MIAMI HERALD: Rothstein’s victims should have known better

Experts: In these times, Scott Rothstein’s victims should have known better
Investors who say they were swindled by Fort Lauderdale attorney Scott Rothstein should have been far more skeptical than they were, financial experts say.

Some investors with millions of dollars at stake thought they had asked the right questions about the double-digit returns that Rothstein Rosenfeldt Adler was offering.

In one such deal, investors were told that if they fronted a fraction of the money to settle a whistle-blower lawsuit at a major pharmaceutical, they would reap the entire sum a few months later.

The investors would pay the employees up front for less than the agreement they reached with the drugmaker, and, a few months later, collect the entire payoff.

ira-leesfield3The settlement may not have existed at all — and the investors may have simply been paying off predecessors who bought the same story.

Rothstein is suspected of bilking investors of hundreds of millions through his investment business. The FBI and IRS raided his firm’s offices late Wednesday.

“What was stupid was that people didn’t ask to see the [lawsuit] case number and say, `Show me what you got,’ ” said Meg Green, a certified financial planner in North Miami Beach. “Ponzi [schemes] are all over the place. If people aren’t smart enough yet, I don’t know what it’s going to take.”

Coconut Grove attorney Andrew Hall, who got a call from a frantic, jilted investor this past week, said that verifying Rothstein’s claims wouldn’t have been difficult.

“In a post-Madoff environment, how could you possibly ignore to basically be skeptical?”

That’s where Rothstein’s active role in the community may have kicked in, Hall said. Like Bernard Madoff, Rothstein courted charities, donated liberally to politicians and amassed fortunes, although Rothstein was more flamboyant about his lavish lifestyle.

Ultimately, one potential investor, unsatisfied with being denied specific information — and unswayed by Rothstein’s larger-than-life persona — called the FBI.

Structured settlements allow the winner of a personal injury lawsuit or other legal judgments, lottery winners, life insurance beneficiaries and others steady streams of income over time — which can be especially important if the person is no longer able to work. Getting incremental payments also reduces an individual’s tax liability.

In more than 30 years as an attorney, Miami lawyer Ira Leesfield said he’s never recommended to his clients that they go with anything but these incremental payments.

“They provide economic security for the client for the rest of their life. It’s protected from creditors,” said Leesfield, who works with clients with catastrophic injuries.

But those beneficiaries might want a lump sum payment anyway — to pay bills right away or make major purchases, said Gary Opper, a Weston CPA.

Enter an investor who can pay off the person who wants their cash now for less than what they would have collected in the long run. The investor then collects the payments over time. The payoff could take a few months or decades. Depending on the difference between the lump sum payment and the long-term payoff, the rate of return can be very attractive.

For investors who say they were scammed by Rothstein, there may be little recourse. The kinds of financial dealings Rothstein is accused of fall below the radar of government regulation.