DBR: Accountant Admits "Mistakes" in Rothstein Ponzi
When Gibraltar Bank had concerns about $15 million in suspicious wire transfers made to the Rothstein Rosenfeldt Adler law firm back in July 2008, Scott Rothstein must have wondered if his burgeoning Ponzi scheme was about to be discovered.
"Hey bro -- need to see you this afternoon about sending a nebulous letter over to Gibraltar Bank about the fact that I am declaring certain funds as income to my firm ... need the letter so I do not breach confidence on the settlement side. Love ya, me, me and me."
Rothstein added: "Let's do this info over a cigar ... How is the SEC.....hehehehehe."
Berkowitz, without verifying the source of the funds, did as told, giving the Ponzi a new lease on life.
We learn this from a groundbreaking report in the Daily Business Review from staff writer Julie Kay, who attended Berkowitz's deposition yesterday. Kay's report gives us, for the first time, insight into serious misgivings held by folks who are supposed to be watching the store -- namely the banks and accountants involved.
As Rothstein funneled millions of Ponzi dollars into the law firm's account, he hid behind alleged confidentiality of his phony settlement deals and, through sheer force of will and blustery charm, managed not only to hold the watchdogs at bay but also to
have them eat from his hand.
Berkowitz, reports Kay, repeatedly acknowledged during the deposition that he made mistakes and failed to verify the source of the funds Rothstein was moving from the Ponzi account to the law firm account. He admitted he couldn't account for the $20 million jump in law firm revenues in 2008 and said he "noticed payroll numbers were going up, and it didn't look like there was enough law business to justify all these salaries."
Importantly, the deposition also confirmed that Gibraltar Bank had money-laundering concerns regarding Rothstein yet let them slide, apparently based on Berkowitz's weak assurances. In Berkowitz's letter to Gibraltar regarding the dubious $15 million in transfers, he admitted to the bank that the transaction had not been audited by the accounting firm and that it made "no representation regarding the sufficiency of this information for any credit decision-making purposes."
Rothstein apparently even had a hand in the wording of the letter, coaxing Berkowitz to take out the phrase "no proof of accuracy" and other key words.
Interestingly, Gibraltar continued to look the other way and actually accepted a $5 million investment from Rothstein in the bank last year. The Gibraltar banker who handled Rothstein's account, John Harris, was fired from the bank after the Ponzi imploded.
Question: Did Gibraltar look the other way on Rothstein's suspicious activity in exchange for the infusion of cash?
Deeply involved in the Rothstein dealings was his chief financial officer, Irene Stay. Berkowitz said that when his firm became concerned about the $20 million RRA influx in 2008, Stay told him she was unsure of the source of the funds and told him to ask Rothstein. More recently, when Berkowitz had concerns about Rothstein's tax returns in the weeks before the implosion, Rothstein scapegoated Stay, saying she had made a "mess" of things.
"We didn't know what the deposits were for and how to report them," Kay quotes Berkowitz as saying at the deposition. He then added that Stay's spreadsheet "made no sense."
Incredibly, Berkowitz filed the tax return anyway, at Rothstein's urging.
Berkowitz also told bankruptcy attorney Frank Scruggs during the deposition that he was suspicious about $1 million in fees paid to the law firm by Gruverman Enterprises and believed they were bogus. Howard Gruverman is, of course, a former Rothstein business partner in the health firm Edify, which was recently re-awarded a consulting contract by the Broward County Commission.
It all adds up to stunning incompetence -- which was of course one of the necessary ingredients to make Rothstein's $1.2 billion Ponzi work for as long as it did.
-- Thanks to all of you who sent questions for the congressional candidates' debate scheduled for 4 p.m. today on WFTL-AM (850), but a major snag has ensued: State Sen. Ted Deutch, the Democratic frontrunner, has bowed out. Here's the statement his campaign office sent to WTFL's Jeff Katz Show:
"I was looking forward to participating in the WFTL candidates forum, and informed the station from the beginning that March 18th would conflict with the Florida Senate's debate on the state budget. I suggested we hold the forum next week on March 26, however, the other candidates were ultimately unable to accommodate this request. My constituents deserve a voice in today's Ways and Means Committee meeting, during which we will be determining funding for our public schools and new job creation incentives. I hope that Mr. Lynch and Mr.
McCormick and I can finalize a time and date for a new candidates forum soon, and thank WFTL for extending me the invitation."
Thankfully, then, your questions shouldn't go to waste because a date will be finalized. I've got the questions ready to go and will use them when the time comes. Will update.