Ordered to tell a judge by Monday whether federal prosecutors would seek up to $1.2 billion stolen by convicted Ponzi schemer Scott Rothstein, the federal government said: Yes, we want it.
In a motion for a preliminary order of forfeiture, the U.S. Attorney's Office said it plans to seek as much of Rothstein's assets as possible.
U.S. District Judge James Cohn in Fort Lauderdale, Fla., ordered the government last week to make its intentions clear and criticized prosecutors for waiting so long. If the motion was not filed by his deadline, Cohn vowed to write one for the government himself.
"The United States has established the requisite nexus between the specific property identified for forfeiture and the offenses to which the defendant plead guilty," the motion stated. "Further, the United States has established through the defendant's plea that the property subject to forfeiture includes $1.2 billion for which a money judgment can be entered."
The items up for grabs were listed in previous court filings: dozens of houses, buildings and warehouses in South Florida, New York and Rhode Island; a dozen fancy sports cars; boats and jet skis; 304 pieces of jewelry; sports memorabilia; pricey watch and guitar collections; Rothstein's interests in a host of limited liability companies; his share of the Versace mansion; and a dozen bank accounts with cash totaling several million dollars.
The government also intends to take control of campaign contributions made to -- and returned by -- Gov. Charlie Crist, Florida chief financial officer Alex Sink and the Republican Party of Florida; charitable donations made to Holy Cross Hospital and Joe DiMaggio Children's Hospital; and a life insurance policy.
Generally, portions of money recovered by the government through forfeiture is split among crime victims. In the Rothstein case, investors would fall into that category.
Guy Lewis of Lewis Tein in Miami, who has served as a former U.S. Attorney and a court-appointed receiver, called the request for $1.2 billion -- the total estimate of investments in Rothstein's settlement scam -- "a scorched earth tactic."
"I'm not surprised given the magnitude of the fraud and how brazen the fraud was," he said. "I'm sure the government carefully considered its options and came to the conclusion that this thing was nothing more than a house of cards."
The filing less than three weeks before Rothstein's scheduled sentencing "puts everyone on notice and tells the district court judge what the fraud numbers will be," Lewis said.
The filing does not preclude the government from paying future legal fees to Herbert Stettin, bankruptcy trustee for Rothstein's defunct law firm, or his team of lawyers and accountants.
"If the bankruptcy lawyers have not already had a conversation with the government, I'm sure they are on the phone right now," Lewis said.
However, Thomas Tew of Tew Cardenas in Miami, who also has served as a receiver in numerous cases, called the motion "devastating" to the recovery hopes of the receiver and the professionals he has hired.
The forfeiture motion means they likely will not get paid in the future, Tew said.
In fact, he said the government could conceivably seek the return of legal fees already paid to date since they presumably came from Rothstein's ill-gotten gains.
"Criminal forfeiture means the government now trumps all other claims," he said. "If you're a bankruptcy lawyer in this case, there may be no bones in the pantry now. This really cuts the ground out from underneath the receiver."
Tew said the proposed order means the bankruptcy lawyers and accountants could have been toiling for months, essentially doing little more than investigative legwork for the government, with little chance of recovery for creditors of Rothstein Rosenfeldt Adler.
"The bankruptcy lawyers were aware of this issue early on," Tew said. "The government might have been unfair by waiting so long to file this."
The government has been using criminal forfeiture early on more and more in the last year or so, he said.
Years ago in receiverships, the government would wait a year or more to file a forfeiture claim, he said.
But now, prosecutors may not want to risk the money being eaten up by legal fees instead of going to victims, Tew said. Bankruptcy lawyers will have little ability to challenge the government's request.
Chuck Lichtman of Berger Singerman, one of Stettin's lawyers in the bankruptcy case, said, "We're still digesting the motion."
