Prominent Florida lawyer and power broker Scott Rothstein solicited investors to buy shares in a structured settlement that purportedly had been reached with a defense industry whistleblower, who wanted instant cash in place of installment payments over time.
The prospective investor balked at the proposal because it seemed suspicious and walked away in August after meeting with Rothstein Rosenfeldt Adler's general counsel, David Boden, in the firm's Fort Lauderdale office.
The offer was to pay about 75 percent of the whistleblowers' pre-suit settlement of $900,000 up front in exchange for full payment over time. The investor said the offer dealt with one of more than 100 similar settlements.
Boden, who is not licensed to practice law in Florida, did not return a call for comment at the law firm by deadline.
Details of the investment offer were revealed Tuesday by the prospective investor and his attorney. Both spoke with the Daily Business Review on a condition of anonymity,
The report shed some light on broader accusations raised Monday in court against Rothstein by his partner, Stuart Rosenfeldt, in a request for a court-appointed receiver to run the firm and audit its finances.
Sources said Rothstein may have misappropriated $200 million to $500 million in a scheme tied to structured settlements.
Rosenfeldt said about $500 million in trust accounts for settlements disappeared from Oct. 23 to 30.
Rothstein earlier transferred $16 million to Morocco, Rosenfeldt said in a phone interview.
"He didn't have to do this," Rosenfeldt said. "He was a frickin' good lawyer."
He said none of the settlements that Rothstein marketed involved firm clients, but the Review obtained settlement forms linking Rothstein, the firm and its trust accounts. Some forms used the law firm's letterhead.
Coffey Burlington attorney Kendall Coffey, who was hired by Rosenfeldt to sue Rothstein, said the firm with 70 attorneys had about $500,000 cash on hand. He said he alerted the FBI on Monday to the possible fraud.
Broward Circuit Judge Jeffrey Streitfeld appointed Miami-Dade Senior Circuit Judge Herbert Stettin, who was not present, as receiver late Tuesday. He was granted complete authority over the firm's offices, files, records and security. The day-to-day financial decisions also are up to Stettin. He was authorized to spend $50,000 to bring in outside accountants.
"Initially accounting will be most of the work," Streitfeld said. "I will be here to address any disagreements, but you want to do that very sparingly."
Rosenfeldt was named chief executive officer and will handle the firm's legal operations and any departures, which began Monday as word spread about the firm's crisis.
"Mr. Rothstein twice was given notice and twice has refused to appear here. He has in my opinion relinquished his authority in the firm," Streitfeld said from the bench.
Rothstein was thought to be out of the country over the weekend but returned to Fort Lauderdale on Tuesday shortly before the hearing. Neither he nor his attorney, former law firm colleague Marc Nurik, attended the hearing. Another is set for Friday afternoon.
FIRM ACCOUNTS USED
While the firm's receivership complaint attributed alleged misappropriation to an "investment business created and operated by Rothstein," the Review obtained sample forms from an investment recruit that directly intertwined Rothstein's structured settlement business and the law firm.
The documents indicate Rothstein Rosenfeldt Adler, which also used the acronym RRA, detailed the workings of a settlement with a whistleblower who obtained a $1.2 million settlement without filing a complaint or a lawsuit. The defense contractor agreed to transfer the full amount to the law firm, $900,000 would go to the whistleblower, and the rest would go to the firm.
Rosenfeldt, the firm's president, said firm chairman Rothstein maintained iron-fisted control of firm finances and exclusive control of firm management, according to Monday's court complaint.
The prospective investor, who spoke on a condition of anonymity, told the Review that he was approached to pay a portion of the settlement between a defense contractor manufacturing faulty equipment and one of its employees. The manufacturer purportedly entered into a series of pre-suit settlements with employees to prevent them from going public.
The names of the parties and identifying information were redacted from the confidential settlement agreement. The investor said the proceeds from the settlement were already in bank accounts owned and controlled by RRA and Rothstein had signing authority on the TD Bank account.
The law firm claimed in court documents that Rothstein offered investors a chance to get involved in structured settlements and convert a lump sum award into smaller installments to be paid out over time. Structured settlements often are used in personal injury settlements.
When a settlement recipient wants money in a lump sum, investors can pay a percentage up front and the rest would go to investors in installments. Alan Sakowitz, a South Florida attorney and real estate developer, told Bloomberg News he was solicited to buy settlements through a broker working for Rothstein.
Sakowitz and his partner met with Rothstein in the firm's Fort Lauderdale office in August. They sat on a lizard-skin couch as Rothstein stood by a bank of television monitors, a revolver strapped to his ankle. On the wall were pictures of Rothstein with politicians including California Gov. Arnold Schwarzenegger.
Rothstein told them he was selling investments in sex-discrimination and whistleblower cases that were settled confidentially.
Sakowitz said he considered investing in three $900,000 settlements. Rothstein would pay the clients $660,000 each immediately with Sakowitz's money, and he would get the full amounts in three payments at 30, 60 and 90 days, he said.
Sakowitz said he was denied permission to meet the clients, see backup documents or talk to the attorneys who worked on the cases.
"When we left, we thought, this is either an unbelievable opportunity or this is a big scam," Sakowitz said.
He met with Rothstein two more times and, convinced the settlements were a sham, decided not to invest. He said he called the FBI and tried to persuade other potential victims not to invest with Rothstein.
The Florida Bar opened a file against Rothstein following a complaint filed Tuesday afternoon. The Bar cannot disclose who filed the complaint.
Other blank documents obtained by the Review list a signature line for Rothstein and refer to RRA tracking numbers assigned to settlements.
A 10-page confidential settlement agreement prepared for use in August required a wire transfer to an RRA trust account and covered attorney fees paid to the firm.
A 20-page "acknowledgement of assignment/purchase of settlement proceeds" above Rothstein's signature line listed him as the attorney of record on a settlement.
The firm's Florida Bar trust account at Commerce Bank in Fort Lauderdale was listed. In case of the deaths of both Rothstein and Rosenfeldt, the bank was directed to release the funds to specified people tied to the settlement.
A form on law firm letterhead stated "we are holding such sum in our trust account."
A four-page form entitled "personal guaranty" pledged Rothstein, the firm's managing partner, personally guaranteed payments of settlement proceeds to beneficiaries.
Another one-page form on RRA letterhead said the firm unconditionally guaranteed a series of monthly payments under a settlement agreement.
When asked about the documents on firm letterhead, Coffey said Rosenfeldt and others at the firm have "come to learn that [Rothstein] was setting up the investment accounts as 'law firm trust accounts.' The lawyers weren't involved in that."
Coffey said the firm's attorneys were "completely walled off" from any information about investment accounts to the point that they had to have a computer expert create access over the weekend.
Rothstein and Rosenfeldt were each 50 percent shareholders of the firm, which had ballooned from seven lawyers in 2002 to more than 70.
Rosenfeldt said six attorneys resigned following the firm's descent into turmoil -- including Palm Beach County Commissioner Steve Abrams -- but many appear dedicated to starting up a new venture.
Rosenfeldt said in an interview Tuesday that he that he invested two-thirds of his life savings in the firm Tuesday, planning to use the undisclosed funding to create a new entity with the same group of lawyers.
"We want to practice law together," Rosenfeldt said of the other attorneys. "Whatever was RRA and whatever name it surfaces as in the near future, it will still have that great solid talent base that made us a great law firm."
Another 15 attorneys affiliated with the firm in Venezuela pulled out Monday.
Staff writer Terry Sheridan and Bloomberg News contributed to this report.