Sunday, 29 March 2015
Last updated 2 days ago
Jan 3 2012 | 1:53pm ET
A disbarred lawyer and Ponzi schemer has testified that four hedge funds failed to stop his $1.2 billion fraud.
Scott Rothstein, deposed as part of civil litigation in the case, testified that Platinum Partners, Centurion Credit and Level 3 Capital agreed to help prop up his failing scam, and that Banyon Investments' George Levin knew that Rothstein was running it.
Banyon invested some $775 million in Rothstein's scam, which allegedly bought stakes in sexual harassment and whistle-blower settlements negotiated by Rothstein's law firm—settlements and lawsuits that did not exist. Rothstein testified that Levin knew that he was defrauding investors.
"The Ponzi scheme really got legs when I was introduced to George Levin," Rothstein said, according to transcripts released by the plaintiffs' law firm. "Levin knew."
The three New York-based hedge funds didn't necessarily know what Levin knew, Rothstein said, but they did know that he wasn't making the payments that he had promised. And they agreed not to tell investors about that in an effort to raise money that would be paid out to them.
"The funds were going to give us a positive credit rating," he said. "We were going to use as much of the new money coming in to pay them off, and in fact that's what we did." Rothstein said that the funds lost only $18 million on the scam; the funds themselves say the figure is 10 times higher.
Despite that fact, Rothstein said that he did not consider the funds "to be co-conspirators."
"My only concern was that, at the end of the day, they would lie for us," Rothstein said. "That was my concern. They didn't want this to blow. I didn't want this to blow. I had been assured by [Platinum portfolio manager Jack] Simony and [Platinum chief investment officer Meir] Nordlicht that they would not let it blow up."
Neither Simony nor Nordlich are among the seven people criminally charged in the Rothstein case.
A spokesman for the funds told Bloomberg News that that Rothstein's claims "are absolutely false and are flatly inconsistent with his unequivocal statement that the funds were not his co-conspirators. He admits he has no knowledge that anyone at the funds lied for him, and not a single one of the dozens of investors in Rothstein's scheme has said that the funds recommended the investment to them."
Rothstein defended his credibility at the deposition, noting that "if I lie and get caught lying, even a little bit, I will die in prison."
Rothstein pleaded guilty two years ago and was sentenced to 50 years in prison. He's now cooperating with prosecutors in hopes of reducing that sentence and is currently in the federal witness protection program. A federal prosecutor was present at the deposition in Miami and would not allow Rothstein to identify the police officers or judges he claims to have bribed.
Rothstein said he spent the money he didn't pay out in the Ponzi scheme on "money laundering, extortion, physical violence, influencing law enforcement, influencing bankers, influencing business owners, a whole myriad of things." He admitted to ties with organized crime and said he paid for prostitutes for the police.
"The police also were sleeping with my escorts," Rothstein said. "Broward sheriff's office, Fort Lauderdale Police Department weren't going to bother me."
Mar 9 2015 | 6:35am ET
As more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…
Mar 20 2015 | 12:45pm ET
StreetWise Partners, a non-profit organization that works with low-income individuals to help them overcome employment barriers, raised over $275,000 at the 2015 Raising the Ante Charity Poker Tournament and Casino Event last Wednesday evening at Capitale. Here are some photos from the event. Read more…