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Fla. Law Firm Rocked by Fraud Allegations Against PartnerAttorney and GOP fundraiser Scott Rothstein's rise in South Florida's legal and political worlds has ended with the revelation that investors claim he stole in excess of $200 million. The money is tied to a side business that offered structured settlements, which convert a lump sum award to installments for tax and cost-of-living reasons. Rothstein Rosenfeldt Adler's founding partner Stuart Rosenfeldt has asked a Florida judge to dissolve the firm and appoint a receiver to take over its finances but not its legal practice.
Daily Business Review2009-11-03 12:00:00 AM
Fort Lauderdale, Fla., attorney Scott Rothstein's meteoric rise in the South Florida legal and political worlds ended over Halloween weekend with the revelation that investors claim he stole in excess of $200 million.
The money is tied to a side business started by Rothstein, a major Republican fundraiser and philanthropist, that offered structured settlements, which converts a lump sum award to installments for tax and cost-of-living reasons.
Rothstein Rosenfeldt Adler founding partner and law firm president Stuart Rosenfeldt, in a complaint filed Monday by Coffey Burlington partner Kendall Coffey, asked Broward Circuit Judge Jeffrey Streitfeld to dissolve the law firm and appoint a receiver to take over the firm's finances but not its legal practice.
A hearing Monday resolved nothing, including Rothstein's whereabouts. A second hearing was set for Tuesday.
"This is a seismic blast that shattered the law firm," Coffey said at the hearing. Afterward, he said, "When you have a shattering event like this, you still have cases, you still have hearings to attend, you have closings. All of that is ongoing."
Rothstein's attorney, Marc Nurik, who quit the firm to take his former boss as a client, told Coffey that Rothstein is out of the country. Coffey said he heard "rumors from country A to Z" on Rothstein's location.
Coffey said Rosenfeldt and the firm wanted Miles McGrane of McGrane Nosich & Ganz in Coral Gables to be named receiver, but the judge asked about appointing Rosenfeldt as half owner of the firm rather than "bring in a total stranger." Coffey noted Matthew Menchel of Kobre & Kim of Miami, who represents a large creditor, wants James Cassel to be the receiver.
After a brief discussion among lawyers, Rosenfeldt said he would be willing to take charge. An amended complaint proposing an outside receiver or Rosenfeldt to take charge of firm finances could be filed in time for Tuesday's hearing.
"It is with surprise and sorrow that the attorneys of Rothstein Rosenfeldt Adler have learned that Scott W. Rothstein, the managing partner and CEO of the firm, has, according to assertions of certain investors, allegedly orchestrated a substantial misappropriation of funds from investor accounts," the complaint said.
Rothstein headed the second prominent legal firm to implode in South Florida in a month. He refused to resign as a 50 percent shareholder in the firm, Coffey wrote. Coffey, a former Miami U.S. attorney and Democratic Party attorney, said he had no comment on the complaint.
Rothstein is credited with bundling millions of dollars for GOP presidential candidate John McCain and numerous state and Broward County races. For his efforts, he was invited to Gov. Charlie Crist's wedding.
Money was taken "from investor trust accounts that made use of the law firm's name," the lawsuit said. The money was not associated with cases handled by the fast-growing, 7-year-old law firm but from the structured settlement business created and operated by Rothstein, according to the complaint. The business purchased structured legal settlements and sold them to investors.
A source told the Daily Business Review the amount allegedly misappropriated by Rothstein was at least $200 million but could be as high as $500 million.
"Immediate judicial action is being sought to facilitate the investigation and accounting of investor funds and to address the ongoing affairs of the firm in an appropriate manner," Coffey wrote in the complaint. After the hearing, he said, "the law firm is facing significant financial challenges."
Rothstein maintained iron-fisted control of the law firm's finances, and its attorneys had limited knowledge of the alleged scheme until just recently, according to the complaint.
"I trusted him," Rosenfeldt said of Rothstein. "Scott was like a brother to me."
The firm hired public relations consultant Charles Jones on Monday morning. He said the firm is open and attorneys are working on client matters "and trying to keep things as normal as possible."
The firm intends to separate Rothstein from the rest of the firm and have the receiver take over the firm's financial management, Jones said.
"Firm lawyers learned in the past few days about irregularities surrounding a settlement funding business operated by Rothstein," according to the complaint. "A review of the firm's records undertaken over this past weekend indicates that various funds unrelated to the direct practice of law cannot be accounted for, circumstances suggesting that investor money may have been misused by Rothstein who controlled all such accounts."
In the most serious allegation in the complaint, Coffey wrote that some investors claimed "Rothstein may have been fabricating non-existent structured legal settlements for sale to investors." If that happened, it would move the case from the realm of pilfered money to an outright fraud.
