when he couldn’t lure enough new investors to pay earlier ones. After fleeing to Morocco, Rothstein returned to the U.S. Two years ago he pleaded guilty to five federal counts of racketeering, money laundering, and wire fraud.
In December, Rothstein, 49, emerged for questioning before 35 lawyers in a Miami courtroom. He donned polo shirts and jeans that his lawyer bought at Target, a far cry from his former designer look. Rothstein was known for what he called his “rock star” lifestyle. He was married in the Versace mansion in Miami Beach—Florida’s then-governor, Charlie Crist, was a guest—and his car collection included a Rolls-Royce, a Bugatti, two Lamborghinis, and a Maserati. In more than 2,700 pages of transcripts released on the website of the law firm Conrad & Scherer, which is representing a large group of investors, Rothstein describes how his bling, along with plenty of cash, helped him seduce accomplices. “We were handing out money like Santa Claus hands out candy canes to anybody that needed it for our purposes,” he testified, saying he stored as much as $1 million in cash in an office credenza.
Rothstein kept many accounts at Gibraltar Private Bank & Trust. He testified that while his frequent deposits, withdrawals, and overdrafts raised suspicions, he had two bank officials “in my pocket.” After Gibraltar’s chairman and CEO, Steven D. Hayworth, told him that the bank doesn’t investigate its shareholders, Rothstein said, he invested $5 million in privately held Gibraltar. Rothstein said he wooed John Harris, a former vice-president at the bank, with private plane flights and expensive watches, and that Harris helped him by juggling funds between Rothstein’s accounts to ward off queries from Gibraltar’s compliance investigators. “The only thing my client did was go to a Dolphins game with a high-end client,” says Harris’s attorney, Michael S. Popok. “It’s not criminal, and it’s not fraud.” Miami attorney Eugene E. Stearns, who represents Gibraltar and Hayworth, says Rothstein is a “pathological liar” and that the bank routinely investigates new investors.
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