Former office of Rothstein Rosenfeldt Adler
Former office of Rothstein Rosenfeldt Adler (Melanie Bell)

How close was Frank Preve, the ex-con turned hedge fund executive, to Scott Rothstein, the lawyer turned con man?

The two shared 7,000 emails between each other, according to a deposition by Rothstein about 2½ years ago.

Yet when criminal charges were filed Monday against the 70-year-old Preve, they were basically “technical violations” he committed while chief operating officer of Fort Lauderdale-based Banyon Investments LLC, his attorney said.

Rothstein’s $1.2 billion Ponzi scheme depended on Banyon and its related companies as the main feeder fund, losing $775 million delivered by investors. They described Banyon in a civil lawsuit as “rocket fuel blasting the obscure investment vehicle to dizzying heights.”

Preve, Rothstein’s point man at Banyon, was charged in a criminal information with one count of conspiracy to commit wire fraud. Usually, an information indicates a plea deal has been struck, but Preve’s attorney—Ramon A. Rasco, a partner at Podhurst Orsek in Miami—told the Daily Business Review his client hasn’t agreed to anything as of yet.

Rasco said the case against Preve is about “omissions,” his failure to disclose to investors Rothstein’s financial shenanigans in the months leading up to the implosion of the fraud in October 2009.

From July to October 2009, “Preve caused investors and lenders to pay more than $20 million to the Banyon Group by wire transfer for investments in confidential settlements,” the information reads.

Rasco noted the information doesn’t accuse Preve of having any direct knowledge of Rothstein’s settlement financing fraud. “Considering the allegations that have been made against Frank over the years, it is a very, very watered-down version of events,” he said.

Preve and Rothstein exchanged thousands of emails, but they met only a handful of times, and Preve did not have an office in Rothstein Rosenfeldt Adler’s Fort Lauderdale office as alleged in civil suits, Rasco said.

“He did not have any knowledge of the Ponzi scheme, and he wasn’t working with Rothstein, and he certainly did not benefit from it,” Rasco said. “What the government is alleging now are basically technical violations.”

Rothstein’s scam was disguised as an investment strategy where Rothstein would purchase discounted confidential settlements in sexual harassment or employment whistleblower cases.

‘Out Of Money’

The information charged Preve became aware RRA was not providing Banyon with evidence of the so-called settled documents in July 2009, but he didn’t alert investors when he learned Rothstein froze bank accounts containing payments.

The case was assigned to U.S. District Judge James I. Cohn in Fort Lauderdale. Rasco said his client most likely will surrender this week.

Rasco said any notion that his client, who was convicted of an unrelated bank embezzlement in 1985, was the mastermind behind Rothstein is belied by the fact that the Banyon executive made no money off the fraud and did not participate in the disbarred lawyer’s “rock ‘n’ roll lifestyle.”

“Frank is out of money,” Rasco said.

In April, Preve settled a lawsuit filed by the RRA bankruptcy trustee for $471,000, comprised mostly of investment real estate property and $65,000 in cash. He still faces civil charges filed by the Securities and Exchange Commission.

Rothstein, who is serving a 50-year prison sentence, implicated Preve during depositions when he testified earlier this year in the criminal trial of former RRA attorney Christina Kitterman.

Rothstein, however, said Banyon’s CEO, George Levin, did not know of the Ponzi scheme.

Prosecutors are in mop-up mode with a five-year statute of limitations expiring in October. Major figures connected to Rothstein who have not been charged include Frank Spinosa, a former TD Bank regional vice president is alleged to have written so-called lock letters to fool investors into thinking their money was safe, and Michael Szafranski, who served as a so-called independent verifier for bogus settlements. He settled with the RRA trustee for $6.6 million.

Spinosa has denied any wrongdoing.

U.S. District Judge Kenneth Marra in West Palm Beach last month refused to dismiss an SEC complaint against Spinosa. Marra upheld claims that Spinosa received money for the fraud since he received bonuses from his employer that were enlarged because of his alleged role in the fraud. Rothstein has said he bribed Spinosa with $50,000.

So far, 23 people have been charged in connection with the Ponzi scam, including Rothstein and his former name partners, Stuart Rosenfeldt and Russell Adler. Both partners are awaiting sentencing.