This is one of those times when the documents speak for themselves; I could rewrite and paraphrase the claims made by the Securities and Exchange Commission, but that wouldn't be better for either of us.
The medium-sized version of the story is excerpts from the SEC complaint, presented here. The words are all verbatim, but the order of the excerpts has been changed.
Missing documents....these won't go away so someone needs to do them...........you are also holding up our audit because I can't show anyone that I am a complete idiot by sending out millions of dollars with nothing to show for it except some e-mails that say 'Hey, Guido, send me 5 Mill..........I have such a deal for you.'
Levin and Preve sold promissory notes and created a feeder fund to funnel investor capital to Rothstein, ultimately becoming his largest source of capital.
Beginning in 2005, Rothstein began offering others the opportunity to purchase purported legal settlements at a discount.
Contrary to Rothstein's representations, there never were any legal settlements and the plaintiffs and defendants did not exist.
Levin first met Rothstein in early 2007 and soon began to personally invest in his discounted legal settlements.
Within a few months, Levin had purchased approximately $1.7 million in settlements, but Rothstein's demand for settlement funding continued to grow. Levin accordingly began pursuing outside investors to look for other sources of capital. In December 2007, Levin, through Banyon 1030-32 [an LLC owned by Levin and his wife], started offering investors promissory notes with the stated purpose of purchasing discounted legal settlements from Rothstein.
The notes provided investors with scheduled payments at fixed interest rates ranging from 12% to 30% per year, with most ranging from 18% to 20%.
From at leasy July 2008, Preve, who primarily handled the day-to-day operation of the purchases, often purchased settlements from Rothstein prior to receiving confirmation that the settlement funds had been wired into an RRA trust account. Furthermore, as a matter of course, Preve purchased settlements from Rothstein without any executed documents.
Levin, as the managing member of Banyon 1030-32 and personal guarantor of all promissory notes issued, often dealt directly with Rothstein in connection with the purchase of the settlements. He knew or was reckless in not knowing Preve was not effectively implementing the procedural safeguards they had represented to investors.
Between December 2007 until Rothstein's Ponzi scheme collapsed in October 2009, Banyon ... raised more than $57 million from 90 investors.
Levin and Preve also obtained additional financing to purchase Rothstein's settlements. Between April and November 2008, Levin, through separately created entities, entered into credit and security agreements with three New York based hedge funds. The hedge funds agreed to provide these associated Levin entities with lines of credit ... to purchase settlements from Rothstein.
In December 2008, Levin and Preve began purchasing fewer settlements from Rothstein because the hedge funds were not approving full use of the lines of credit.
Rothstein began to miss scheduled settlement payments to the associated Levin entities in early 2009.
Rothstein further told Levin and Preve their inability to provide him with settlement financing now caused him problems with the Florida Bar Association.
Rothstein claimed to have told the Florida Bar he would suspend payments out of the RRA trust accounts so the Bar would not take further action. The only way he could resume making payments, Rothstein said, was for Levin and Preve to provide him with approximately $100 million.
By mid April 2009, Rothstein had ceased payments on a majority of the settlements.
Levin's investment strategy had ground to a halt. Levin and Preve believed the only way to resume the investment strategy was to raise the additional $100 million Rothstein needed.
In 2009, they formed a private investment fund called Banyon Income Fund, LP that invested exclusively in Rothstein's settlements.
Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the settlements Levin and his entities had purchased.
Between May and October 2009, they together raised approximately $100 million for Banyon Income Fund from approximately 83 investors.
By the end of the third quarter of 2009, Banyon Income Fund had funded approximately $140 million in settlement purchases, including reinvested funds, but lacked documentation for approximately $40 million of those purchases.
The additional investments from Banyon Income Fund provided Rothstein with only a temporary reprieve.
By the end of October 2009, Rothstein's Ponzi scheme collapsed when he was no longer able to make any payments.
Banyon Income Fund was unable to meet its commitments to its investors and ceased to operate.
Banyon Income Fund investors had only received approximately $2 million in interest payments, and investors who purchased promissory notes from Banyon 1030-32 had lost approximately $40 million.
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