Rothstein's Wife To Plead Guilty, Could Face 5-Year Prison Sentence

Kim Rothstein, whose husband Scott is serving a 50-year sentence for masterminding Florida's largest Ponzi scheme, could face prison time of her own when she pleads guilty February 1 to a federal conspiracy charge. Mrs. Rothstein, along with four others, was charged back in September with conspiring to conceal over $1 million in jewelry from federal authorities, including a $450,000 diamond ring tipping the scales at 12.08 carats. While the conspiracy charge carries a maximum five-year prison term, Mrs. Rothstein is likely to face a much lower sentence under federal sentencing guidelines.

After Rothstein's scheme unraveled in October 2009, federal authorities were dispatched to his residence in early November to secure his collection of jewelry and luxury items that included hundreds of thousands of dollars in watches. Kim Rothstein assisted authorities in gathering the jewelry, and represented that she was not aware of any other jewelry subject to potential forfeiture.

However, the bankruptcy trustee appointed to investigate Rothstein's fraud and recover assets for investors soon learned that some jewelry remained unaccounted for, including the 12.08 carat diamond ring purchased by Rothstein from a local jeweler. This jewelry included:

• An engagement ring and wedding band with 18 emerald cut diamonds;


• 10 watches, including a Rolex with leopard design, a woman's Piaget and a platinum/diamond Pierre Kunz;


• 5 sets of earrings, several necklaces, and a variety of gold coins;


• Pearl, diamond, and sapphire cufflinks, and 50 1-ounce gold bars

The trustee then deposed Rothstein and several of her acquaintances, learning under oath that the missing jewelry had been concealed by Rothstein, with one of Rothstein's friends selling the 12-carat ring to a local jeweler. Rothstein's former attorney, Scott Saidel, even agreed to hold some of the proceeds from the sale in his attorney trust account to stymie investigators.

Rothstein, her friend, and Rothstein's former attorney were each charged with a single count of conspiracy to commit money laundering. The jeweler and a businessman that assisted in the sale were accused of lying under oath, and currently face obstruction of justice and perjury charges.

Rothstein's decision to plead guilty came as trial could have commenced as early as next week. The nature of the charging documents had suggested that plea deals were likely, but Rothstein had initially entered a "not guilty" plea. Rothstein's acquaintance is also expected to plead guilty on February 1st, while Saidel is scheduled to appear January 25. Saidel's situation is unclear, since as an attorney, Saidel could face scrutiny from the Florida Bar with a felony conviction.

Questions Mount As Tax Preparer Accused of $10 Million Ponzi Scheme Refuses to Cooperate

A Tennessee tax preparer suspected of masterminding a $10 million Ponzi scheme is now being accused of failing to cooperate with a court-appointed bankruptcy trustee tasked with recovering millions of dollars in missing investor funds.  Jack Brown, owner of Soddy-Daisy-based Brown's Tax Service and frequent preacher/Sunday school teacher at the Sale Creek Church of God, saw the business forced into involuntary bankruptcy in early November as scores of clients began asking questions about their investments.  According to the court-appointed trustee, Brown has "refused to answer questions which would not be protected under the Fifth Amendment" while also claiming that his health has deteriorated to the point where he is movable only by ambulance.  

While details thus far are sparse, it appears that Brown began his scheme as early as 2005 by telling potential investors that he could promise annual returns of 15% through his daytrading talents.  Soliciting not only existing tax preparation clients, Brown also used his position as a regular Sunday School teacher at a local Baptist church to attract investors.  While investors were not provided with any regular account statements, Brown offered them the opportunity to stop by his office at any time to check the status of their investment on his computer.  In total, Brown managed to raise approximately $10 million from over 40 investors.

However, many investors were horrified to learn in early November that Brown's operation was insolvent. Soon after this revelation, a local attorney filed a petition to have Brown's Tax Service placed in bankruptcy, alleging that Brown had been operating a Ponzi scheme that had just collapsed.  Rather than using investor funds to daytrade as promised, Brown was accused of misappropriating millions of dollars to purchase lakefront property that was lavishly outfitted with an indoor gymnasium, a golf simulator, a full bar, various games, several vintage automobiles, and the authentic floor from the Boston Garden sports arena.  In bankruptcy filings, Brown claimed only $1.4 million in assets while representing a yearly income of less than $30,000.  

According to the court-appointed bankruptcy trustee, Brown and his wife have resisted efforts to cooperate, instead cancelling scheduled meetings due to Brown's allegedly failing health.  A scheduled meeting with creditors, known as a 341 Meeting in bankruptcy parlance, is scheduled for January 8, 2013. 

New York Man Receives 8-Year Sentence for Role in $6 Million Ponzi Scheme

A New York man was sentenced to an eight-year prison term for participating in a Ponzi scheme that duped nearly 100 victims out of over $6 million.  Ian Campbell Gent, 70, faced up to 17.5 years under federal sentencing guidelines, but Chief United States District Judge William R. Skretny made a downward departure from those guidelines in handing down his sentence.  In doing so, Judge Skretny also rejected Gent's claims that he was without blame, observing that Gent's action were "motivated by greed, pure and simple."  The mastermind of the scheme, Guy Gane, plead guilty and received a 13-year sentence in September 2011.

