Scott Rothstein: Ponzi Schemes, Morocco, & Golden Toilets
It seems like only yesterday that many thousands of people were being scammed by Ponzi schemers with elaborate stories and fake investment schemes. I guess that’s because it was yesterday, and every other day, except now it is mostly done with federal bailout money. Every now and then, though, somebody will get too greedy and must take the fall.
At the moment, that is Scott Rothstein. Rothstein is, or was, a lawyer who has been called, among other things, ”the Bernie Madoff of South Florida.” (Other Madoff-related nicknames apparently include “Mini-Madoff,” and “Madoff on Crack,” although those seem inconsistent to me.) His version of a Ponzi scheme was to bring investors into his law firm and tell them that he had clients who would assign the rights to settlement agreements that paid over time, in exchange for getting a lump-sum now. The investors would profit from the difference, later, assuming that they put up their money now. And they did. Put up their money, that is, to the tune of maybe $1.2 billion. They did not profit, because there were no settlement agreements, no clients, and no cases. But prior investors were paid with new investors’ money, the classic Ponzi arrangement.
Huge amounts of money were turned over, because there were absolutely no warning signs of any kind that Rothstein might be a crook. Who doesn’t know a lawyer who owns three Bentleys and up to 20 other luxury cars that he keeps in an air-conditioned warehouse? (At the moment I only have two Bentleys, but I have not been a partner that long.) Also, many’s the time that our staff has thanked me and our other partners for “shower[ing] gifts on all of them, including exotic cars, jewelry and boats.” It’s just the way lawyers operate. And I object especially to the suggestion that you should suspect a man of fraud just because he has gold-plated toilets.
The Gold-Plated Scott Rothstein Toilet
Okay, seriously — if your lawyer or investment manager has a gold-plated toilet, first, DO NOT GIVE THAT PERSON ANY MORE MONEY. THEY HAVE ENOUGH. And you should also officially be on notice at that point that further inquiry is suggested as to how that person came by gold-plated-toilet money to begin with. In my experience, people who made their money honestly do not plate their toilets with it.
Okay, in all fairness, it was just the toilet lids. But on the other hand, he had two of them:
When news of the Ponzi scheme broke, someone sent [Bob] Norman [a reporter covering the story] a photo of Rothstein’s his-and-hers toilets. The lids were gold-plated, each estimated to cost $25,000.
Norman said one of Rothstein’s investors told him: “I was lulled into believing this myth that he created. I really believed he had a golden touch. What better way to perpetuate that myth than by having a golden toilet?”
So, let me see if I understand. You thought the man’s golden toilet was evidence that he had the Midas touch? But you didn’t ask him to sit on anything else to prove it? And is it too late for me to ask you for money?
Rothstein pleaded guilty last month, probably in part because it is difficult to come up with an innocent explanation for why you “wired $16 million to an offshore account and fled to Morocco in a private jet” if you haven’t been up to something. He faces up to 100 years in jail, where the toilets are stainless steel. Although maybe putting his ass in jail will change that.
Why Morocco, and the followup question, why in the world did the guy come back? Good questions.
Not coincidentally, Morocco is one of the countries that has no extradition treaty with the United States, something that Rothstein knew because — and this is possibly my favorite detail of the whole story, short of the golden toilets – he made somebody in his firm research that issue for him. The project was supposedly on behalf of a “client,” but he was in fact having someone research the question of where he should flee to avoid prosecution.
I was sort of hoping he called in an associate and just made that person do it, but it turns out he sent an email, apparently to everyone in the firm (Rothstein, Rosenfeldt and Adler law firm in downtown Fort Lauderdale), saying he had a rush project for an important client. “We have a client that was a United States citizen until about 6 months ago,” Rothstein wrote in the email, probably able to resist making air quotes around “client” only because he was busy typing the word. “He became a citizen of Israel and renounced his United States citizenship. He is likely to be charged with a multitude of crimes in the United States including fraud, money laundering and embezzlement.” (I’m trying to imagine what people at the firm were thinking upon reading this.) Rothstein wanted them to research whether the client could be extradited from Israel, or could be prosecuted for the crimes in Israel. “This client is related to a very powerful client of ours,” Rothstein continued, “and so time is of the essence. Lets [sic] rock and roll….there is a very large fee attached to this case. Thanks Love ya Scott,” he concluded.
