Ponzi-Schemer Rothstein's Law Firm Liquidation Confirmed

The Florida law firm co-founded by convicted Ponzi-schemer Scott Rothstein got bankruptcy court approval of its Chapter 11 liquidation plan.

Rothstein, who is serving a 50-year prison sentence, ran his $1.2 billion scheme from Fort Lauderdale-based Rothstein Rosenfeldt Adler PA. He sold wealthy investors stakes in what he said were payouts in confidential sexual-harassment and workplace-bias cases. The cases were fabricated.

U.S. Bankruptcy Judge Raymond B. Ray in Fort Lauderdale signed the confirmation order today. The plan includes a settlement with Toronto-Dominion Bank, which Rothstein used to launder the proceeds of his scheme. It bars investors from suing the bank and halts most pending state-court lawsuits against it.

Rothstein used forged court documents and phony bank records to swindle investors, including hedge funds and South Florida businessmen. At least 10 people, including Rothstein’s wife, were convicted of crimes.

The scheme imploded in the fall of 2009. After briefly fleeing to Morocco, he returned to South Florida and surrendered to authorities. He pleaded guilty to five counts of money laundering, fraud and racketeering in 2010.

TD Bank got the order barring lawsuits after agreeing to settle with the bankruptcy trustee for as much as $72 million and with a group of investors for $54 million. The bank has agreed to settle cases filed by other investors for more than $260 million.

Carve-Out Group

One group of investors succeeded in getting a carve-out within the bankruptcy plan to continue to pursue sanctions against the bank. The so-called Razorback group, which has already settled with TD Bank for $171 million, wants a state court to impose sanctions because the bank withheld documents.

The bank was sanctioned by the federal judge who presided over the only investor case to go to trial. The jury in that case awarded the investors $67 million in compensatory and punitive damages.

The bankruptcy case is In re Rothstein Rosenfeldt Adler, 09-bk-34791, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale). The criminal case is U.S. v. Rothstein, 12-cr-60204, U.S. District Court, Southern District of Florida (Fort Lauderdale).

To contact the reporter on this story: Susannah Nesmith in Fort Lauderdale, Florida, at susannahnesmith@yahoo.com

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.