Book Review
The Ultimate Ponzi: The Scott Rothstein Story
By Chuck Malkus
Pelican Publishing Company, 248 pages
$26.00
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.