We've heard all about how the Centurion and Platinum hedge funds in New York sank hundreds of millions of dollars into Scott Rothstein's Ponzi scheme.
Fort Lauderdale attorney Bill Scherer is suing them, claiming they were privy to the fraud and now must cough up millions of dollars to multimillionaire Douglas Von Allmen and other Rothstein investors that he represents.
In his massive and much-publicized civil lawsuit, Scherer uses emails and other evidence his law firm collected to make a case that the hedge funds -- led by Meir "Mark" Nordlicht, Ari Glass, and Jack Simony, among others -- knew or should have known that Rothstein's investment scheme was a massive fraud.
Well, that kind of evidence apparently cuts both ways. In a counterclaim filed last week against the Von Allmens and their companies, the hedge funds make an argument that it is the vastly wealthy Von Allmen who is liable to pay them damages, not the other way around. The suit alleges:
"In truth it was Von Allmen and his co-conspirators that were rabid feeder fund promoters of the Rothstein scheme, and funneled tens of millions of dollars of their victims' money into the scheme without doing appropriate due diligence of their own, concealing material facts, and mirespresenting other facts."
Filed by attorneys Eliot Lauer and Susan Trench, the counterclaim provides the first inside look at the aggressive efforts Von Allmen made to lure additional investors into Rothstein's scheme. The suit also alleges that Scherer exaggerated the Ponzi losses of his Rothstein clients, which he lists in court records as $281,525,358.34, by more than $120 million, the brunt of it involving alleged losses by Miami financier Ira Sochet.
But it is the Von Allmen allegations that are most intriguing. The counterclaim alleges that after sinking $55 million into the scheme of his own money, Von Allmen and his associates (including several family members) became concerned that Rothstein wouldn't be able to pay them back. That's when they claim "Von Allmen and the Von Allmen Conspirators, in concert with Rothstein, began actively and aggressively functioning as feeder fund promoters, in order to lure
fresh capital into the Rothstein program by ensnaring other investors."
To drum up cash meant to help bail out their millions, the suit claims that Von Allmen worked with Clockwork Capital Advisors, a hedge fund run by A.J. Discala, a Hollywood agent and businessman whose claim to fame was having married Jamie-Lynn Sigler, aka Meadow Soprano. The idea was to turn clockwork into the new Banyan, the monster hedge fund run by George Levin that financed much of Rothstein's scheme.
Von Allmen also formed Delaware companies Razorback Funding and D3 Capital Club as vehicles to raise money from unwitting investors into Rothstein's scheme. The suit claims more than 23 investors sank money into the venture.
In emails included in the counterclaim, Von Allmen wrote that the new Clockwork venture would need to $400 million the first year and $100 million in successive years to succeed. Clockwork agreed on October 1, 2009 to allow Von Allmen to own 10 percent of the new hedge fund.
Von Allmen then met with Rothstein on October 5 to talk about more than $100 million potential settlement deals. Later that day he sent an email to Clockwork, "I saw Scott at a hospital function this afternoon .... Can you raise $46 million next week and $60 million the following?!!!"
Thus began a "furious marketing effort" on Von Allmen's behalf to make Clockwork Rothstein's top feeder, according to the suit. From another email Von Allmen wrote to Clockwork:
I was us (whoever that is) to make the gravy. I am going to tell people this: You make 15% in Banyon and more in Clockwork. For a few people who can write $10 to $20 million checks in a week, we are starting a little "Club" that does even better. Typically, you will get back 115% in 4 months with most of it in the first 2 months. If we can keep this quiet within the Club and not have competition, you will probably end up with 60% or better annual returns! It will all be well documented and no one will get anything before the limited partners are paid their 115%.
Clockwork, presumably Discala, replied, "I agree sir!!! ... The CLUB is the exact play!!"
The suit goes on to outline what it calls "badges of fraud" involving Von Allmen. As Rothstein became more and desperate in October 2009, just days before he fled to Morocco, he began offering higher and higher rates of return, 300 percent and more. Von Allmen found that investors were scared off by such unrealistic returns. On October 11 he wrote to Clockwork: "I met with Scott for a couple hours today. ... He thinks we are scaring people away by offering them such outrageous returns. He thinks we would raise more money offering lower returns."
The agreed upon return was 45 percent, which of course is still exceedingly high. The law firm Von Allmen hired to do due diligence, Clifford Chance LLP, apparently agreed. After meeting with Rothstein, the firm "withdrew abruptly from the representation" and returned its $50,000 advance. According to Clockwork emails, this "spooked" and "freaked out" its own general counsel, Robert Mazzeo.
The lawsuit also cites irregularities in the way Von Allmen presented the deal to investors and how payments were made to Rothstein. He kept drumming up investors until Rothstein fled to Morocco, at which point he switched into lawsuit mode, hiring Scherer. On November 3, 2009, after the Ponzi scheme story was all over the news, Von Allmen wrote to investors: "The attorney I hired is doing a great job and is working to get us ahead of all the people that will be in the bankruptcy mess. He is a bull dog and is looking to go after anyone who touched this and has deep pockets." The next day he wrote in an email that the Rothstein mess was "actually fun" and that "I assume anything we recover is found money."
He also tried to do some damage control, according to the lawsuit, writing that he was going to tell investors that they were suspicious of Rothstein but that he "took the money and ran."
"It'll look better for both of us if it comes off like we were on top of this instead of we just got blindsided," he wrote to Clockwork.
Of the lawsuit, Scherer said, "Desperate men take desperate actions."
He said that among the money Von Allmen sank into Rothstein's scheme at the very end was his own grand children's trust fund money. They on the other hand put $440 million in and got $420 million back. So they did a good job of getting their money back."
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