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.