Convicted Swindler Rothstein Says Banyon Fund's George Levin Knew of Scam
By Susannah Nesmith and David Glovin – Dec 23, 2011 3:58 PM ET
Scott Rothstein, the Florida lawyer convicted in a $1.2 billion Ponzi scheme, said George Levin, then-chief executive officer of hedge fund Banyon Investments, knew of the fraud, according to deposition transcripts.
Rothstein said in a deposition made public this week that the Ponzi scheme took off once Levin began investing. Levin’s Fort Lauderdale, Florida-based fund invested $775 million in Rothstein’s law firm.
“The Ponzi scheme really got legs when I was introduced to George Levin,” said Rothstein, who is serving a 50-year prison sentence. “Levin knew.”
Rothstein, formerly of Rothstein Rosenfeldt Adler PA in Fort Lauderdale, pleaded guilty in January 2010 to five counts of racketeering, money laundering and wire fraud after admitting he sold investors interests in bogus settlements in sexual- harassment and whistle-blower lawsuits.
Nicole Vinson and William Merlin, lawyers for Levin, didn’t immediately respond to e-mails and a telephone call seeking comment on Rothstein’s testimony. Levin has previously denied claims that he knew of the Ponzi scheme. The fund manager really was a whistle-blower, contacting the U.S. Attorney’s office in November 2009 to report “irregularities” after Rothstein failed to make a payment, Jesse Derris, a spokesman, said in 2009.
Derris said today in an e-mail that he no longer represents Levin.
Rothstein’s deposition was taken this month at the federal court in Miami as part of the bankruptcy case of Rothstein’s former law firm.
In other testimony made public this week, Rothstein said his former partners, Stuart Rosenfeldt and Russell Adler, were also aware of the swindle. Their attorneys denied the allegation.
Rothstein also said in the deposition that Toronto- Dominion Bank played a “critical” role in his illegal acts.
“We fundamentally disagree with many of the characterizations contained in Mr. Rothstein’s deposition and will continue to vigorously defend the bank against claims related to Rothstein’s acts,” Maria Leung, a spokeswoman for Toronto-based TD Bank, said yesterday in an e-mail. “Beyond that, we cannot comment on pending litigation.”
Banyon Investments was one of the largest investors in the law firm, which collapsed amid allegations that Rothstein was running a Ponzi scheme, according to court documents in the bankruptcy case.
A lawsuit against Rothstein by investors names Banyon and Levin as co-defendants who participated in the scheme. Through Banyon funds, Levin invested as much as $75 million a month with Rothstein, buying more than $1.1 billion of legal settlements at a discounted $657 million even though he knew they were phony, according to the lawsuit against Rothstein, Banyon and Levin.
Banyon told investors that it was buying stakes in accounts that held payments already made from lawsuit settlements, which would be audited by a Big Four firm quarterly, according to the lawsuit. Banyon claimed that plaintiffs had sold their right to future payments to get money up front, according to the complaint.
Rothstein said that Levin helped persuade three related New York hedge funds to vouch for his investment scheme to potential investors that Banyon was soliciting, even after Rothstein defaulted on payments owed to the New York funds.
‘Pressure the Funds’
“We were having to pressure the funds to make sure that they lied to our new investors and give us a positive credit rating,” Rothstein testified. “We wanted them to say we were continually paying them and they thought we were an excellent investment strategy.”
Eight people including Rothstein have been charged in the probe. Of those, Rothstein and five others have been convicted. Rothstein has admitted using investor money for lavish parties, trips, dinners and gifts for wives or mistresses and to repay his earlier investors.
According to Rothstein, his was a complicated scheme with what he referred to as “sub-levels.” He has named several people he said were involved in the scheme, including lawyers and employees of the firm, according to transcripts. He said in response to a lawyer’s questions that other people at the firm knew nothing of his illegal actions.
In the deposition, Rothstein testified that Frank Preve, Banyon’s chief operating officer, knew of the scheme.
‘In the Dark’
“I don’t think for a minute, based upon my conversations with George, however, that George was in the dark as to what was going on,” Rothstein testified. “But as far as detailed conversations, Mr. Preve always seemed to be George’s insulation between him and the rest of what was going on.”
Preve previously pleaded guilty in 1985 to bank embezzlement and was sentenced to 10 years’ probation for falsifying loan documents as part of a scheme that led to losses of more than $2.3 million, according to the investors’ complaint.
A message left at Preve’s home in Coral Springs, Florida, wasn’t immediately returned. A woman who answered the phone hung up.
The bankruptcy case is In re Rothstein Rosenfeldt Adler PA, 09-34791, U.S. Bankruptcy Court, District of Southern Florida (Fort Lauderdale). The investors’ case is Razorback Funding LLC v. Rothstein, 09062943, Circuit Court, 17th Judicial Circuit, Broward County, Florida (Fort Lauderdale).
To contact the reporters on this story: Susannah Nesmith in Miami email@example.com; David Glovin in New York at firstname.lastname@example.org
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