Two former partners at Scott Rothstein's defunct law firm have refused to turn over access to their off-site computer and e-mail files and will face a court order to force them to do so.
U.S. Bankruptcy Judge Raymond Ray, who is overseeing the Rothstein Rosenfeldt Adler bankruptcy and wind-down, said at a hearing Tuesday that he will compel Russell Adler and Robert Buschel to surrender their passwords to the RRA firm's e-mail and computer file system administered by Burbank, Calif.-based Qtask. The request was made by bankruptcy trustee Herbert Stettin.
Berger Singerman attorney Chuck Lichtman, who represents Stettin, said he sought the order to look for potential evidence of Rothstein's $1.2 billion Ponzi scheme and hidden assets. He guessed federal prosecutors also would be interested in reviewing the files once he has obtained them.
"We need access to inventory files to understand if these are legitimate files," Lichtman said in court. "We are not looking into the day-to-day dealings of the firm. We're looking into evidence of a Ponzi scheme."
Qtask is fighting the move. Lichtman said he had no luck with a subpoena served on Qtask to obtain the information.
Qtask is an internal Web-based task manager used by law firms and other businesses to keep track of clients and cases, and includes task lists and discussion threads similar to e-mail and chat rooms. The RRA firm used the system and encouraged lawyers to use it. Rothstein also invested in the company.
A Rothstein company, AAMM Holdings, invested $7 million in Qtask beginning in 2007, Qtask CEO Russell Mix said.
Robert Buschel, a former RRA partner who is representing Qtask, argued in court that the request violates the privacy of lawyers who were working on projects that even Rothstein could not access.
"People may have their credit card information there," he said. "Unless Scott Rothstein was invited to a project, he could not see it."
Lichtman said 95 percent of former RRA attorneys have voluntarily turned over their log-ins and passwords, giving him complete access to their files. Former partner Steven Lippman's log-in and password did not work, but Lichtman said he considered that an accident. Adler, a name partner but not an equity partner, and Buschel were the only ones to deny him access.
Lichtman said it's "particularly critical" that he be able to review "discussion threads" for Adler. Adler, who did not attend the hearing, declined comment.
Gary Farmer, a former RRA partner, also argued against the motion, saying it would violate attorney-client privilege for his sealed whistle-blower cases.
"We certainly want the trustee to have what he needs, but we want to make sure the attorney-client privilege is not lost," he said.
While Farmer does not want to turn over his password and log-in, he agreed to allow Lichtman to view his files, which he insists "have no discussion of Ponzis or hiding assets."
"How does he know unless he looks?" Ray asked. "That was the con. How does he know an orange from an apple?"
Ray said he was surprised federal prosecutors have not subpoenaed the Qtask material. Authorities only sent a letter to Qtask principals requesting they not destroy any RRA files.
At the hearing, Ray also approved hiring Bruce Katzen of Kluger Peretz Kaplan & Berlin of Miami to represent creditors in their fight with RRA's malpractice insurer. Carolina Casualty is seeking to nullify the law firm's two malpractice policies valued at a total of $15 million, citing fraud by Rothstein on his application.
"Everyone in town is going to try to get their hands on those policies," Ray remarked.
Katzen said claims against the policies already exceed their limits but did not offer specific information.
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