Scott Rothstein (Melanie Bell)
The U.S. attorney’s office in Miami has reached a settlement with the trustee overseeing the bankruptcy of Ponzi scammer Scott Rothstein’s defunct law firm over the distribution of about $50 million to his victims.
The settlement calls for Akerman shareholder Michael Goldberg to act as restitution receiver for the federal government and distribute forfeited cash, property, yachts, cars and jewelry.
“I’m very pleased because the victims of Scott Rothstein’s fraud will finally see the proceeds of the forfeiture proceeding, and it is expected that not only will all unsecured creditors be paid in full but also subordinated creditors will receive a substantial distribution,” based on approved claims, he said.
Goldberg already is serving as liquidating trustee for the Rothstein Rosenfeldt Adler bankruptcy estate.
If approved by the two judges who handled Rothstein’s criminal case and the firm’s bankruptcy, the settlement will end a four-year battle between federal prosecutors and former bankruptcy trustee Herbert Stettin over who controlled the distribution of a large chunk of Rothstein’s crime profits.
Legal experts have called the case one of the few in the country where federal prosecutors battled it out with a bankruptcy trustee for distribution rights in a Ponzi scheme.
“This case demonstrates our commitment to work tirelessly to return stolen assets to the victims of the financial crimes perpetrated by Scott Rothstein’s criminal network,” U.S. Attorney Wilfredo Ferrer said in a statement. “Today’s settlement is the culmination of many years of relentless work to maximize forfeiture to obtain restitution for the victims of Rothstein’s fraud consistent with the Department of Justice asset forfeiture program and the Mandatory Victims Resolution Act.”
Some victims of Rothstein’s $1.2 billion Ponzi scheme applied for restitution as part of a criminal forfeiture proceeding. Others applied for recovery through the bankruptcy proceedings. Many victims applied in both cases but won’t get paid twice, Goldberg said.
Goldberg has already paid about $140 million to victims through the bankruptcy case.
In 2010, U.S. District Judge James Cohn in Fort Lauderdale ruled $50 million in cash and goods seized by federal agents after Rothstein’s arrest belonged to the U.S. attorney’s office to distribute. Agents seized bank accounts, houses, yachts, luxury cars and jewelry worn by Rothstein and his wife Kim after his 2009 arrest.
However, Stettin wanted control over the distribution and appealed to the U.S. Court of Appeals for the Eleventh Circuit.
Last year, the appellate court remanded the case to Cohn to determine whether any of the goods could be traced to the law firm. If they could be traced back, they would be distributed by Stettin. If not, the government would get authority. The process could have been lengthy with evidentiary hearings on individual items, Goldberg said. The settlement avoids that.
Under terms of the settlement, the first $28 million will be distributed to those who applied through the criminal forfeiture process. The remaining amount—estimated at just over $21 million—will go to bankruptcy claimants.
The forfeited goods and cash will represent the final distribution to victims of the fraud, Goldberg said.
The lawyers have asked U.S. Bankruptcy Judge Raymond Ray and Cohn in Fort Lauderdale to hold a joint hearing Aug. 28 to decide together whether to approve the settlement. If they agree, which is expected, it would be the first time two federal judges from different courts jointly hear a case in the Southern District of Florida, Goldberg said.
Goldberg said he may hold another auction to sell seized items. Several auctions of Rothstein’s luxury cars, boats, jewelry, watches and artwork already have been held.