Authorities, Rothstein Trustee Reach Agreement To Divide $50 Million In Forfeited Assets

Marking the end of a dispute that had already made its way to the U.S. Court of Appeals for the Eleventh Circuit, the U.S. Department of Justice and Rothstein Rosenfeldt Adler ("RRA") bankruptcy trustee announced they had reached an agreement concerning distribution of approximately $50 million in criminal forfeiture proceeds.  In a press release from the U.S. Attorney's Office for the Southern District of Florida, it was announced that $28 million will go to qualifying victims in the criminal case, while approximately $21 million will revert to the RRA bankruptcy estate.  Victims of Scott Rothstein's $1.2 billion Ponzi scheme, whose law firm RRA was forced into bankruptcy after his scheme collapsed, are already expected to recover 100% of their net losses.

The dispute over forfeited assets traces its roots to the immediate aftermath of Rothstein's scheme's collapse in late 2010.  In an effort to secure available assets for victims of Rothstein's scheme, authorities sought forfeiture of a significant amount of real and personal property traceable to Rothstein, including houses, luxury boats and vehicles including a Bugatti, bank accounts, 304 pieces of jewelry, and investments collectively valued at approximately $50 million.  The RRA bankruptcy trustee, Herbert Stettin, immediately objected on the basis that the forfeited proceeds would be used solely to compensate victims of Rothstein's Ponzi scheme and not all of the creditors who suffered losses as a result of RRA's collapse.

While the RRA trustee maintained that certain of the forfeited assets, including bank accounts in the name of Rothstein's law firm, rightfully belonged in the bankruptcy estate, U.S. District Judge James Cohn sided with the government.  After Stettin appealed the ruling to the Court of Appeals for the Eleventh Circuit, a ruling in June 2013 overturned the district court's decision and ruled that the funds in the bank accounts were commingled with the firm's receipts from clients and thus not subject to forfeiture directly; rather, the government was left with the option of resorting to other substitute asset provisions.  Thus, while the decision technically left the government an alternate option, many viewed the ruling as a clear victory for Stettin and the RRA estate.

The agreement announced yesterday marks an end to the multi-year feud over the division of the forfeited assets.  While both the DOJ and the RRA estate will retain roughly half of that amount, the press release emphasizes that Rothstein's Ponzi victims will recoup 100% of their losses under the liquidation plan proposed by Trustee Stettin.  This outcome is unprecedented in Ponzi scheme jurisprudence, and was possible in large part due to the significant contributions made by TD Bank which was accused of playing an indispensable part of Rothstein's scheme.   The bank's role has been costly, with over $250 million in legal settlements and judgments to date as well as a payment of $72 million to the bankruptcy estate.  Ironically, TD Bank's settlement with the RRA trustee allowed it a lower-priority claim that could allow it to collect if additional funds remain after payment of higher-priority claims.

Read The Trustee's Lawsuit Against The Madoff Sons Here

The court-appointed bankruptcy trustee tasked with recovering assets for victims of Bernard Madoff's massive Ponzi scheme has sought leave from a New York Bankruptcy court to file an amended complaint accusing Madoff's sons of profiting by more than $150 million from the "family piggy bank."  Irving Picard, the court-appointed bankruptcy trustee overseeing the liquidation of Bernard L. Madoff Investment Securities ("BLMIS"), is seeking court approval to file his Third Amended Complaint against Andrew H. Madoff, the estate of Mark D. Madoff, and Stephanie S. Mack, Mark Madoff's widow.  

The Complaint, which is reproduced below, contains new allegations that the Madoff brothers were aware of the massive fraud perpetrated by their father, including claims that the brothers backdated trades, orchestrated the creation of seven-figure investment accounts out of thin air to support real estate purchases, and even deleted sensitive emails on the eve of a 2005 audit by the Securities and Exchange Commission.

Download the lawsuit here.

 

Madoff Amended Complaint

 

Former Banker Charged For Role In $1.2 Billion Rothstein Ponzi Scheme

He assisted in soliciting investors. He assisted in helping me handle the bankers. He assisted in helping me prepare fake opinion letters. He assisted me in coming up with plans of action to deceive investors and others. He assisted me in moving money between accounts in order to facilitate the Ponzi scheme. He assisted me in controlling our accountants. He assisted me with preparation of the initial set of deal documents.He assisted in holding off auditors who would have likely discovered the Ponzi scheme. He assisted my CFO, who was also a coconspirator, in making sure that balance statements were correct. That's on overview, I'm certain that there's more.

- Scott Rothstein, on Frank Preve's role in his fraud.

A former prominent south Florida banker now faces a criminal fraud charge over allegations that he conspired with convicted Ponzi schemer Scott Rothstein to keep the scheme afloat in its waning days. Prosecutors filed a criminal information charging Frank Prevé, 70, with a single count of conspiracy to commit wire fraud.  While Prevé could face up to a five-year maximum prison sentence if convicted, the use of a criminal information suggests that Prevé plans to enter into a plea agreement with authorities.  Prevé's lawyer has maintained that he did not have "direct knowledge" of Rothstein's scheme. Rothstein is currently serving a 50-year prison term after pleading guilty to carrying out the largest Ponzi scheme in Florida history.

