New Scam May Have Taken Haredim For $100 Million

Major Chabad center carries the name of disgraced alleged fraudster, who is now said to be cooperating with feds.

Rothstein's Jewish Legacy, Enshrined in Black and White
By Lisa Rab • New Times

​South Florida's Jewish community just can't catch a break. First Bernie Madoff, now an alleged Ponzi scheme by Fort Lauderdale attorney Scott Rothstein -- what gives?

Madoff lured Jewish friends at the Palm Beach Country Club to be investors in his Ponzi scheme, and when his fraud collapsed, Jewish charites lost hundreds of millions of dollars. It's not yet clear how Rothstein's scandal will impact Jewish investors -- although Yeshiva World News is buzzing with rumors that the Orthodox community in Brooklyn imay have lost millions.

One thing is obvious: Rothstein's imprint on the Fort Lauderdale Jewish community is indelible, and very visible. The chabad center on Broward Boulevard bears his name -- The Rothstein Family Downtown Jewish Center Chabad.

​Rothstein, who has referred to himself as the "Jewish Avenger," was clearly a generous contributor to the Orthodox chabad. He's even featured in photos of the chabad's grand opening party. 

But he's not the kind of donor people are eager to embrace at the moment. When the Juice called the chabad's Rabbi Schneur Kaplan to inquire if Rothstein's name would be removed from the building, the answer was short and polite: "It would be inappropriate for me to make any comments at this time," Kaplan said.

Here's hoping Kaplan knows a good lawyer.

Yeshiva World notes the story is:

[S]ending shock waves through the Frum community of Flatbush,  involves approximately 100 million dollars - invested by prominent baalei tzedaka - that were allegedly lost in a scam with a lawyer living in Florida.

Here are the latest details:

Sources: Lawyer Scott Rothstein cooperating with feds
BY JAY WEAVER AND AMY SHERMAN • Miami Herald

Scott Rothstein, the flashy Fort Lauderdale lawyer who investors say fleeced them out of hundreds of millions of dollars and whose partners say wiped out his law firm's finances, is cooperating with federal investigators and identifying others who may be involved in his alleged scam, sources familiar with the probe said Wednesday.

Rothstein and his defense attorney, Marc Nurik -- seeking to cooperate with the feds -- disclosed details of his alleged Ponzi scheme to prosecutors, FBI agents and IRS agents at the U.S. attorney's office in Fort Lauderdale, the sources said.

Investigators are not only looking into allegations that Rothstein bilked investors by selling them "fabricated" civil settlements, but also into accusations that he stole from his law firm's financial operations and from clients' trust accounts, the sources said.

Rothstein had secreted away millions of dollars into foreign bank accounts in recent months as he prepared for the possibility of fleeing, the sources said. It's unclear how much -- or if any -- of that money could be available to repay possible victims.

Rothstein, 47, had left for Morocco on Friday as news of his alleged investment scheme started leaking around Broward County. He came back mid-day Tuesday to face a federal investigation and the loss of his Las Olas Boulevard law firm, Rothstein Ronsenfeldt Adler. The once high-flying firm, formed in 2002, has only $500,000 left in its bank account, a lawyer said.

On Tuesday, a Broward County judge appointed an independent receiver to examine the financial records of Rothstein's 70-attorney law firm.

Rothstein apparently drained vast sums of money from the firm, his partners say.

``I believe there are about $500,000 in operating funds -- maybe slightly more,'' Grant Smith, an attorney at the firm, said at a court hearing. He said the firm set up new bank accounts Tuesday for funds that started to come in over the weekend.

Most of the firm's lawyers have agreed to forgo their paychecks due Nov. 13.

On Oct. 31, Rothstein sent his law partners a text message that indicated he was contemplating suicide, sunsentinel.com reported Tuesday night.

Rothstein mused that he had three options -- kill himself, live life ``on the lam as a fugitive'' or go to prison and risk being killed there because he had made enemies, said the law firm's co-founder, Stuart Rosenfeldt, according to the website. Rosenfeldt talked to Rothstein, urging him to ``choose life.''

