Bankruptcy Trustee: Rothstein Partner Adler Is Broke and Owes IRS
Instead of a big showdown in court with big-time witnesses like U.S. Sen. John McCain, former Gov. Charlie Crist and Broward Sheriff Al Lamberti, Russell Adler and the bankruptcy attorneys representing his former law firm settled the clawback suit today with little fanfare.
The Rothstein Rosenfeldt Adler bankruptcy trustee sued Adler last February for $1.2 million in clawbacks they claimed the attorney had received in dirty and undeserved money from his former partner, Scott Rothstein, who is facing 50 years in federal prison for his town-rocking Ponzi scheme involving hundreds of millions of stolen dollars.
Adler and Rothstein before the fall
Adler's flamboyant (and able) attorney, Fred Haddad, was calling for a trial in which he was promising to bring in public officials like McCain, Crist and Lamberti to show that his client wasn't the only one who didn't realize that Rothstein was a far-flung fraud.
All of those officials were friendly with Rothstein and accepted huge sums of money from him and his firm in campaign contributions. "Russell did nothing wrong and I expect to go to trial and be vindicated very quickly," Haddad told the Sun-Sentinel recently. "We're looking forward to a trial."
Yeah, not really. Today's Adler agreed to pay $350,000 to the bankruptcy court, a number that balloons to $500,000 if he fails to pay within 30 months.
It might be seen as a victory for Adler, considering the disparity between the settlement amount and the sum bankruptcy lawyers claim he received from Rothstein. Bankruptcy lawyers wrote in court documents filed moments ago that they agreed to settle because they have little hope that Adler and his wife, Katie, have the financial wherewithal to pay much of anything.
Not only is Adler broke, court documents allege, but the IRS, which gets first dibs on his assets, is coming after him for $234,000 in liens "or other action," court documents allege. On top of that bankruptcy attorneys wrote that they were concerned Adler could face disbarment, which would cripple his ability to pay in the future, and possible criminal charges related to his relationship with Rothstein.
"Critical to determining settlement was a detailed analysis of the Adlers' current financial condition, which based upon mediation related financial disclosures revealed that the Adlers have no existing bank, securities or other accounts upon which to execute, no equity in their home, leased vehicles and no other liquid non-exempt assets that could be used to satisfy any potential judgment," the attorneys wrote. "Further, it appears as if the Adlers may be subject to an IRS notice of lien or other action in an approximate amount of $234,000 and Mr. Adler could be facing other types of exposure in potential Florida Bar or criminal proceedings."
Adler released a statement to the Sun-Sentinel: "I did nothing wrong and was eager to go to trial and be vindicated. The settlement was purely a business decision that will put this case behind us and let me focus on my family, my future and the pursuit of justice for my clients."
Inside photos and read the terms of the settlement from the court documents.
In considering the circumstances, and taking into account the nature of the claims against the Adlers, the potential defenses available to such claims and the risks associated with litigating this matter, the Trustee believes that the terms of the Settlement are favorable to the
estate. Critical to determining settlement was a detailed analysis of the Adlers' current financial condition, which based upon mediation related financial disclosures revealed that the Adlers have no existing bank, securities or other accounts upon which to execute, no equity in their home, leased vehicles and no other liquid non-exempt assets that could be used to satisfy any potential judgment. Further, it appears as if the Adlers may be subject to an IRS notice of lien or other action in an approximate amount of $234,000 and Mr. Adler could be facing other types of exposure in potential Florida Bar or criminal proceedings. Thus, the Trustee could have spent a significant amount of money to prepare for and conduct a lengthy trial which he believes would have resulted in a favorable jury verdict, but the likelihood of a successful collection on any such judgment would have proven difficult.
Adler and Rothstein on NYC trip. Among the clawbacks was a loan for Adler to buy an apartment in the city.
12. Pursuant to the Settlement, and as more fully described in the Settlement Agreement, the Adlers agree to entry of a non-appealable final judgment, joint and severally, in the amount of $500,000 (the "Judgment") against them in the Adversary Proceeding. In order to pay the Judgment and in consideration of the Trustee agreeing to stay execution of the Judgment
provided there is no default under the Agreement, the Adlers agree that:
a. Russell Adler shall provide the Trustee with a recordable attorneys charging lien of 50% of any attorneys fees recoveries (net of referral fees) obtained by Adler on all lawsuits that Adler is prosecuting on behalf of clients that were originated while Adler was an employee of RRA, regardless of when the case was filed.
b. Russell Adler shall provide the Trustee with a recordable attorneys charging lien of 15% of any attorneys fee recoveries (net of referral fees) obtained by Adler on all lawsuits that Adler began prosecuting on behalf of clients originated subsequent to Adler's departure from RRA.
c. Russell Adler shall forthwith liquidate his IRA, (which would otherwise be an exempt asset and the Adlers' only other exempt asset excepting their homestead), presently valued at approximately $90,000 and turnover to the Trustee all proceeds from the IRA after payment of any taxes and/or penalties due upon its liquidation.
d. The Adlers have 30 months, from the date of approval of the Agreement to prepay the Judgment in the amount of $350,000.
Rothstein with the Adlers
e. The Judgment shall be non-dischargeable pursuant to the provisions of 11 U.S.C. §523(a)(4) and (6) in the event that either or both of them file a future bankruptcy, and that the Adlers are judicially estopped from asserting otherwise.
f. The Adlers are to provide the Trustee with a joint financial statement (the "Financial Statement") by January 31, 2011, to be followed by a deposition on their assets and liabilities conducted by Trustee's counsel. The Financial Statement shall be certified by them as true, correct, complete under penalty of perjury. Within 6 months from the date the Court approves the Agreement the Trustee discovers that the Adlers' net worth was materially greater than
that revealed prior to or at the Janurary 26, 2011 mediation and the Adlers owned an assert with a value of $10,000 or greater that was not disclosed by them prior to the January 26, 2011 mediation the Trustee may take all action he deems appropriate to obtain custody and tile of said asset for the benefit of the RRA Estate, exclusive of the settlement amount.
13. Additionally, upon the occurrence of the events described in paragraph 12 above,
and an order of this Court approving the Settlement Agreement becoming a final, non-appealable order, excepting the Judgment and the Settlement Agreement, Adler will be released from any and all liability to the Trustee, RRA or the Debtor's estate, and the Trustee and the Debtor's Estate will be released from any and all liability to the Adlers.
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