Inside the Rothstein Swindle, Part I
I got the story of exactly how a relatively recent Scott Rothstein swindle occurred, but I have to be a bit cautious about the way I tell it so as not to reveal the investor's identity.
The investment was made in the last eight months and it involved pooled money from several people that added up to a dollar amount in the single-digit millions. It's believed to have all been lost after Rothtein's Ponzi scheme collapsed nearly three weeks ago.
When the investor met Rothstein in his inner sanctum on the 16th floor of the Bank of America building, RRA general counsel David Boden was present. Though Boden is unlicensed to practice law in Florida, he was deeply involved in the deal and negotiated the final papers with the investors' lawyers.
The investor said it was Boden who led him into Rothstein's "administrative corridor" and, after being held up at Rothstein's door for some time, they were allowed into Rothstein's office. That's when Rothstein, bedecked in one of his trademark Tom James suits, went into a spiel that, over the years in various forms and with different kinds of bait, is believed to have helped him raise a billion dollars.
In what the investor called a persuasive and profane pitch, Rothstein led off by telling him that RRA was the
preeminent sexual harassment law firm in the country.
"Rothstein is talking about how he's got former customs agents and police officers working for him when they are going to file a lawsuit," said the investor. "He said, 'We get our best research by digging through garbage.' He said he'd figured out a basic formula which was that someone with $10 million net worth was usually willing to pay $2 million in cash to pay off their mistress."
The key, of course, was confidentiality. Rothstein told the investor that he would meet potential defendants in his office and would question them about affairs they had with an employee. The defendants would invariably deny everything.
"Then [Rothstein] pointed to this big piece of artwork in his office and said there was a television screen behind it," said the source. "Rothstein said he would turn on a video of the guy fucking his mistress, and then he would say, 'We can either settle this now or I can depose your wife, your mistress, your daughter, and your son about it.'
"It sounds like extortion, but it was legal."
Rothstein said the problem -- and the thing that made the settlement business possible -- was that the "defendants" often couldn't or wouldn't pay the entire settlement up-front. They wanted to do it over a period of time. Rothstein told the investor that the first case like that he had, which he said occurred many years ago, involved a $3.5 million settlement and a million-dollar legal fee. He said he worked the case for a year on contingency before striking the deal with the defendant. But when the defendent wouldn't pay up-front, his client drew a line in the sand and demanded that Rothstein go to trial with the case. "She said, 'Fuck him and fuck you,'" Rothstein told the source. "She said, 'He told me he was going to leave that bitch, and now I'm fired from my job. He'll find a way to screw me out of the money, and he won't pay me.'"
Rothstein said he had to find a way to bring the client onboard with the settlement.
"I see my entire salary for the year washing away in front of my eyes," he told the investor. "So I assign the settlement. I call up a good friend of mine in the car business [to fund it]. And I ask the client, would you take $3 million now? She said yes, and the settlement idea was born."
The idea was that the first investor, possibly car dealer and close Rothstein friend Ted Morse, put up the $3 million and then stood to be paid $3.5 million once the defendant paid up, a half-million dollar profit.
The investor and his rep wondered if the defendants ever sued his clients for breach of settlement. Rothstein said the confidential nature of the deal made sure that never happened.
"In 20 years, I have never seen a defendant sue on breach of settlement," Rothstein told them. "The whole idea is that it's secret. Why would they sue?"
It made sense to the investor. While it wasn't exactly a savory business and in some cases it seemed the plaintiffs were short-changed, the idea seemed solid. The investor, who had been watching Rothstein's flashy, high-rolling ways the past few years, thought that with enough of these cases at Rothstein's burgeoning law firm, he could indeed make huge sums of money. And it was obvious Rothstein was making huge sums of money.
With the basic concept of the deal conveyed, Rothstein then went onto larger cases, like a legitimate one involving Eli Lilly that was handled by an RRA lawyer involving $1.4 billion. The story was getting better -- and the investor was getting ready to bite.
[Part II coming later today].
Get the Things to Do Newsletter
Find out about upcoming events and special offers happening in South Florida.