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For years, Broward County's socially and politically connected marveled at the astonishing success of Fort Lauderdale lawyer Scott Rothstein and wondered: How does he do it?
Answers may have begun to emerge Monday, even as the law firm Rothstein built and the image he cultivated as an altruistic philanthropist crumbled.
According to a lawsuit filed against him by his firm and its co-founding partner, Rothstein was running a covert investment scheme on the side and may havewalked away with "substantial sums" entrusted to him by investors.
The scope of the investment business is not known, but the Fort Lauderdale securities litigation firm Sonn & Erez said Monday it is investigating claims that Rothstein "may be involved in a $100 million investment that imploded."
Rothstein attracted investors by promising huge returns and selling settlements he said he'd reached in sex discrimination and whistle-blower cases, documents he gave prospective clients show.
But according to the lawsuit filed against him, at least some of those settlements did not exist, and investors say money they invested with Rothstein is now missing.
Rothstein was believed to be out of the country Monday, but his attorney said he intends to return to South Florida and "straighten this thing out."
Alan Sakowitz, a Miami lawyer and developer, told the Sun Sentinel he had met with Rothstein as a potential investor three times, but quickly became suspicious.
"I was convinced it was all a Ponzi scheme and I notified the FBI in detail how Scotty was hiding behind a legitimate law firm to peddle fake settlements," Sakowitz said.
An FBI spokeswoman declined to comment. A spokesman for Banyan Income Fund, an investment group that collected $65 million and invested an undisclosed amount with Rothstein, said it contacted federal prosecutors in recent days with concerns about "suspicious activity."
Rothstein's "allegedly improper activities were done without any knowledge of the other attorneys at the firm," the lawsuit by Rothstein's firm asserts.
At the law firm's headquarters in downtown Fort Lauderdale, Rothstein used an office with a private entrance. Stuart Rosenfeldt, his co-founding partner, told the Sun Sentinel several of their co-workers may have done work for the investment business without realizing its scope or nature.
Rothstein's uncle also worked at the firm. Rosenfeldt said he also vanished in recent days.
Over the years, Rosenfeldt said, Rothstein lied to him, but he added, "The kinds of small lies I caught him in were nothing to lead you to conclude your partner was running a giant scam out of your law firm."
Rothstein's confidential offerings obtained by the Sun Sentinel describe extremely high-paying but largely unregulated investment opportunities.
One from August offered investors a 36 percent return in three months, far more than the troubled stock and bond markets.
Those documents say that Rothstein's firm sought out sexual discrimination and whistle-blower cases and used former cops to dig up incriminating evidence.
Sakowitz, the potential investor, said Rothstein boasted of having sophisticated eavesdropping equipment and that former cops would sift through potential defendants' garbage.
With compromising evidence in hand, the firm urged the targets of the claims to pay a settlement without a public lawsuit.
"These types of cases are highly confidential and thus, quite lucrative, because the defendants place a high premium on keeping the details of the case confidential," one investment offering said.
Rothstein claimed to have a "huge volume of cases, an employer sleeping with the secretary or receptionist," Sakowitz said.
Once a settlement was reached, the defendant typically preferred to stretch the payments out over time. Rothstein offered his clients a way to avoid waiting for the money by giving them a lesser amount, but in a lump sum up front, Sakowitz said.
Investors funded the payments to clients and would receive the full settlement amount in three to 12 months, with a guaranteed minimum 20 percent return, according to the investment offering.
In a $4 million settlement, an investor would make $1 million in seven months.
Sakowitz said Rothstein offered him a $240,000 profit in three months, an offer he considered too good to be true.
"It was virtually no risk," Sakowitz said. "These were so filled with red flags we just couldn't get our hands around it being legitimate."
He said Rothstein told him he'd been doing such investment deals for seven years.
Mark F. Raymond, managing partner of Broad and Cassel law firm in Miami, said he persuaded at least one client not to invest.
"Every time I heard about them I just said, 'No way,'" Raymond said.
A distraught Rosenfeldt said Monday he feared that Rothstein had destroyed the firm's reputation.
"I think we're going to go down in history in the same breath as [Bernie] Madoff," he said.
Staff Writers Peter Franceschina and Harriet Brackey contributed to this report. Sally Kestin can be reached at skestin@sunsentinel.com or 954-356-4510.