In court papers, the firm has accused Rothstein of secretly running a fraudulent investment scheme that sold falsified structured settlements from employment discrimination and whistle-blower cases to investors who were promised lucrative returns for fronting the payouts.

Rothstein's investors had $500 million deposited in a Canadian bank on Oct. 23 and that money was gone seven days later, said William Scherer, an attorney representing 12 investors he says lost about $80 million. Among them: Rothstein's neighbor, businessman Doug Vonallmen.

``I'm not surprised at those numbers given what I know about the case so far,'' Scherer said.

Rothstein and his attorney could not be reached for comment Tuesday.

TALENTED, CHARISMATIC

Rothstein and his firm gave millions to politicians and charities across South Florida. Scherer said that Rothstein met some potential investors through the charities and gala functions and was viewed as a talented and charismatic attorney.

``We all wondered where the money came from,'' he said of the donations.

Some investors said they intend to sue Rothstein and the law firm.

Rosenfeldt and other law partners said they knew nothing of Rothstein's alleged investment scheme.

At Tuesday's hearing, Broward Circuit Court Judge Jeffrey Streitfeld appointed retired Miami-Dade Circuit Court Judge Herbert Stettin as the receiver of Rothstein's firm. Stettin will handle financial matters, security of the building and access to files.

Streitfeld also directed the firm to set aside $50,000 for the receiver and accounting staff.

Rosenfeldt will become the CEO and oversee legal matters.

Officially, Rothstein is now out of the firm.

``He has in my view for now relinquished his authority with regard to that law firm,'' Streitfeld said.

Although the judge had suggested Monday that Rosenfeldt should be appointed the receiver, on Tuesday he concluded the firm needed independent oversight. The law firm's lawyer, former U.S. attorney Kendall Coffey, agreed.

`CLUELESS'

Streitfeld raised concerns about Rosenfeldt's statements that although he was a 50 percent owner of the law firm, ``he is clueless'' about its finances. Rosenfeldt did not respond.

Among Rothstein's biggest investors: a private Fort Lauderdale-based investment firm called Banyon, which claims it has lost hundreds of millions of dollars.

The firm, run by George Levin, declined to comment about Rothstein.

But a company representative, Jesse Derris, said Banyon's lawyers contacted the U.S. attorney's office in South Florida last weekend after ``realizing something suspicious'' had occurred with their investments with Rothstein.

A source close to one investor said that Rothstein kept the ``structured settlement'' investments in trust accounts at Toronto Dominion Bank.

Jeffrey Sonn, a Fort Lauderdale attorney representing investors, said in an interview that he has talked to other lawyers who claim investors in Morocco gave Rothstein $85 million.

Sonn said that some investors were being paid commissions of up to 20 percent to lure other investors into the deal.

Sonn, who reviewed documents associated with Rothstein's investment fund, said some were written on the law firm's letterhead. The money was wired to and from a Canadian bank.

Sonn added that Rothstein ran his investment operation with one or two people but he did not know if they had a relationship with the law firm.

Also Tuesday, politicians and political parties that received contributions from Rothstein started giving back some or all of the donations.

Among them: Gov. Charlie Crist, state Chief Financial Officer Alex Sink, Senate President Jeff Atwater, Rep. Ellyn Bogdanoff, the Florida Democratic Party and the Republican Party of Florida.

Herald/Times reporter Marc Caputo and Herald staff writer Diana Moskovitz contributed to this report.

Here is the amended complaint from Rothstein's law partners as a PDF file:

Scott Rothstein Ponzi Scheme Attorneys Complaint

[Hat Tip: Critical Minyan.]

Comments

[seymour]

it seems many people who are involved in scamming, try to buy their way into heaven by giving their illicit gains to charity in a very flashy way

[yankele]

OOH, let's be shocked that Chabad takes money from crooks!!!

Why do you continue to hold Chabad to such high standards??? How many times do you have to "prove" that a duck is a duck.

