Scott Rothstein — settlements that never existed, sold by the case

In Fort Lauderdale, Florida, in the autumn of 2009, a $1.2 billion Ponzi scheme run through a prominent law firm collapsed when its architect fled the country and then returned to confess. Scott W. Rothstein was the managing shareholder and chief executive of Rothstein Rosenfeldt Adler (RRA), a firm that at its peak employed roughly 70 lawyers and more than 150 staff. He had used the firm as the vehicle for a fraud unusually suited to a lawyer: he sold investors stakes in confidential legal settlements that did not exist, fabricating the lawsuits, the settlement agreements, the plaintiffs, and at times the signatures of judges.

The outcome is fixed in the record. Rothstein fled to Morocco in late October 2009 as the scheme failed, then returned to Florida and surrendered to authorities, who arrested him on December 1, 2009. On January 27, 2010, he pleaded guilty in the U.S. District Court for the Southern District of Florida to five federal counts: one count of racketeering conspiracy, one of money-laundering conspiracy, one of mail- and wire-fraud conspiracy, and two substantive wire- and mail-fraud counts. On June 9, 2010, U.S. District Judge James I. Cohn sentenced him to 50 years in federal prison, ten years more than prosecutors had requested, followed by three years of supervised release.

The mechanism was specific and clever. Rothstein told investors that his firm represented plaintiffs in sexual-harassment and whistleblower cases that the defendants had agreed to settle confidentially, paying the plaintiffs in structured installments over time. He offered to sell investors the right to those future payment streams at a discount, promising large, fast returns, often a guaranteed minimum on the order of 20 percent in a few months, when the settlements supposedly paid out. No such settlements existed. New investors’ money paid earlier investors, and forged court documents and bank confirmations sustained the illusion.

What distinguished the Rothstein case was the role of professional and institutional trust. The fraud was housed inside a real, growing law firm, validated by attorney-trust-account mechanics, and lubricated by Rothstein’s lavishly cultivated public profile as a political donor and civic figure. A bank’s apparent assurances to investors about the safety of their funds later produced a $67 million civil verdict, underscoring how much the scheme depended on legitimate institutions vouching, in effect, for a lie.