According to authorities, Prevé worked with George Levin to solicit investors for Rothstein's scheme since 2007, at first offering potential investors the ability to invest in promissory notes.  The promissory notes offered investors annual rates of return ranging from 12% to 30%, and typically carried a 180-day term, and Prevé and Levin sought to profit by keeping any excess return paid by Rothstein on the investments. Through the issuance of the promissory notes, the pair raised nearly $60 million from 90 investors to invest in Rothstein's scheme.

While representations were made to Levin's investors that the purported settlement funds called for in Rothstein's purported legal settlements would be wired in before Prevé and Levin purchased the settlements, email correspondence showed that Prevé often purchased settlements from Rothstein while knowing that required documentation was missing.  

As Rothstein's scheme grew, he pressed Levin for additional funding and claimed that he was experiencing problems in his ability to keep the scheme going.  To convince Levin, Rothstein claimed that his clients, the alleged plaintiffs entering into the settlements, had filed complaints with the Florida Bar and that the scheme could grind to a halt if he was disbarred.  According to Rothstein, the only way he could continue the scheme was with $100 million in fresh financing from Levin and Prevé.  This was followed by the cessation of payments on the settlements that Levin and Prevé had already purchased - bringing Levin's investment strategy to a halt and threatening the returns he had promised to his investors.

In early 2009, Levin formed the Banyan Income Fund, L.P. ("Banyan") as a "feeder fund" with the stated purpose of investing solely with Rothstein.  Between May and October 2009, Banyan raised approximately $100 million from 83 investors to invest with Rothstein.  In the Private Placement Memorandum ("PPM") provided to investors, Banyan represented that a settlement would undergo a verification process that included an independent third-party verifier to review the unredacted settlement documents and bank account balances to ensure everything was in order.  As with the earlier investments, Prevé again failed to obtain the necessary documentation represented in the PPM's, and Rothstein again failed to make payments on a majority of the purchased settlements.  Several months later, Rothstein's scheme collapsed, and Banyan investors lost the majority of the $100 million they had invested.

Prevé is now the 22nd individual to face criminal charges related to Rothstein's scheme.  

For more Ponzitracker coverage of Rothstein's scheme, click here.

Defendant Tries To Bring Gun To Sentencing Hearing For $2.5 Million Ponzi Scheme

A South Carolina pastor that admitted to operating a $2.5 million Ponzi scheme is accused of trying to bring a gun to his sentencing hearing - a hearing that he had twice tried to delay.  Archie Evans, 42, was scheduled to learn his fate before U.S. District Judge R. Bryan Harwell after pleading guilty last January to one charge of mail fraud and one charge of unlawful structuring of financial transactions.  However, as Evans passed through x-ray screening, court officials discovered that Evans' backpack contained an unidentified firearm.  Evans was immediately detained and the gun confiscated, and it is expected that Evans will face additional charges from the Bureau of Alcohol, Tobacco, Firearms and Explosives.

Evans was a farmer and former pastor at the Tilley Swamp Baptist Church ("Tilley Church") in Conway, South Carolina.  In addition, beginning in 2004, Evans also operated Gold & Silver LLC ("Gold & Silver"), which purported to invest in silver futures markets and offered quarterly returns ranging from 10% - 12%. Investors, some of whom included members of Tilley Church, were provided with regular account statements purporting to show regular account gains.

However, in reality, Evans misappropriated investor funds as he ran the classic Ponzi scheme.  Rather than achieve the exorbitant rates of return he represented to investors, he instead used funds for personal expenses, to make interest payments to investors, and suffered trading losses on the funds actually invested.  At the time Evans was indicted in late 2011, his seized bank accounts showed a balance of just $1,919.86.

Following his guilty plea in January 2013, Evans subsequently moved to rescind the plea one month later after claiming that he had been coerced by his lawyer to take the plea.  After later abandoning that effort, Evans focused on delaying the final version of his sentencing report.  When the report was eventually finalized, Evans proceeded to seek to delay his scheduled sentencing on the basis that he was "mentally incapacitated," that a later sentencing date would allow him to pay his hospital bill, and most recently that "critical developments will occur in the next four weeks.  An exasperated Judge Harwell refused Evans' latest request for delay and set today's sentencing.

According to Tonya Brown from CarolinaLive.com, Evans received a 7-year prison sentence and was ordered to pay $3.7 million in restitution.

Read The Madoff Ruling Limiting Recovery Of Foreign Transfers Here

On July 7, 2014, U.S. District Judge Jed S. Rakoff issued an order finding that bankruptcy laws could not be applied extraterritorially to recover subsequent transfers from "feeder funds" that invested in Bernard Madoff's massive Ponzi scheme to foreign individuals and entities.  The order cited the U.S. Supreme Court's 2010 opinion in Morrison v. Nat'l Australian Bank Ltd., 130 S.Ct. 2869 (2010) for the presumption that, absent contrary intent, Congressional legislation is meant to apply only within the territorial jurisdiction of the United States.  The decision, which is below, will have profound implications not only on the potential recovery for victims of Madoff's scheme but also in the broader bankruptcy jurisprudence.  

While trustee Irving Picard has recovered nearly $10 billion to date to be eventually distributed to Madoff's victims, he indicated that he had filed several dozen lawsuits to recover more than $7 billion in subsequent transfers.  It remains unknown how much of that figure will be affected by the recent ruling, which it also likely to be appealed.  

Download the Order here.

 

Madoff Order