Answers may have begun to emerge Monday, even as the law firm Rothstein built and the image he cultivated as an altruistic philanthropist crumbled.
According to a lawsuit filed against him by his firm and its co-founding partner, Rothstein was running a covert investment scheme on the side and may havewalked away with "substantial sums" entrusted to him by investors.
The scope of the investment business is not known, but the Fort Lauderdale securities litigation firm Sonn & Erez said Monday it is investigating claims that Rothstein "may be involved in a $100 million investment that imploded."
Rothstein attracted investors by promising huge returns and selling settlements he said he'd reached in sex discrimination and whistle-blower cases, documents he gave prospective clients show.
But according to the lawsuit filed against him, at least some of those settlements did not exist, and investors say money they invested with Rothstein is now missing.
Rothstein was believed to be out of the country Monday, but his attorney said he intends to return to South Florida and "straighten this thing out."
Alan Sakowitz, a Miami lawyer and developer, told the Sun Sentinel he had met with Rothstein as a potential investor three times, but quickly became suspicious.
"I was convinced it was all a Ponzi scheme and I notified the FBI in detail how Scotty was hiding behind a legitimate law firm to peddle fake settlements," Sakowitz said.
An FBI spokeswoman declined to comment. A spokesman for Banyan Income Fund, an investment group that collected $65 million and invested an undisclosed amount with Rothstein, said it contacted federal prosecutors in recent days with concerns about "suspicious activity."
Rothstein's "allegedly improper activities were done without any knowledge of the other attorneys at the firm," the lawsuit by Rothstein's firm asserts.
At the law firm's headquarters in downtown Fort Lauderdale, Rothstein used an office with a private entrance. Stuart Rosenfeldt, his co-founding partner, told the Sun Sentinel several of their co-workers may have done work for the investment business without realizing its scope or nature.
Rothstein's uncle also worked at the firm. Rosenfeldt said he also vanished in recent days.
Over the years, Rosenfeldt said, Rothstein lied to him, but he added, "The kinds of small lies I caught him in were nothing to lead you to conclude your partner was running a giant scam out of your law firm."
Rothstein's confidential offerings obtained by the Sun Sentinel describe extremely high-paying but largely unregulated investment opportunities.
One from August offered investors a 36 percent return in three months, far more than the troubled stock and bond markets.
Those documents say that Rothstein's firm sought out sexual discrimination and whistle-blower cases and used former cops to dig up incriminating evidence.
Sakowitz, the potential investor, said Rothstein boasted of having sophisticated eavesdropping equipment and that former cops would sift through potential defendants' garbage.
With compromising evidence in hand, the firm urged the targets of the claims to pay a settlement without a public lawsuit.
"These types of cases are highly confidential and thus, quite lucrative, because the defendants place a high premium on keeping the details of the case confidential," one investment offering said.
Rothstein claimed to have a "huge volume of cases, an employer sleeping with the secretary or receptionist," Sakowitz said.
Once a settlement was reached, the defendant typically preferred to stretch the payments out over time. Rothstein offered his clients a way to avoid waiting for the money by giving them a lesser amount, but in a lump sum up front, Sakowitz said.
Investors funded the payments to clients and would receive the full settlement amount in three to 12 months, with a guaranteed minimum 20 percent return, according to the investment offering.
In a $4 million settlement, an investor would make $1 million in seven months.
Sakowitz said Rothstein offered him a $240,000 profit in three months, an offer he considered too good to be true.
"It was virtually no risk," Sakowitz said. "These were so filled with red flags we just couldn't get our hands around it being legitimate."
He said Rothstein told him he'd been doing such investment deals for seven years.
Mark F. Raymond, managing partner of Broad and Cassel law firm in Miami, said he persuaded at least one client not to invest.
"Every time I heard about them I just said, 'No way,'" Raymond said.
A distraught Rosenfeldt said Monday he feared that Rothstein had destroyed the firm's reputation.
"I think we're going to go down in history in the same breath as [Bernie] Madoff," he said.
Staff Writers Peter Franceschina and Harriet Brackey contributed to this report. Sally Kestin can be reached at skestin@sunsentinel.com or 954-356-4510.
