Ponzi Fraudster’s Talks With Trustee Stay Sealed

     (CN) – An alleged co-conspirator to Scott Rothstein’s $1.2 billion Ponzi scheme cannot access deposition documents, a federal judge ruled.
     Rothstein was sentenced in 2010 to 50 years in federal prison for his role in the scheme that bankrupted law firm Rothstein, Rosenfeldt & Adler.
     As the disgraced lawyer faced depositions for the firm’s bankruptcy case and related civil suits in 2011, the court gave its appointed bankruptcy trustee, Herbert Stettin, permission to interview Rothstein privately.
     Stettin then sued Frank Preve and others in bankruptcy court, seeking the return of alleged fraudulent transfers from the firm.
     During discovery, the defendants demanded access to all of the notes Stettin had taken during communications with Rothstein since Nov. 1, 2009, including those from the pre-deposition interview.
     Stettin objected, arguing the court’s orders prohibited disclosure of notes from the interview. He said the notes are also protected attorney-work product.
     U.S. District Judge James Cohn denied the Preve defendants’ request Wednesday, calling their arguments “unavailing.”
     “Even if the notes that the trustee took during the Rothstein inverview were relevant and admissible in the adversary action, disclosure of the notes is still precluded by this court’s orders,” the six-page order states.
     Although Stettin had earlier violated a court order by sharing information from the interview with harmed investors in separate civil suits against TD Bank and Platinum Partners Value Arbitrage Fund LP, Cohn noted that the court addressed those breaches and granted remedial relief.
     “In so doing, the court made clear that the trustee’s disclosure violated the July order and that the terms of that order remained in place,” Cohn wrote. “Nor have the Preve defendants shown good cause for modifying the court’s orders preventing disclosure of the interview notes. The Preve defendants were allowed to depose Rothsein in the adversary action. And while they now claim that the time allotted for the deposition was insufficient, they do not explain what topics they were unable to address with Rothstein.”
     Stettin has an understandable concern that Rothstein discussed Preve’s role in the fraud differently with Stettin than he did in deposition, but granting access “would destroy the work-product protection that the court found essential in granting the interview in the first place,” Cohn added.
     Founded in 2002, Rothstein’s Fort Lauderdale-based law firm employed 70 attorneys in Florida, New York and Venezuela.
     As managing partner and chief executive officer, Rothstein ran the scheme based on hundreds of millions of dollars in fabricated legal settlements.
     The Securities and Exchange Commission sued Preve and George Levin in May 2012 for their alleged roles in the scheme.
     It said 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.”
     “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,” the complaint stated. “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.”
     It added: “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.”
     U.S. District Judge Robin Rosenbaum dismissed five of the six securities fraud counts against both men last month for failure to meet the pleading requirements of Rule 9(b). The rule requires parties to “state with particularity the circumstances constituting the fraud or mistake.”
     Rosenbaum refused to dismiss the remaining count, but ordered the SEC to “strike impertinent, fraud-related allegations” from it.
     On Friday, U.S. Bankruptcy Judge Raymond Ray ordered TD Bank and attorney Bill Scherer to turn over retaining agreements with investors suing over the scheme to Stettin, the South Florida Business Journal reported.
     Scherer, with Conrad Sherer in Fort Lauderdale, has purportedly earned over $50 million in fees relating to litigation over the scheme.
     In his motion, Stettin claims the documents Sherer has provided have been heavily redacted.
     “The documents provided by Conrad & Scherer constitute a complete and utter failure to comply with the court’s order,” the motion stated. “Further, Conrad & Scherer has not filed the information required – the list of any and all groups of creditors or other parties in interest represented by Conrad & Scherer … Conrad & Scherer has filed pleadings on behalf of the clients it purports to represent that attack the trustee, his counsel, and their motivations. The trustee and this court and the creditors of this bankruptcy estate are entitled to know the terms upon which Conrad & Scherer came to represent the clients.”

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