A structured settlement pays funds in installments instead of a single lump sum. Deferred payments can protect a plaintiff from inflation and taxes and provide a steady source of income.
Word that Rothstein was in trouble started leaking out in the legal community months ago, but the rumor mill heated up in recent weeks. One attorney, who asked not to be identified, said he just won lunch from a colleague betting Rothstein would be out of business by the end of the year.
After the court hearing, Rosenfeldt said he first heard about problems Friday afternoon, and he and Rothstein had limited contact via text messages since then.
Melanie Damian, a Miami attorney with Damian Valori who often serves as a court-appointed receiver, said lawyers who deal in fraud cases were suspicious of Rothstein's ostentatious spending. One of his latest ventures was partnering in a restaurant at the former Versace mansion on South Beach. The firm's name was also prominent at sports venues such as the American Airlines Arena in Miami and the BankAtlantic Center in Fort Lauderdale.
"The law firm economics didn't make sense," she said. "A law firm that size wouldn't have generated the money he was spending."
It wasn't unusual to see the attorney eating at one of his restaurants, such as Bova Prime on Las Olas, with a group of bodyguards. Rothstein spent almost $400,000 a year on off-duty police protection, which he started after a lawyer at the firm was killed.
The firm was thrust into the public eye in March 2008 when partner Melissa Britt Lewis was strangled inside her Plantation garage and dumped in a canal. Tony Villegas, the estranged husband of the firm's longtime chief operating officer and Lewis' best friend, was charged in her murder.
Rothstein later hired bodyguards to protect his colleagues and family. Off-duty police guarded his home, law firm and restaurant around the clock until Monday. Fort Lauderdale police spokesman Frank Sousa said the three details have been "suspended indefinitely."
Broward Chief Circuit Judge Victor Tobin alerted judges and judicial assistants to "some very distressing news" before court opened Monday. In an e-mail, he asked that the judge assigned to the receivership case set a quick hearing "because of the amount of clients and money involved."
Tobin advised judges with cases involving firm attorneys to be patient.
"I don't know if the lawyers will come or not, and if they do come there is no money at this point to go forward with the case or pay firm employees," the judge wrote. A receiver is needed immediately to "marshal whatever is left of the assets."
Rosenfeldt said the firm has thousands of open cases.
Gary Farmer Jr., a prominent class action attorney who joined the firm last year, said the news caught the attorneys at the firm off guard.
"We're just trying to keep our cases moving, and we're trying to make sure that we take care of the staff members here," he said.
The firm opened in 2002 with seven lawyers and quickly ballooned to nearly 70. Rothstein said a year ago that his law partners had their fingers in 18 companies, including an Internet startup and a vodka manufacturer.
As it grew, the firm broadened its focus from employment and intellectual property law to practice areas including bankruptcy, white-collar crime and legal issues in the automotive and hospitality industries.
Rothstein recruited defeated Broward Judges Pedro Dijos and Julio Gonzalez, retired 4th DCA Judge Barry Stone and Palm Beach Circuit Judge William Berger, who resigned from the bench after he was offered the chance to run the firm's Boca Raton office.
Rothstein also hired former Broward Sheriff Ken Jenne shortly after he served a federal prison sentence on corruption charges.
The firm also has a consulting, political strategy and lobbying arm headed by longtime Republican operative Roger Stone. Stone's Web site, The Stone Zone, makes no mention of the troubles at the firm, with the latest post coming three weeks ago after President Obama won the Nobel Peace Prize.
Rothstein and Rosenfeldt are the firm's only equity shareholders, each holding 50 percent. Russell S. Adler's name joined the masthead when he joined the firm in 2005 but not as an equity partner. Adler had no comment.
Rothstein previously told the Daily Business Review that he uses partners as an advisory board.
Jeffrey Stay, the firm's chief relationship officer, did not return calls for comment. His cell phone's voicemail, however, has an appropriate message following his request for the caller to leave the message:
"We cannot tailor-make the situations of our life, but we can tailor-make the attitudes to fit them before they arrive," his message said. "Make it a great week."
No criminal charges have been filed. A spokesman for the U.S. attorney's office in Miami declined comment.
In another high-profile receivership, Lewis B. Freeman & Associates asked a Miami-Dade circuit judge to name a receiver to take over the business Oct. 16 just days after the FBI raided that firm's Miami and Plantation offices. Agents were seeking information tied to $3.6 million in funds under the control of Lewis Freeman. The attorney and accountant was well-known as a court-appointed receiver.
The allegations come on the heels of two high-profile FBI corruption investigations in Broward County that resulted in criminal charges against high-profile figures in the community.
Dr. Alan Mendelsohn, a politically connected ophthalmologist and Republican fundraiser, was charged with fraud tied to political contributions. Three local politicians were accused of taking bribes to steer business toward favored companies.