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]
Dog Bite Law: Top 7 Ways to Save Your Pet From Euthanasia
A friend of mine approached me quite distressed yesterday, and his situation has left me a little distressed as well. His dog bit his neighbor. The dog was on a leash at the time on his own property, but reacted aggressively when the neighbor tried to approach him. Thankfully the bite didn’t appear too serious, but the event was nevertheless quite upsetting for everyone involved.
A dog bite can be almost as traumatic for the owner as it is for the victim. In addition to the obvious concerns about the well being of the victim, a dog bite can have serious financial implications for the owner and can be a matter of life and death for the dog.
The Common Dog Bite Myths
There are as many myths about the law surrounding dog bites as there are breeds of dog. Some people will tell you that the law says that any dog that bites must be put down; others will say that a dog can’t be destroyed for a single, isolated incident. They’re both wrong. The old common law rule was that a dog owner could be held liable for his pet, but that “every dog is allowed one bite”. In other words, a single incidence of aggressive behavior wasn’t enough to doom the dog, but the owner was on notice from that point forward and would be held fully responsible for any future attacks. However, many places have introduced laws to replace this old rule, and this will be what determines what happens in the case of a dog bite. Here in Newfoundland and Labrador, that law is called the Dog Act and it says that a dog owner is liable for the actions of his dog, regardless of whether or not the dog has a history of aggressive behaviour. Ontario has a similar law, as do many other jurisdictions. It also gives a court the power to order any “dangerous dog” destroyed if it is satisfied that the dog is truly dangerous or has attacked a person or other animal. In most cases, the authorities can’t just destroy your dog without getting an order from a court, and if things do get this far you have a right to be heard and present your side of the story.
Action Steps to Take If Your Dog Bites Someone
So, what should you do if your dog bites someone? The first and most obvious thing to do is to offer any assistance necessary to the victim. This has nothing to do with the law and everything to do with being a decent human being. Help out however you can. If your moral compass doesn’t point you in this direction, keep in mind the purely practical side- this person could easily make your life very difficult in the near future, and your cooperation and goodwill may go a long way in bringing things to an amicable resolution. Once the immediate concerns have been dealt with, here’s what you need to do:
Don’t panic: Your dog isn’t the first to bite, and it won’t be the last. You’re not automatically going to lose your dog, and your insurance may cover any financial liability. This is a serious situation, but not necessarily a disastrous one.
Talk to any witnesses: Check to see if anybody saw the incident, and politely speak with them. You may want to get their name and number in case you need to contact them again at some point down the road. It’s quite likely that your version of events will differ from those of the victim, and independent witnesses may be the best route to finding the truth that lies somewhere in between.
Talk to your insurance company: Most homeowner insurance policies will cover liability for dog bites. If there are injuries or a chance that the victim will take any sort of legal action against you, call your insurer to inform them of the incident and see what advice they have to offer. They will likely appoint an adjuster to investigate the claim and, if necessary, a lawyer to defend you. Don’t admit any liability or offer to pay any expenses before talking to your insurance company.
Offer to pay expenses: If your insurance company isn’t going to cover you or you choose not to get them involved, you should consider offering to pay for any direct expenses that the victim incurs, such as medical costs or prescriptions. This is another one of those goodwill gestures that you can offer in an attempt to resolve the matter, and in the majority of cases you’re ultimately going to be held liable for these expenses in the end. Acting early and with compassion can help ease the situation and may put you in a better position if matters do escalate. If there are reasons why you think you’re not responsible, such as provocation, consult with your lawyer to get an idea of where you stand.
Talk to your vet and local dog trainer: Talk to the professionals about the incident and get their take on what occurred and your dog’s demeanour in general. They’ve got more experience with aggressive animals than you do, and they’re likely to be more objective as well. Listen to their advice, even if it’s not what you want to hear.
DON’T talk to police or animal control without consulting with your lawyer: Finally, if the authorities want to question you or ask you about the incident, know that you’re under no obligation to speak with them. That doesn’t mean you should obstruct their investigation, but you should consult with a local lawyer before answering any questions or giving any sort of statement. This is a good approach for any situation involving police questioning, but especially when your pet’s life may be on the line.
I am as much a pet lover as anyone, and I understand the attachment people have to their pets. If a court thinks that your dog is aggressive or this behavior is likely to happen again, there’s a definite chance that it will order your dog euthanized. Even if the court doesn’t make such an order, it is your duty as a responsible pet owner to look at the situation as objectively as possible and, with the help of your vet and trainer, decide if putting your dog down is the appropriate response. I wouldn’t go so far as to say that any dog that bites should be destroyed, but in some cases that will be the best and most responsible course of action. Also keep in mind that while you may be able to deal with one biting incident, any future incidents will almost certainly result in substantial liability and the destruction of your pet. You will need to remain extremely cautious in the future, as a second incident will be taken much more seriously than the first.