According to authorities, Gane hired Gent to work at his firm, Watermark M-One Financial Services ("Watermark"), where he told potential clients he could promise 10% annual returns through investments in waterfront real estate.  Investors were provided with 'debentures' evidencing their investment.  However, Gane made no such investments, and instead used investor funds for a variety of unauthorized uses that included Ponzi-style payments to existing investors, personal and business expenses, and cash advances to his children.  

While Gane pleaded guilty, Gent and another Watermark employee, James Lagona, chose to stand trial. That strategy backfired, as each was convicted by a federal jury on charges of conspiracy and money laundering in February 2011.  Recently, while awaiting sentencing, Lagona was arrested on charges that he sought to influence prosecutor William Hochul by approaching Hochul's wife, a New York Congresswoman who was in the middle of a tight re-election campaign.  Lagona purportedly claimed that he would drum up support for Congresswoman Hochul if her husband would agree to drop the case against him (although Lagona had already been convicted).  FBI agents were notified, and subsequently arrested Lagona.  

Government: Ponzi Defendants Hatched Plot to Kill Co-Conspirator Over Dinner at Perkins Restaurant

In a bizarre turn of events that comes on the eve of the sentencing of several men convicted for their role in Trevor Cook's $194 million Ponzi scheme, prosecutors have revealed that several of the men conspired to have the third killed in order to collect on a life insurance policy.  The three men, Gerald Durand, Christopher Pettengill, and Jason "Bo" Beckman, are scheduled to learn their fate for aiding in Cook's scheme on January 3, 2013.  In a presentencing memorandum filed earlier this week, the government disclosed that, while enjoying dinner at a local Perkins restaurant in December 2009 several months after the scheme collapsed, Durand proposed to Pettengill that they arrange Beckman's death in order to share in the proceeds of a $2.5 million life insurance policy they apparently held. Durand's attorney is now seeking to exclude the incident from the court's consideration.

The three men, along with radio host Patrick Kiley, were portrayed as key players on Cook's Ponzi scheme and accused of soliciting investors for Cook's currency trading program that promised consistent annual returns of 10.5% to 12%.  Investors were assured that they could not lose their investment principal, and were told that Beckman was rated by independent research group Morningstar as among the top money managers worldwide.  Kiley appealed to investors through his position as a Christian radio host, where he warned of a financial armageddon and told investors to protect their money by investing with Cook.  In total, the scheme is said to have defrauded over 700 investors out of nearly $200 million.

Cook, the ringleader of the scheme, received a 25-year sentence in August 2010.  Soon after, Pettengill began to cooperate with the government, later pleading guilty in June 2011 to charges of securities fraud, wire fraud, and money laundering. Pettengill took the witness stand several times at the trial of the three men, which ultimately concluded with a federal jury convicting the men of all charges.  

While Pettengill faces a maximum potential sentence of twenty years, he is likely to receive a drastically reduced sentence owing to his cooperation with authorities.  However, Kiley, Durand, and Beckman each face potential life sentences after being convicted of at least 15 charges, and this has already prompted several of their attorneys to attack Pettengill's credibility in an effort to discredit his statements. Pettengill was attacked at Beckman's trial by Beckman's attorney, who contended that Pettengill, not Cook, deserved the most blame for the scheme, and characterized Pettengill as "the stool pigeon, the fink, the rat."  

Durand's attorney opposed the introduction of Pettengill's revelation in a Thursday filing, and it will fall to United States District Judge Michael Davis to decide whether Pettengill may testify.  

A copy of Pettengill's plea agreement is here.

A copy of Durand, Kiley, and Beckman's indictment is here.

High School Basketball Coach Suspected in Ponzi Scheme

A Florida high school basketball coach who held himself out as an investment advisor to teachers and fellow coaches is now accused of running a Ponzi scheme.  Robert Schnepp, a former basketball coach at Cypress Lake High School in Fort Myers, Florida, was arrested this week on thirty-seven felony counts including grand theft, fraud, passing worthless checks, and the unregistered sale of securities. Schnepp is currently awaiting a transfer to a Lee County jail.

According to the former athletic director at Cypress Lake High School, it was well-known that Schnepp was a financial advisor when he was hired in 2006 as the boy's basketball coach.  Based on this reputation, Schnepp began offering to invest on friends and family's behalf, with several other coaches at the school also choosing to invest with Schnepp.  Investors were provided with regular quarterly statements showing purported rises in their account balances.  In total, at least 10 investors entrusted over $200,000 with Schnepp from 2008 to 2011.

Authorities allege that Schnepp ran the classic Ponzi scheme, using investor funds for personal expenses as well as the payment of fictitious returns to existing investors.  Some became suspicious when, after asking for a return of their investment, Schnepp's check bounced.  After three checks bounced, victims contacted authorities.  

A quick search of the BrokerCheck service provided by the Financial Industry Regulatory Authority (FINRA), which offers information about brokers and firms registered with FINRA, shows that Schnepp was not employed in any securities capacity, and had not been licensed to sell securities since February 2006. 

Schnepp's BrokerCheck is here.