“Love ya”? When I was an associate, partners never said “love ya” when asking me to research countries to which they could flee without fear of extradition. Times sure have changed.
Suspicion by Attorneys at Rothstein, Rosenfeldt and Adler Law Firm
The report in which I found this information went on to say that “[a]ttorneys in the firm now believe ‘the client’ was actually Rothstein.” It did not say how long it took them to figure this out, but it does confirm that someone at the firm advised Rothstein that there might be a better choice:
Stuart Rosenfeldt [another named partner at the firm], who was in a 50 percent partnership with Rothstein at the time, said that he and many of the other attorneys in the firm now believe that Rothstein was talking about his own situation and that another attorney in the firm suggested that Morocco was one destination that did not have extradition agreements with either the U.S. or Israel.
Next stop, Morocco.
The report also quoted Rothstein’s lawyer as saying that as far as he knew, the e-mail really was about an actual client, and the trip to Morocco was just sort of a last-minute vacation. “I still don’t know [if there was a client],” he said. “I had nothing further to do with it . . . . He was always intending on coming back [from Morocco]. He came back early. He never intended to flee. He literally went there to clear his head.” Also, the fact that he had just been told Morocco did not have an extradition treaty was literally a coincidence.
I guess ultimately the answer [as to why he fled to Morocco specifically] depends on whether you believe it was a coincidence that not long before the fleeing started, he assigned somebody a research project involving countries that did not have extradition treaties with the United States. If you don’t believe that was a coincidence, the more difficult question is probably: Once safely in Morocco, why the hell did he come back? I don’t think there is a clear answer to this, either, but here are some possibilities.
First, it may not have been all that safe in sunny Morocco. This is hearsay, but one report suggested that “investors in Morocco” had given Rothstein $85 million, and assuming they now realize they are not getting that money back, he might have needed to extradite himself from Morocco on the double. But this report describes Rothstein as being “as happy as ever” during his time in Morocco. Hard to believe he was that way all the time, as his life collapsed, but he didn’t act hunted.
Second, as the Wall Street Journal noted, Rothstein’s partner Stuart Rosenfeldt has claimed that in an email from Morocco, Rothstein listed his options as suicide, life on the run or life in prison, and that Rosenfeldt urged him to “choose life.” Maybe so, but maybe he didn’t mean life in prison, the prospect of which might convince Rothstein to cut a deal.
Which is what he did, and that is not good for a lot of people. For example, recent bankruptcy filings allege that all three named partners engaged in “curious and circuitous movement of law firm funds over the past few years.” These included borrowing millions from the firm and then paying that money back to the firm, themselves, their wives, and various third parties. The filings also allege Rosenfeldt himself spent an awful lot of money — no golden toilets, apparently, but he did put $1 million on his firm-issued American Express card for charges including 72 pieces of jewelry for his wife, home furnishings, clothes, vacations, restaurant meals, and an undisclosed number of “exotic reptiles.” (Maybe this is why the expense reports I submit for my exotic reptiles keep getting rejected.)
Rosenfeldt’s attorney said these allegations would “prove to be overstatements.”
So, third, Rothstein may have a lot to chat about, and maybe having seen Morocco, he decided he might be able to cut a deal good enough to at least make prison reasonable in comparison to that hellhole. Under the plea bargain, prosecutors agreed to recommend a sentence reduction and more lenient prison conditions in exchange for cooperation. As a result, he is expected to get about 30 years rather than the 100 he faces. (Bernie Madoff did not cooperate, and got 150 years.) Still, 30 years is 30 years.
