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Tuesday, May 28, 2024 | Back issues
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Alleged Ponzi Cronies Still on the Hook

FORT LAUDERDALE (CN) - A federal judge dismissed some but not all securities fraud charges against two Florida investors the SEC accused of assisting Scott Rothstein in his $1.2 billion Ponzi scheme.

The SEC sued George G. Levin and Frank J. Preve in May 2012, claiming they helped Rothstein defraud victims by selling them "discounted purported confidential settlement agreements."

Rothstein, 49, an attorney, pleaded guilty in January 2010 to running the Ponzi scheme. He is serving 50 years in federal prison. He was disbarred in 2009.

Levin "was the managing member of several entities involved in investments with Rothstein," and Preve "managed the day-to-day operations of Levin's investments in Rothstein's Ponzi scheme," the SEC said in its complaint.

According to the SEC: "From at least July 2008 to October 2009, George Levin and Frank Preve defrauded investors in raising funds to purchase purported legal settlements from now-convicted Ponzi schemer Scott Rothstein. Rothstein perpetrated a massive Ponzi scheme through the sale of fake discounted settlements utilizing his law firm Rothstein, Rosenfeld and Adler, PA ('RRA'). Levin and Preve sold promissory notes and created a feeder fund to funnel investor capital to Rothstein, ultimately becoming his largest source of capital. With their fate tied to Rothstein, Levin and Preve's settlement purchasing business collapsed along with the Ponzi scheme in October 2009.

"Levin and Preve first raised money to purchase Rothstein settlements by offering investors promissory notes issued by Levin's company, Banyon 1030-32, LLC. In 2009, they formed a private investment fund called Banyon Income Fund, LP that invested exclusively in Rothstein's settlements, and for which Banyon 1030-32 served as the general partner. Levin controlled them both and Preve operated them. Each profited from the amount which the settlement discounts they obtained from Rothstein exceeded the rate of return promised to investors."

Levin and Preve sought dismissal for "failure to set forth sufficient factual allegations" and "failure to satisfy Rule 9(b)'s heightened pleading standard."

Rule 9(b) requires parties to "state with particularity the circumstances constituting the fraud or mistake."

The SEC claimed that Count 1 of its complaint does satisfy the standard. Counts two through four allege fraud on its face, but counts five and six accuse the men of aiding and abetting fraud and are covered by Rule 9.

U.S. District Judge Robin Rosenbaum denied the motions to dismiss Count 1 but ruled: "The SEC, though, must strike impertinent, fraud-related allegations from Count I."

She granted dismissal of Counts 2 through 6 because they do not meet the pleading requirements of Rule 9(b), but gave the SEC until Feb. 28 to file an amended complaint.

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