But the issue isn't just a Chabad issue, it's an issue for all Jewish organizations.

Here are examples, Cut and Pasted from a JTA article.

Ivan Boesky, an investment banker, in 1987 was convicted of insider trading and sentenced to three years in prison. Boesky was a board member of the Conservative movement's Jewish Theological Seminary, and had endowed the library. Boesky resigned from the board and JTS removed his name from the library, but kept his donations.

Michael Milken, who, with Boesky, was convicted of insider trading is now a prominent funder of Los Angeles Jewish causes, including a large Jewish day high school that [Still] bears his name. Milken, who served several years in prison but has been released, was also considered for a presidential pardon by Clinton but did not get one.

In a 1997 situation that involved no crime, Henry Everett, a board member of UJA-Federation of Greater New York objected when James Tisch was named the organization's president because Tisch was president of Loews Corporation, which owns the Lorillard Tobacco Company, a company Everett charged had lied about the dangers of nicotine and was responsible for millions of cancer-related deaths. However, after a board discussion of the issue, Tisch prevailed

[Shmarya]

I knew Henry and his wife.

Past that, Ooooooooooh! Lets not mention that another Jewish ponzi scheme happened! Lets not mention haredim lost millions! Lets not mention the crook gave millions to Chabad!!!! Lets ignore it!!!!!!!!! [/end sarcasm - for the moment]

[harold]

I don't see why the thrust of this story's headline is the loss of monies belonging to haradim and the fact that a chabad center was named after a major contributer who turned out to be a fraud.

This is like a person that comes into a hospital after being shot in the chest and hand and only focusing on his hand injury.

[yankele]

You're missing my point.

What Rothstein did was wrong. It's horrible that he stole money and I feel bad for the people who lost their life savings.

But it isn't shocking that Chabad took his money. Every Jewish Organization has (o.k, not every but far too many). It won't be shokcing if Chabad of Florida keeps the money and Rothstein's name on the building. Just following that longstanding tradition of Jewish organizations crying crocidile tears.

Example: I recently read that Hadassah actually made money off the Madoff scheme (they put in early, got returns, for many years, withdrew most of their investment, before the house of cards came down.) Yet no one is suggesting that Hadassah give back the profits it made off Madoff's ponzi scheme. (the same is true of the Wilpon family, owners of the Mets)

Keeping the money is the only thing that Conservative, Orthodox, Reform, and Chabad can agree on.

Next time, file the story under "typical Jewish organization"

[critical_minyan]

my guess is that the chabad rabbi converted kimmie, scott rothstein's second wife.
That is why they got the big donation.
I have no proof of that, but that is usually the way it works with big businessman. Rabbi converts a woman who if she came with a poor shnook would have been sent away.
anybody know if kimmie was converted by Rabbi shneur.

[Mr. Apikorus]

Milken did a lot more good than bad. Boesky, on the other hand, was as crooked as they come.

[R]

Big Baal tzedakah these people and they get praises through the roof for all their giving. Sadly i don't think G-d sees it in the same way.

[Diena]

Schneur Kaplan is not authrorized to use the Chabad name in his activities, which is why his center is no longer listed on the Chabad website.

[Bilaam's Donkey]

Can you change the title? All indications so far are that this was NOT a Ponzi scheme. It was straight out theft/conversion of investor funds. Not every fraud is a Ponzi.

[Shmarya]

The early reports used "Ponzi," I think. But I'll change it.

[Sarah]

Chabad seems to attract so many of these types. Do they actively recruit them or it it just water seeking its own level?

[Jack Schitt, Esq.]

So Shmarya, have you managed to dig up a Chabad connection with any of the Jews arrested today in NYC?

[ah-pee-chorus]

Jack Schitt-

dont i know you from somewhere? many people tell me i dont.

[Lashon Harah]

I have heard from some of the investors that apparently Murry Huberfeld, of Lawrence, NY, who has a list of investigations against him, knew about the fraud for 6 months.