by John Darer® CLU ChFC MSSC RSP CLTC
Scott Rothstein "jabber wocky"...
"Most people figure if you're left alone, you'll go away" "They figure they should let a sleeping dog lie. I like to jab the dog in the eye. And if it bites me, I'll jab its eye out." quote attributed to Scott Rothstein August 2009 by Bob Norman of the Broward Palm Beach New Times
Soon to be ex-Florida lawyer Scott Rothstein, the would be "Pet Tormentor" of Fort Lauderdale returned from suicide watch in Morocco yesterday and is now the focal point of an alleged $100-400 million Ponzi scheme that has been misreported as being about structured settlements by a slew of news sources.
The story really appears to be about a dubious pre-settlement settlement funding scheme where funds are advanced to plaintiffs in exchange for a stake in their settlements when the cases settle.
Here is a smattering of the reporting:
- "While all of the specifics of the the alleged fraud are not known, CBS 4 reports it may have involved both taking from client trust funds and setting up a side company to sell investments in structured settlements. Those are arrangements in which payments are made over time rather than all at once, reaping tax benefits for the payee and allowing the payer to avoid having to come up with the lump sum upfront". At the point a settlement was agreed to, Rothstein's side business would woo investors with promises of eye-popping payoffs. Investors would pay a fraction of the lump sum, and would be promised a huge return on their investment -- a minimum of 20% guaranteed -- in between 3 months and a year, according to the Sun Sentinel.-Justin Elliot TPM Muckraker 11/3/2009
- Rothstein is suspected of selling "structured settlements" from fabricated personal injury cases, each ranging from hundreds of thousands of dollars to millions of dollars, sources told the Herald. Rothstein allegedly claimed that his law firm anticipated the settlements and that investors who bought them at a discount stood to make from 20 to 52 percent returns. Miami Herald 11/3/2009
- Coffey confirmed to the New Times that Rothstein’s investment scheme involved purchasing “structured settlements,” in which people sell large settlements in legal cases for lump sums of cash. It’s not clear how many victims there are or how much money is believed involved. Rothstein Rosenfeldt Adler lawyer Kendall Coffey, cited in Wall Street Journal law blog.
- When Sakowitz called the FBI in September, he told the agency that "I am 90 percent certain there is a legitimate law firm. But he is selling structured settlements that don't exist.'' Miami Herald
"Federal authorities on Monday stepped up their criminal investigation into Rothstein, 47, who is suspected of operating a Ponzi scheme by selling hundreds of millions of dollars in fabricated legal settlements to investors".
A few important facts:
FACT: The story here involves investors, NOT the original structured settlement recipients.
FACT: An active life insurance license and appointment is required to place structured settlements funded with annuities. The industry is heavily regulated.
FACT: While over 105 banks have failed in 2009, there have been no structured annuity issuers taken over by a state insurance department during the same time period.
FACT: Scott Rothstein IS NOT a licensed insurance agent in the state of Florida according to a licensee search of the website of the Florida Department of Financial services on 11/3/2009.
FACT: The only structured settlement funded with United States Treasury obligations that this author would recommend involves one of the top 10 banks in the United States and cannot be sold to factoring companies, not to mention corrupt lawyers like Rothstein.
FACT: The sale/transfer of structured settlement payment rights requires a Court Order to proceed. Without a Court Order approving the the structured settlement factoring transaction, the settlement purchaser must pay a 40% excise tax on the factoring discount.
There is no way that a legitimate structured settlement can be fabricated without both the defense and plaintiff and their attorneys being complicit in the fraud. That has not happened here, in Fort Lauderdale, with Scott Rothstein
An August opportunity that the South Florida Sun Sentinel described involves offering investors 36% return in 3 months. This type of return is just not possible with a real structured settlement or a structured settlement transfer. Where there is a legitimate transfer of structured settlement payment rights the investor is paid back over time as the annuity payments come in from the annuity issuer.
What the Sun Sentinel describes is the province of the legal funding industry.
The American Legal Funding Association (ALFA) establishes industry standards in the Legal Funding industry, especially regarding transparency in transactions and clear disclosure to consumers. Before the emergence of the Legal Funding Industry, little attention was paid to how injured plaintiffs managed financially while waiting years for their cases to be resolved. In addition, there was a distinct disadvantage in the settlement and overall litigation process for those who could not afford the luxury to wait for their attorney to reach a proper and just resolution of their case.
Will the politicians who took money from Rothstein (some of whom are giving it back) have the guts to toughen up consumer protections? How many more lives need to be ruined before the system changes?
Look for a podcast that Mark Wahlstrom and I will be doing on the topic on the Legal Broadcast Network tomorrow
"I'm a liar ... I'm a thief ... I let you down ... I'm sorry." Purported text message from Scott Rothstein to his law partner sent Saturday from Morocco, as reported by Bob Norman 11/2/2009