Victims of convicted fraudster Scott Rothstein's $1.2 billion Ponzi scheme are elbowing each other to get the first crack at seized assets. And now, federal prosecutors and the bankruptcy trustee are going at it as well.
The U.S. Attorney's Office and Herbert Stettin, the bankruptcy trustee dismantling defunct law firm Rothstein Rosenfeldt Adler, are fighting over restitution plans for an estimated 350 victims of Rothstein's fraud.
The two sides met Feb. 12 in hopes of finding a way to work together. But attempts at behind-the-scenes collaboration immediately sputtered, according to a government motion Friday decrying "inflammatory statements" by the trustee's side.
Stettin sent a detailed proposal and fee structure plan to the government last Wednesday at the government's request. Two days later, Stettin filed a motion asking U.S. District Judge James Cohn, who is overseeing Rothstein's criminal case, to allow U.S. Bankruptcy Judge Raymond Ray to marshal Rothstein's seized assets.
Prosecutors were particularly offended by charges the trustee's attorneys made about Rothstein's wife, Kim.
Stettin claims federal prosecutors are allowing Kim Rothstein to stay rent-free in one of the couple's seized homes and permitted her to collect rent on their properties. He also claims the government is skipping utility payments on seized property, "exposing them to potential deterioration in value."
Assistant U.S. Attorney Alison Lehr is less than happy about the turnabout.
"Less than 48 hours after the delivery of its proposal to the United States and without allowing the United States to properly review its proposal, the bankruptcy trustee has essentially abandoned its purported intent to work collaboratively and seeks the turnover of the assets," she wrote in motion filed late Friday.
Stettin has asked Cohn and Ray to hold a joint hearing in hopes of settling the fight to administer the money.
Stettin, Singerman and Lehr did not return calls for comment.
Prosecutors and Rothstein's attorneys want Cohn to distribute the spoils Rothstein relinquished to the government months before he pleaded guilty to fraud, money-laundering and conspiracy charges. Stettin claims bankruptcy court is the better vehicle for returning money to creditors.
"The property subject to forfeiture should immediately be turned over to the trustee, who is better able to manage and preserve the assets for the benefit of the victims," Singerman said in a filing.
The two sides disagree on the complex laws governing criminal restitution, criminal forfeiture and bankruptcy distributions.
The government took offense at some of Singerman's statements.
Prosecutors and the trustee have been tussling over the financial distribution process for months. An attempt to fold Rothstein and his various companies into the bankruptcy case was halted when the government produced a stipulation signed by Rothstein turning over all of his property to the government without a fight. The show of cooperation could help trim time off his prison sentence.
At the request of prosecutors, Cohn entered a protective order allowing the government to get first dibs on all of Rothstein's seized property -- including a number of bank accounts held in the firm's name.
The bankruptcy trustee has sold office furniture from Rothstein's defunct law firm, and prosecutors plan to start selling a number of Rothstein's vehicles and boats. His homes and businesses also are destined for a victim restitution fund.
The government for the first time gave a glimpse of the scope of Rothstein's fraud in a court filing Friday, saying it has sent 350 questionnaires to victims to collect information on their losses.