"For the first time in history, period, a bankruptcy trustee has returned 100 percent payout to the victims of a Ponzi scheme. It's made more remarkable by the Rothstein Ponzi case being the fourth largest in history."
- Charles Lichtman, Attorney for Trustee Herbert Stettin
In an unprecedented turn of events, victims of Scott Rothstein's massive $1.4 billion Ponzi scheme are set to recoup 100% of their losses under a liquidation plan approved Thursday by a south Florida bankruptcy Judge. The recovery represents a stark contrast to the prospects faced by victims back in late 2009, after Rothstein was arrested for the largest Ponzi scheme in Florida's history and his once-prominent law firm crumbled declared bankruptcy. Now, after U.S. Bankruptcy Judge Raymond B. Ray's approval of a compromise between the trustee and various creditor groups, victims will receive all of their losses back in an outcome that stands in a class of its own in Ponzi scheme jurisprudence.
The approval of the liquidation plan hinged on wrangling over the contribution of TD Bank, which had been accused of serving as an indispensable part of Rothstein's scheme. In the initial liquidation plan proposed by Trustee Herbert Stettin back in February, TD Bank agreed to pay $72.45 million to be used to compensate victims in return for a 'bar order' which would permanently enjoin any pending or future litigation against the bank based on Rothstein's scheme. This bar order would be a significant benefit for TD Bank, which still faces suits from numerous investors and is already on the hook for over $200 million in judgments and settlements to date. Many creditor's groups balked at this initial proposal, claiming that the bank was effectively buying peace - at a bargain - for its role in the massive scheme. Judge Ray rejected the plan, and the parties continued to negotiate.
After a marathon two-day negotiating session, lawyers submitted an amended liquidation plan that satisfied the concerns of creditor groups. Among the concessions made, the proposed bar order would allow lawyers to continue their quest for sanctions against TD Bank in pending cases for alleged document discovery violations. Additionally, the bank agreed to pay $54 million to settle a group of pending cases in state court filed by victims. That settlement brings the total amount of settlements obtained by creditor's attorney Bill Scherer to a whopping $257 million.
In his initial plan, Stettin indicated that he had received total claims filed in the amount of $461,078,446.36. Stettin has reduced or eliminated a portion of those claims through various objections, and eventually expects those efforts to decrease the total claims for a majority of the creditor classes to approximately $141 million. Stettin has approximately $79.2 million in cash on hand, which, combined with the $72.45 million TD Bank settlement, would allow 100% payment of the estimated claim total of $141 million. Stettin also continues to pursue numerous 'clawback' lawsuits seeking the return of profits from investors who withdrew more than their principal investment, with future recoveries belonging to the bankruptcy estate. Finally, Stettin also recently emerged victorious in a dispute with the U.S. government over entitlement to millions of dollars in funds forfeited by Rothstein.
Pursuant to the confirmed Plan, TD Bank will have three days to pay the $72 million payment ot the trustee. It is expected that distributions will soon follow.
TD Bank May Also Benefit
Ironically, the party that stands to benefit the most on the success of Stettin's ongoing recovery efforts is TD Bank. In the Liquidation Plan, TD Bank would be permitted to collect on a lower priority claim in the amount of $132.45 million based on the settlements and judgments thus far rendered against the bank.
Previous Ponzitracker coverage of the Rothstein saga is here.
A copy of the Modified Liquidation Plan is here.