Inside the Rothstein Swindle, Part III

A good source has been telling me for the past week that Scott Rothstein began wiring large sums of money out of the country during the weeks before he fled to Morocco. He told me that his sources at TD Bank put the figure at $200 million total -- including the $16 million to $18 million he allegedly wired just before leaving the country on October 27 -- and that most of it appeared to have gone to Morocco.

This morning, the Miami Herald is reporting a similar figure from federal sources, who say Rothstein accessed investors' TD accounts via computer to move the money out of the country. There are a whole lot of questions hanging in the air. The most obvious: Where did all that money go, and will it be returned?

The investor whose story with Rothstein has been detailed in parts I and II of this series hopes so. His investment money -- along with others who pooled together millions of dollars with him -- was in those TD Bank accounts that Rothstein allegedly raided.

During the course of hammering out the deal, the investor worked almost exclusively with David Boden, general counsel for the Rothstein Rosenfeldt Adler law firm. Boden also drafted all the legal documents involved in the deal. The investor also learned during the course of the deal that the sole keeper of all Rothstein's investment scheme records was Debra Villegas, Rothstein's chief operating officer and second in command.

He never met or heard of Rothstein's uncle, Bill Boockvor, who is also suspected to have been deeply involved in the scheme.

Other than that, the investor was largely in the dark, in part because the deal that Rothstein created was so confidential in nature. Breaking it down, it's a complicated deal that has some glaring holes.

Rothstein told the investor that he represented unnamed whistleblowers at a secret company who had discovered that the company was defrauding the government in a contract and actively covering it up. Rothstein's firm had already negotiated settlements between the company, which knew it was caught, and the whistleblowers, who were all due substantial sums of money. 

For reasons that remain dubious to me, the secret company didn't want to pay out the settlements up front. The whistleblowers, however, wanted their money right away and were willing to take substantially less money -- about 40 percent less, in fact -- for the privilege.

The deal was that the investors would pay the whistleblowers the fraction of the settlements they were owed. That money would go into one trust account that was to be accessed only by the whistleblowers.

Here is an example of the legal documents involving a Rothstein investment deal that was signed in April. The names and amounts have been crossed out. (It's a must-read for anyone who truly wants to understand these things on the legal level.)

On the day the investors paid that settlement money, the secret company would put the entire amount owed into another TD Bank trust account. That money would then be disbursed to the investors over the course of several months. In that short time, the investors expected to receive a whopping return of more than 70 percent on their money.


Rothstein told the investors that TD Bank Regional Vice President Frank Spinosa would personally confirm that the secret company's money was being put in a trust account and that the money could only be released to the investors at the appropriate time.

I asked the investor why, if the company was willing to put all the settlement money into a trust account, the deal was necessary at all. The company could have just as easily funded the settlements in full rather than set up a huge profit opportunity for investors.

"In hindsight, it doesn't really make that much sense," said the investor. "I got conned. I saw the numbers, and I got greedy."

But the investor said that the Rothstein Rosenfeldt Adler law firm guaranteed the money, easing any concerns he may have had. The involvement of TD Bank was also reassuring. On top of that, the investors conducted a background investigation on Rothstein's finances and found his large property holdings and a good credit history. The odds of a tsunami coming through and wrecking the deal seemed minuscule.

On the day the deal was closed in Rothstein's office, however, that phone call with TD Bank's Spinosa never happened. In fact, Rothstein implied that the investors weren't to contact Spinosa at all. The investor says his group independently confirmed with Spinosa that the trust account was "good," though.

Rothstein did show the investors a bank record of the transaction but wouldn't let them keep it. It was similar to this actual transfer document and accompanying Rothstein letter guaranteeing another investment obtained by the Pulp. The investor also received a letter regarding the account signed by Spinosa. It may be similar to this one, which again is an actual letter received from another investor. In it, Spinosa supposedly writes that the funds in an investor's trust account can be moved only on the order of Rothstein or law partner Stuart Rosenfeldt and can be distributed only to the investors (whose names are whited out from the letter).  

"The only way we don't get paid is if TD Bank screws us, but in that case, Rothstein has guaranteed our payments," said the investor of his mindset at the time.

The investor now knows that the letters could easily have been falsified and Spinosa's signature forged, especially since we now know Rothstein falsified and forged numerous documents while perpetrating his scam. 

There is no proof that Spinosa, who has been suspended by TD Bank while the investigation continues, was in on the scam. But the movement of so much money that was supposedly in trust accounts out of the country doesn't bode well for the bank. How did Rothstein get computer access to the money?

More coming.  


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