Why Suspicions About Fla. Firm’s Alleged Ponzi Scheme Weren’t Voiced
John Pacenti
December 7, 2009
Daily Business Review
http://www.law.com/jsp/article.jsp?id=1202436126736&rss=newswire
Plenty of smoke surrounded attorney Scott Rothstein and his well-heeled Fort Lauderdale, Fla., law firm. But nobody called the fire department until it was too late.

The worst-kept secret in the South Florida legal community this fall was that the firm Rothstein Rosenfeldt Adler spent more money on payroll than it had coming in the door. The firm spent three times more on advertising than the three biggest firms combined in South Florida.

“Obviously, that business model didn’t work,” said Florida Bar president Jesse Diner, a Fort Lauderdale attorney with Atkinson Diner Stone Mankuta & Ploucha. “A lot of it didn’t make sense.”

Chuck Malkus, who runs Malkus Communications Group in Fort Lauderdale, served on the board of the charity Neighbors 4 Neighbors, which refused to accept a Rothstein donation.

“This was building up for over a year, and many of us believe this is just the tip of the iceberg,” Malkus said. “I wish I picked up the phone and called the FBI.”

The highly secretive Rothstein made sure nobody within or outside the firm had the smoking gun needed to go to authorities or to The Bar.

“It was very surprising that a lawyer nobody ever heard of a few years ago is suddenly throwing around money in a recession,” said Robert Jarvis, a law professor at Nova Southeastern University’s Shepard Broad Law Center.

“Of course it raised lots and lots of eyebrows, but that is not enough.”

According to the U.S. Attorney’s office, there were no legitimate complaints about Rothstein to federal agencies. And The Bar never launched a serious investigation until Rothstein returned from Morocco early last month to face his accusers and voluntarily surrendered his law license.

The man who hobnobbed with sports figures, celebrities and top-tier politicians allegedly burned through $1.2 billion in an alleged Ponzi scheme related to bogus investments in lawsuit settlements, targeting friends and clients of RRA.

He spent millions of dollars on himself, buying sports cars, yachts, mansions and expensive jewelry.

Now he sits in a federal detention center facing a litany of fraud charges. As a result, the South Florida legal profession collectively is nursing a black eye.

Attorneys worry how the Fort Lauderdale powerbroker’s spectacular downfall might affect the public trust in the profession, which is implicitly relied upon as an honest broker in business and policy matters in both the public and private sector.

“Here we have an attorney, an officer of the court, whose core values should be honesty and integrity, and instead he is unlawfully enriching himself at the expense of his clients,” said Daniel Auer, the special agent in charge of the Internal Revenue Service for the Miami field office for criminal investigation.

When asked about Rothstein, local lawyers put on their best face. Rothstein is the cliché “one bad apple,” said some, pointing to the many attorneys who do unsung pro bono work for clients who can’t afford legal services. They said Rothstein may have been an attorney, but he was a conman first and foremost.

“I don’t think he made us all look bad. I think he made lawyers wearing $5,000 suits and driving $500,000 cars look bad,” said David Markus, a Miami criminal defense attorney.

Ed Davis, a founding shareholder in Miami’s Astigarraga Davis, said Rothstein’s alleged actions didn’t help the breach of trust issues the public always has with attorneys, “but you can’t judge the entire profession by the acts of a few.”

Still, if there is only 1 percent of bad lawyers in a state with 85,000 attorneys, the public could be more than vulnerable, Jarvis said.

“That is 850 rogue attorneys. That is a lot of rogues,” Jarvis said. “So is the glass half full? There are a lot of bad lawyers out there, just like there are a lot of bad doctors, bad car salesmen and bad journalists.”