The Ultimate Ponzi: The Scott Rothstein Story
By Chuck Malkus
Pelican Publishing Company, 248 pages
If ever there were fertile ground for a spellbinding story about hitting the heights of fortune and then descending into the depths of deprivation, it would have to be the saga of Scott W. Rothstein and his $1.4 billion Ponzi scheme.
Chuck Malkus’s new book about how Rothstein bilked South Florida investors—some of them very smart and highly successful—out of more than $1 billion is somewhat repetitious, but holds together as a great story.
Unlike the quietly scheming Bernard L. Madoff, currently serving a 150-year prison sentence for masterminding an $18 billion Ponzi scheme, Rothstein was a flamboyant, loud, lavishly spending womanizer who had a wife and at least, according to Malkus, a half dozen girlfriends in the Fort Lauderdale-Miami area, where his law firm, Rothstein Rosenfeldt Adler (RRA), flourished until his scam imploded.
Malkus concludes that Rothstein began his Ponzi racket in 2005; in 2009, he fled to Morocco on a privately chartered jet, leaving the U.S. with about $18 million in stolen money. U.S. federal authorities eventually arrested Rothstein and he is now serving a 50-year prison term under the Witness Protection Plan. He has emerged once since his arrest, in 2011, to appear on the witness stand before lawyers representing plaintiffs who have filed suit to recover the stolen money.
How did Rothstein’s Ponzi schemes work?
He and his surrogates (some of whom he named in his depositions with federal officials) purchased fabricated "structured settlements," in which people sell large legal settlements for a lump sum of cash. A seedy version of this scheme involved threatening to expose a potential defendant in a discrimination case filed by a spurned lover/employee against the lover/employer who fired him or her.
“Since defendants often couldn't or wouldn't pay the entire settlement up front, Rothstein tells the investor that his first harassment case many years ago involved a $3.5 million settlement and a million-dollar legal fee, so Rothstein assigned the settlement to a good friend and the plaintiff settles for $3 million without a trial. The good friend stood to be paid $3.5 million once the defendant paid up, a half-million dollar profit," Malkus writes.
Other schemes involved investors buying whistle-blower, million-dollar settlements with a 60percent, short-term investor profit.
Those bilked included the Banyan Income Fund, a “hedge fund operated by investor George Levin that had funneled more than $700 million’’ into the Rothstein scheme, Malkus writes. In April 2009, Rothstein was falling ever farther behind in big scheduled payments to Banyan.
Six months before Rothstein was arrested, Banyan Chief Operating Officer Frank Preve e-mailed Rothstein that RRA needed “cover for its non-funding of clients,’’ and said “Banyan would consent to provide $150 million in the following 20 days with a personal written guarantee from Levin.
“Obviously, Preve, Levin and Banyan were desperate to keep Scott’s (Rothstein’s) investment schemes afloat, whether they knew that he was running a Ponzi scheme, as the investors’ lawyers claim, or not,’’ Malkus writes.
The bilked investors also included automobile magnates, large charities, restaurateurs, club owners; law partners, politicians, friends, business associates and banks such as TD Bank and Gibraltar Private Bank & Trust, to whom Rothstein sent e-mails threatening to close his falsely credited accounts when they objected to his mounting overdrafts. He had computer technicians create a phony TD Bank Web site to allocate non-existent funds to RRA’s account.
Rothstein’s transgressions are fascinating, up to a point, so Malkus tries to flesh out the saga with the “why’’ of his corruption, padding psychological theories with numerous (and often repeated) vignettes about Rothstein’s spending habits, his consumption of overpriced real estate in Florida, Delaware and New York, and his maintaining a roster of women for hire (he told federal officials RRA spent $60,000 per month to pay for escorts for friends, clients, business pals and police).
“The Ultimate Ponzi’’ could be written in a tighter, more lucid prose and anecdotes about Rothstein’s excesses are recycled once too often. The book's editor's also missed some spelling errors.
Moreover, the “why" of Rothstein’s lust for ever more money, power and goods eludes Malkus: the author says Rothstein was raised in a loving family in the Bronx, and that as a young labor lawyer in Florida he had a reputation for reliability and fairness. His first wife, Kimberly, eventually became a lawyer specializing in worker’s compensation cases. She does not contribute to the book. Neither does Rothstein’s second wife, also named Kimberly, a 38-year-old former state karate champion who met Rothstein at a party and later became his favorite bartender, then his wife in a $1 million ceremony.