Florida's Mini-Madoff: Scott Rothstein's Fall

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Charles Trainor Jr. / The Miami Herald / AP

Scott Rothstein

Scott Rothstein is your typical South Florida wannabe. Obnoxiously flamboyant by most accounts, the Bronx-born Fort Lauderdale attorney had to have the flashiest Rolexes (so he bought a local boutique watch shop), the most houses (luxury mansions and condos from Manhattan to Morocco), the hottest cars (Rolls-Royce, Lamborghini) and the coolest yacht (an 87-footer). He had to leave the heftiest tips, usually at the upscale restaurants he co-owned, and schmooze the most powerful politicians — like Florida Governor Charlie Crist, for whom Rothstein bought a $52,000 cake, as a contribution to the state's Republican Party, on Crist's 52nd birthday in 2008.

Problem is, a lawyer earning less than $200,000 a year can't afford all that unless he's, say, running a billion-dollar Ponzi scheme. And that's exactly the crime that Rothstein, 47, has told a judge he'll plead guilty to later this month. Federal prosecutors have charged Rothstein with swindling investors out of $1.2 billion over the past decade, a scam in which he got them to plow money into lucrative, securitized lawsuit settlements that usually turned out to be nonexistent. The alleged crime wasn't as massive as New York City financier Bernard Madoff's recent $50 billion Ponzi con, but the Mini-Madoff scheme has slapped the Sunshine State, already reeling from myriad corruption scandals of late, with one of its darkest stains in decades. "So many frauds have been committed here recently," says William Scherer, a Fort Lauderdale attorney representing some of Rothstein's alleged victims. "But Scott's audacity is one of a kind."

And it could bring down Florida politicians as well as investors — because Rothstein funneled millions of his allegedly ill-gotten dollars to pols and parties, especially the state's GOP, often in ways that may have violated campaign-finance laws. (Prosecutors allege, for example, that he laundered political contributions through large bonuses that he paid to members of his law firm, which has since collapsed.) Florida political analyst Sean Foreman of Barry University in Miami doesn't think the scandal will cause much fallout for those, like Crist, who have returned the money in a timely fashion. (Since Rothstein's indictment last month, Crist, who is in a tight race for a U.S. Senate seat this year, has given back $9,600 that Rothstein donated to his campaign.) "In that case, it really shouldn't affect this year's elections," says Foreman.

But Charles Zelden, a history professor at Nova Southeastern University in Fort Lauderdale and an expert on judicial politics in Florida, says Rothstein could still "create a real mess" in the state's public arena. He doubts that Rothstein — who could be facing life in prison on the charges of fraud, racketeering and money laundering leveled against him — would plead guilty if he hadn't struck a beneficial deal with the feds. They in turn almost certainly expect Rothstein "to name names," says Zelden, not only of those who might have aided the Ponzi scheme, "but of politicians who may have been playing any kind of quid pro quo shenanigans with him."

Rothstein, his attorney and prosecutors won't discuss the terms of his plea deal. But if Rothstein does sing, says Zelden, he's "likely to name more Republicans" than Democrats because Rothstein gave the GOP the lion's share of his political donations — more than $600,000 from Rothstein and his law firm in the past five years. (Florida's Democratic Party got about $200,000.) "Republicans are the ones running the state today," Zelden notes.

Under that scenario, Florida's mess also becomes the country's in at least one respect. The state's GOP Senate primary contest between Crist and former Florida House Speaker Marco Rubio is widely considered a focal point of this year's internecine war between moderates and conservatives for control of the Republican Party. Should the Rothstein scandal leak into that powder keg, it could exacerbate what already promises to be a particularly nasty campaign on both sides before the August primary.

Or not. Rubio and his conservative backers have fixed political floodlights on a photo of Crist sharing a hug with President Obama last year as the governor welcomed federal stimulus money into Florida. But they probably won't be so eager to exploit the support Crist received from Rothstein (who, by the way, helped Crist blow out the candles on that $52,000 birthday cake), because some of those conservative boosters may well be shown to have received Rothstein's dirty largesse themselves. They could include GOP legislators in Tallahassee, where federal agents last month came calling to question politicians from both parties about their possible connections to controversial campaign contributors like Alan Mendelsohn, a South Florida eye doctor who faces federal fraud charges involving political-action-committee funds. (He has denied it.)

The feds thus far have only been able to recover assets valued at about a tenth of the Ponzi scheme's take. But Rothstein's alleged investor victims are hoping his guilty plea will mean improved chances of retrieving more of their lost money. "It helps because it means he can testify in civil trials now, and he's said he wants to help make things right," says Scherer. He has filed suit on behalf of victims against Rothstein and Toronto Dominion Bank, which handled the accounts Rothstein used to conduct the alleged Ponzi scheme. (TD Bank insists it exercised proper oversight of the accounts.)

Many South Floridians, meanwhile, are hoping the Rothstein tragedy will wake the state up before it becomes a tropical Illinois. Sensing the growing outrage, Crist last month won approval to empower a special statewide grand jury focused on public corruption. Fort Lauderdale has been especially hard-hit recently by major scandals involving figures from sheriffs to school-board members. "I love Fort Lauderdale," Scherer says. "It's the biggest small town in America. But it's still got to learn that all that glitters is not gold." And that wannabes who glitter are often big trouble.