[thanks to orin zebest and money grubbing lawyer via cc]
His Pants Are On Fire: How Judge Roy Pearson Sued Cleaners
We learned about the lawsuit by a Washington D.C. administrative law judge named Roy Pearson against his diabolical neighborhood dry cleaners (Custom Cleaners), who allegedly lost or stole or set fire to or irradiated or otherwise acted tortiously towards a pair of pants that he dropped off for cleaning four years ago.
The bulk of the damages were calculated in a very straightforward manner under the D.C. consumer-protection statute. Applying the simple equation:
X=1500D*V*W
(where X=1500 x [number of Days violation persisted] x [number of Violations] x [(number of Wrongdoers])
yields a total of $64,800,000. It is not clear yet how the judge derived 12 violations from one pair of pants, so assuming he is just a bit optimistic there, a more reasonable lost-pants valuation would seem to be $5.4 million.
A new detail is that an additional $15,000 was claimed in order to compensate the plaintiff, who obviously can no longer use this neighborhood cleaners, for the cost of having to rent a car each weekend for a ten-year period in order to go to another one. Based on rough calculations, that comes out to just $15.64 per day, which again is a very reasonable value for car rental.
The remaining $647,500 claimed by the judge appears to be a combination of litigation expenses and time, and his “mental suffering, inconvenience and discomfort.” At least some of the “discomfort,” however, may be due to the alternative cause of the judge’s pants having become “uncomfortably tight” in the first place, damages that he could have mitigated.
Roy Pearson Divorce Details
Finally, the publicity over the lawsuit has led some of these unscrupulous Internet people to dig up the opinion from Judge Pearson’s divorce proceedings a few years ago, in which he was demanding support from his wife. Consistent with his current tactics, he sought sanctions at least twice, demanded the judge recuse himself, filed multiple motions to compel his wife to respond to his 248 requests for admission, and, according to the trial judge, “in good part [was] responsible for driving up” everyone’s legal costs, “including threatening both the wife and her lawyer with disbarment” which created “unnecessary litigation.”
No news yet on whether Judge Pearson, who is up this week for another ten-year term as an administrative law judge, will be reappointed.
Judge Drops Pants From Suit
As an update to this, in a pre-trial brief, Pearson lowered his demand to a mere $54 million, and apparently focuses now on the allegedly misleading signs used by Custom Cleaners, as opposed to the allegations of damages stemming from the loss of Pearson’s pants.
I am by no means the first to use something like “Judge Drops Pants From Suit” as a headline, and I struggled with that for a while, but sometimes a headline joke is just inevitable. A variation on the theme was the best I could do.
Since I haven’t seen the brief yet, it’s not entirely clear whether the pants were dropped entirely, or the focus merely changed. If they were dropped entirely and the demand reduced to $54 million, then that seems to indicate that Judge Pearson valued the pants and associated damages at $13 million. (I apologize for earlier statements about “$65-million-dollar pants,” which it seems were wildly exaggerated.)
But the suit itself is still going forward, apparently, since the report states that trial is set for June 11. The defendants’ attorney said he was “still baffled” as to why Pearson was continuing, “unless it’s simply to harass and annoy my clients.” Pearson refused to comment “in light of pending litigation,” which is an awfully popular no-comment excuse these days.
Pant Facts From Manning and Sossamon
The suit is costing the defendants an awful lot of money, of course. (Pearson is representing himself, and seems to be getting what he’s paying for.) There’s also a link to a page on this case at the site of the defense firm, Manning and Sossamon, which includes some additional details such as these:
- Mr. Pearson alleges that on May 3, 2005 he left a pair of pants with the Chungs to be altered by May 5, 2005. The pants he submitted were grey in color and were unique in that they had a succession of three belt loops very close together on each side of the front waistband of the pants.
- The Chungs offered the altered grey pants to Mr. Pearson a few days after the May 5, 2007 deadline.
- Mr. Pearson refused to accept the pants the Chungs offered even though (1) the pants had the same unique belt loop configuration as the pants he originally submitted; (2) the pants’ measurements were identical to measurements he requested for the alteration; and, (3) the tag number on the pants matched his receipt.
This is the first I’ve heard of the unique belt-loop configuration issue, which may make it extremely difficult for Pearson to show the pants were not his, if the pants are still an issue in the case, as I expect they will be. Stay tuned for more dramatic developments in this titanic legal battle.
[thanks to cat segovia and kevin underhill via cc]
