Nov. 3 (Bloomberg) -- A South Florida law firm asked federal prosecutors to investigate possible misappropriation of investor funds by its founder, Scott Rothstein, a Republican Party fundraiser for former President George W. Bush.

“We called them yesterday and told them there is evidence of a substantial fraud,” Kendall Coffey, a lawyer representing the firm Rothstein Rosenfeldt Adler PA, said today in an interview. “Our position is to cooperate with authorities.”

The firm, based in Fort Lauderdale, discovered last week that Rothstein, 47, its chief executive officer, may have misappropriated funds from a side business that dealt in legal- case settlements, Coffey said.

Rothstein raised campaign funds for Bush and Florida Governor Charlie Crist, according to a biographical sketch on the law firm’s Web site. His contributions to the Republican Party in Florida this year and in 2008 totaled about $286,000, a party</a> spokeswoman said.

Rothstein Rosenfeldt yesterday sued Rothstein, one of two shareholders, in Florida state court, asking a judge to appoint a receiver to dissolve the firm and manage its finances.

Marc Nurik, an attorney representing Rothstein, said he didn’t know his client’s whereabouts and expected him to return to his home shortly.

“It’s premature for me to comment on anything,” Nurik said.

Founded in 2002

Rothstein and Stuart Rosenfeldt founded the 70-lawyer firm in 2002, according to court papers filed in the dissolution request. The firm initially specialized in labor and employment law and grew to include intellectual property, real estate and criminal defense work, court papers say.

Rothstein controlled all aspects of firm management, including its finances, the firm said in its court complaint. The firm has offices in Florida, New York and Venezuela.

Rothstein was selling investors the right to collect legal settlements due to be paid within a fixed period of time.

Money is missing from the law firm’s trust accounts, the firm’s complaint said, giving no figure. The Wall Street Journal reported today that Rosenfeldt said about $500 million in trust accounts for settlements disappeared from Oct. 23 to Oct. 30.

Rosenfeldt didn’t immediately respond to e-mails and a call.

“A review of the firm’s records undertaken over this past weekend indicates that various funds unrelated to the practice of law cannot be accounted for,” the firm’s court petition says.

Investor’s Account

Investors were told their money would go to plaintiffs willing to take less than the full amounts in return for quick payment. The investors were to receive the full amounts later.

Alan Sakowitz, a South Florida attorney and real estate developer, said he was solicited to buy settlements through a broker working for Rothstein.

He and his partner met with Rothstein in the firm’s Fort Lauderdale office in August, Sakowitz said in a telephone interview. They sat on a lizard-skin couch as Rothstein stood behind a bank of television monitors, a revolver strapped to his ankle, he said. On the wall were pictures of Rothstein with politicians including California Governor Arnold Schwarzenegger.

Rothstein told them he was selling investments in sex- discrimination and whistleblower cases that were settled confidentially.

The clients were willing to take less than they were entitled to because they needed the money right away, he said, according to Sakowitz.

Trash Can Searches

Rothstein said his firm would go through garbage cans to prove illicit workplace relationships.

“I’m going to file a suit and everyone is going to know you’re sleeping with your secretary,” Rothstein would tell an accused employer, he told Sakowitz. Both sides would then agree on a settlement before a suit was filed.

Sakowitz said he considered investing in three $900,000 settlements. Rothstein would pay the clients $660,000 each immediately, using Sakowitz’s money, and Sakowitz would get the full amounts in three payments at 30, 60 and 90 days, he said.

Sakowitz said he was denied permission to meet the clients, see backup documents or talk to the attorneys who worked on the cases.

“When we left, we thought, this is either an unbelievable opportunity or this is a big scam,” Sakowitz said.

Sakowitz met with Rothstein two more times and, convinced the settlements were a sham, decided not to invest. He said he called the Federal Bureau of Investigation and tried to persuade other potential victims not to invest with Rothstein.

Trust Accounts

The firm is investigating whether Rothstein fraudulently used regular trust accounts at the firm, said Coffey, a former U.S. attorney now in private practice in Miami.

Alicia Valle, a spokeswoman for acting U.S. Attorney Jeffrey Sloman in Miami, didn’t return a call seeking comment.

“Rothstein gave money to everybody, politicians and former politicians,” Grey Tesh, a criminal-defense lawyer in West Palm Beach, Florida, said in an interview. “He was a friend of Crist and of any politician with reach.”

Sterling Ivey, a spokesman for the governor, didn’t immediately return a call for comment.

Florida State Representative Ellyn Bogdanoff, a Republican, is prepared to return about $11,000 in Rothstein contributions made in connection with a September fundraiser, Todd Richardson, a Bogdanoff consultant, said in an interview.

“I think you’ll see more people doing it in the next few days,” Richardson said.

Rothstein’s Education

Rothstein graduated from Nova University Law Center in 1988 after receiving a bachelors degree from the University of Florida in 1984, according to the firm Web site.

The lawyer made slightly under $100,000 in in-kind, personal and corporate contributions to the Republican Party of Florida in 2009, and about $186,000 in personal and law-firm contributions in 2008, Katie Betta, a local party spokeswoman, said today in an interview.

The party hasn’t decided whether it will return the money, Betta said.

“These rumored allegations are very serious, and given that he’s a contributor to many of our candidates and to the party, it’s deeply concerning,” she said. “But we want to wait and see what is substantiated.”

Rothstein acquired more than $15 million in real estate in Florida, New York City and Rhode Island in 2008 and owns numerous luxury cars, including two 2010 Lamborghini Murcielagos, each worth about $400,000, the South Florida Sun- Sentinel reported today, citing public records.

Rothstein owned two versions of the Rolls-Royce Phantom 5, one convertible and one hardtop, the South Florida Business Journal reported today, citing Republican political consultant Roger Stone, a Rothstein acquaintance.

The law firm’s case is Rosenfeldt v. Rothstein, 09059301, Circuit Court, 17th Judicial Circuit, Broward County, Florida (Fort Lauderdale).

To contact the reporter on this story: Carlyn Kolker in New York at ckolker@bloomberg.net; Bob Van Voris in New York at rvanvoris@bloomberg.net; Cynthia Cotts in New York at ccotts@bloomberg.net.

Last Updated: November 3, 2009 15:39 EST