Accused Ponzi Rothstein Arrested on Racketeering Charge

Scott Rothstein, the high-flying South Florida attorney who authorities say ran a massive investment scam using faked legal settlements, was arrested by FBI agents early Tuesday on federal fraud charges.

The arrest of Rothstein, 47, who has had a meteoric rise in South Florida’s political and business world, came as federal prosecutors prepared racketeering charges against him later in the day.

According to the Palm Beach Post, Rothstein is likely to plead guilty while he is in custody. The U.S. attorney’s office is also considering criminal charges against Rothstein’s alleged co-conspirators – possibly including former employees of his now-defunct firm.

The FBI has estimates the Ponzi scheme, which guaranteed a minimum of 20% investment returns in as little as three months and promised huge returns on investments in legal settlements, could top $1 billion.

According to authorities the scheme worked this way: Investors would make an upfront payment at a discount to a plaintiff in a lawsuit who was expecting a series of settlement payments from the defendant over months or years. The investors would later receive the full settlement amount at a significant profit. The only problem with that scenario was that it was all a scam. Prosecutors say most of the settlements never existed. There were no plaintiffs, no defendants, no lawsuits.

When Rothstein’s scheme collapsed in late October, investors scrambled to reach the lawyer for answers, but Rothstein had left for Morocco where he contemplated suicide amid mounting allegations that he misappropriated hundreds of millions of dollars.

Several investor have already filed lawsuits seeking their money back, including one case demanding more than $100 million in damages. In October alone, $235 million washed through Rothstein’s accounts.  Records show that more than $650 million were funneled to Rothstein since 2008 to buy settlements worth $1.1 billion. The financial overseer of Rothstein’s 150-employee law firm says that according to its attorneys the firm only has $500,000 in its operating accounts.

Meanwhile, federal agents have seized Rothstein’s boats, including an 87-foot yacht, as well as 20 luxury cars and numerous other assets. Prosecutors say they are also going after 21 homes and other properties linked to Rothstein in Florida, New York and along Rhode Island’s Narragansett Bay.

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