Fourth, Rothstein has maintained that he chose to come back, plead, and help authorities collect stolen assets, because he decided to “do the right thing.” I guess that is not impossible.
Finally, since I don’t really like any of the above explanations, I am going to go with this one: with him in jail, the feds wouldn’t feel obligated to go after his wife. As noted above, all the partners gave lavish gifts — and lots and lots of cash — to their wives, and it is hard to imagine that they did not at least suspect something. But the same was true of Ruth Madoff, who has also not been charged. I am guessing that so long as the primary fraudster is behind bars, prosecutors are probably satisfied.
I haven’t been able to find a better answer than that, so my guess is that Rothstein came back to the U.S. in order to make sure his wife stayed out of jail. And that’s nice, at least.
On the other hand, maybe he just really hates Moroccan food.
[thanks to alkan chaglar and kevin underhill via cc]
Beetenson & Gibbon Acquires Martin & Haigh of Scunthorpe
Grimsby legal force Beetenson & Gibbon has now acquired Martin & Haigh of Scunthorpe.
This is the second solicitors merger in as many months, as this move follows Wilkin Chapman and Grange Wintringham’s announcement three weeks ago.
This move comes as a result of the ambitious expansion plans of Grimsby-based Beetenson & Gibbon following their acquisition of Louth’s Scammell & Braithwaite in 2007.
What this means on a short-term basis is that we’ll be seeing the number of employees in B&G increase to 79, a headcount increase of nearly 60%.
As part of the acquisition, Martin & Haigh of Scunthorpe will now be known as Martin & Haigh with Beetenson & Gibbon.
The New Martin & Haigh
“I am looking forward to working within the new firm in the new venture. It makes us a force to be reckoned with, we are now one of the largest firms in the town, as well as the surrounding area. Both of the firms are very similar from what I have seen, and services are being brought together that will complement each other. It is a great fit.”, says Jo Moorhouse, practice manager at the firm.
Beetenson & Gibbon is a founding member of the Quality Solicitors network (found at QualitySolicitors.com), which is a legal brand located in the United Kingdom that chooses lawyers based on positive ratings from their clients as well as their accreditations and then matches them up to new potential clients.
I went to the Martin & Haigh website (martinandhaigh.co.uk), but it appears to be down with this message: “We’re Sorry! This website is down for maintenance, please check back later.” I checked Google Cache and found this description: “Martin & Haigh is a long-established solicitors practice in Scunthorpe, North Lincolnshire. Our clients are as varied as the range of services we provide.” Perhaps B&G is working on a website revamp to reflect the new branding.
Detroit Sex City: Zoning Out Adult Exotic Dancing Clubs
Detroit has been working hard to revive the city and bring residential growth to the downtown area. Millions of dollars have gone into renovating historic buildings, creating new public transportation, reviving the riverfront and building residential lofts in the Central Business District area. Detroit wants to prove that, “the growing population can support and sustain retail and grocery development,” for its current and future residents. New casinos and stadiums have also enhanced the city’s cultural atmosphere while attracting a wave of young professionals. Issues will arise, however, when the city tries to achieve this vision of a “better Detroit” by imposing ordinances and regulations on businesses that it deems problematic to their ideal. In particular, the city of Detroit has targeted the adult entertainment business as an industry they would like to see zoned out.
Legal Issues for Detroit’s Adult Entertainment Industry
The adult entertainment industry has been hit particularly hard by these new city ordinances and regulations. The Detroit City Council has commenced its efforts to phase these businesses out all-together by changing the zoning ordinance in 1999 to preclude new adult entertainment establishments from being opened in the Central Business District. Local laws allow such modifications to zoning regulations because the city of Detroit does not need to wait for an area to deteriorate before applying a zoning remedy. The city may also rely on sociological experiences of other cities in enacting legislation as long as doing so is not completely unreasonable.
