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Gregory Tendrich, PA Gregory Tendrich, PA

Another Man Sentenced in Connection with Billion-Dollar Florida Ponzi Scheme

On Feb. 20, a federal judge in Miami sentenced former attorney Frank Preve to 3½ years in jail for his role in one of the most infamous Ponzi schemes of all time. Preve is among dozens of people convicted of criminal charges in connection with the scheme, which was orchestrated by the now-defunct law firm of Rothstein Rosenfeldt Adler and its former managing partner, Scott W. Rothstein.

The Rothstein Ponzi Scheme

A Ponzi scheme typically involves the sale of fictitious products to investors. In reality, there is no product, as the scheme operator simply uses newly acquired client funds to pay off prior investors. The scheme continues until it is either discovered or collapses when the scheme operator fails to attract sufficient new investment to cover existing obligations.

The Rothstein Ponzi scheme was notable because it did not revolve around the purported sale of stocks or traditional securities, but rather legal settlements. In many personal injury cases the parties settle through what is known as a “structured settlement.” This means that instead of the defendant paying a personal injury victim a lump-sum amount, the parties agree to a series of periodic payments, similar to an annuity. This can have significant tax benefits for the victim.

But there are cases where a victim’s financial needs change and he or she may require immediate access to funds. To meet that need, there are investors and businesses (usually known as “factoring companies”) that purchase structured settlements, giving the victim a lump sum that is less that the remaining value of the settlement. Rothstein Rosenfeldt Adler held itself out as a broker for these structured settlements, offering investors the ability to purchase settlements at a discount and collect the difference as profit. Since lawsuit settlements are usually confidential, the investors had little incentive to ask questions or disclose their own role in the scheme. Scott Rothstein later admitted to forging legal documents—as well as bribing law enforcement officials—in order to make his fictitious structured settlements appear real to investors.

As federal officials closed in on Rothstein in early 2009, he fled to Morocco, taking most of his law firm’s money with it. RRA was eventually liquidated in bankruptcy. Rothstein returned to the U.S. in November 2009. He is currently serving a 50-year prison sentence at an undisclosed location.

In an effort to obtain a reduction of his sentence, Rothstein cooperated with federal officials in identifying dozens of other participants in the RRA Ponzi scheme. Among them was Frank Preve, who worked for the Banyon Group, one of many investors in Rothstein’s fictitious structured settlements. According to the U.S. Attorney’s office in Miami, Preve “defrauded investors by not disclosing that Rothstein had failed to make payments that were due to the Banyon Group,” which in turn caused Banyon’s clients to lose upwards of $20 million. Preve pleaded guilty to conspiracy to commit wire fraud and received a 42-month prison sentence.

Justice Served, But What About the Victims?

The breadth and scope of the Rothstein Ponzi scheme continues to reverberate throughout South Florida even years after its discovery. Many seemingly intelligent investors fell for Rothstein’s promise of easy profits earned on the backs of confidential legal settlements. As is often the case, it was too good to be true. And even though the perpetrators of the scheme are behind bars, that may be cold comfort to investors still trying to recover their money. That is why, if you are the victim of a Ponzi scheme and you need independent legal advice on how to proceed, you should contact Florida securities fraud attorney Gregory Tendrich, P.A., right away.

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