The City Planning Commission deemed this phase-out of adult entertainment businesses reasonable because “the B6 zoning district classification in this area may have made sense in the late 1960s when there were still wholesale and freight operations on the east side of the [Central Business District]. The subsequent development of Greektown and Bricktown, however, has rendered B6 inappropriate.” In addition, all zoning ordinances must bear a substantial relation to the public health, safety, morals or general welfare in order to be valid. The city of Detroit seems to think that it is for the good of the general welfare that this new zoning ordinance be enacted.
Many adult entertainment business owners, including the proprietors of exotic dancing strip clubs Déjà Vu and the Zoo Club, believe that various provisions of this ordinance unfairly prevent them from operating a legitimate business enterprise. They have brought suit against the city of Detroit and asked the court to determine that the adult use provisions of the city’s ordinance are unconstitutional. It is also their view that, “such provisions vest a constitutionally defiant discretionary authority in the hands of the city officials, who have no time constraint imposed upon them to evaluate an application in order to render a decision.” The city of Detroit has dragged this case out over several years in order to avoid having to a make a decision that would violate the adult entertainment business owners’ right to engage in free speech under the First Amendment. The court recently decided that the city’s treatment of the plaintiffs in that matter was unconstitutional because of its failure to make a decision on the plaintiff’s application within a reasonable amount of time. Nevertheless, it went on to hold that the city of Detroit’s ordinances are not unconstitutional on their face and are still applicable to all other adult entertainment business owners in the Central Business District. On appeal, the plaintiffs have asked that the city of Detroit be permanently enjoined from enforcing the adult use provisions of the Detroit Zoning Ordinance and that their operation of adult entertainment businesses be identified as a lawful conforming use for zoning purposes. This case is pending and is sure to impact all of Detroit’s adult entertainment businesses currently conflicting with the city’s adult provisions of the zoning ordinance.
Other American Cities’ Regulations and Zoning Ordinances
Detroit is not the first and likely not the last municipality to employ zoning ordinances to phase-out the adult entertainment businesses. City and county governments around the nation are currently enacting the same types of legislation to bring down established adult erotic entertainment businesses. These legislative bodies normally develop an initial ordinance, update an outdated regulation, or attempt to argue for zoning and licensing restrictions in court to accomplish these shut-downs. They may even try to enact laws that prescribe zoning requirements and land use regulations of areas previously zoned for adult entertainment and give the power to a review board to deny a business for lack of “wholesomeness”. Such tactics clearly evince an effort to legislate morality based upon personal opinions of what is “right”. Cities may enact these types of legislation as long as they have a factual basis for their regulations, and plaintiffs can challenge by demonstrating that the government’s evidence does not support the regulations they are seeking to enact.
Not everyone thinks that the adult entertainment business should be phased-out. Organizations such as the First Amendment Lawyers’ Association, the American Civil Liberties Union, People for the American Way, National Coalition Against Censorship, Coalition for Free Expression, Free Speech Coalition, Thomas Jefferson Center for the Protection of Free Expression and the Association of Performing Arts Presenters are all defenders of exotic dancing in the adult entertainment industry.
Conclusion
The city of Detroit wants to grow, shed its negative image and become a desirable place for relocation. Although the city considers tourists to be very important, its attempts are aimed at stimulating population growth within the downtown business area. The general population seems to feel that the adult entertainment industry is a nuisance to their community and a barrier in the way of a “better Detroit”. For adult entertainment business owners, this means that their rights may be compromised and will be continually diminished by adult entertainment provisions to the zoning regulations. It is uncertain as to whether the city of Detroit has gone too far with their zoning ordinances and regulations, but at this point, the city’s efforts have clearly had an effect on the downtown adult entertainment industry’s ability to run businesses going forward.
[thanks to juggernautco and iblsjournal via cc]
