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In Miles Away... Worlds Apart, Alan Sakowitz tells the story of
the biggest financial fraud in South Florida history, from his unique
perspective of a whistleblower. Throughout the book Sakowitz compares his
close-knit neighborhood to the Scott Rothstein's greed.
Sakowitz takes us through the narrative of the events
leading to the arrest of Scott
Rothstein. He was contacted through a broker to invest in structured
settlements offered by Rothstein. The investment was to buy a stream of
payments from an employment dispute and deliver a lump sum payment to
Conversion of structured settlements is completely
legitimate, but usually subject to regulation and judicial oversight. A victim
may prefer a big lump sum instead of installment payments made over time.
Certainly, the capital source in the middle is going to want some reward for
exchanging cash today for future payments.
Rothstein was offering a huge reward for investors
willing to be the capital source. In one example he was offering a $900,000
settlement, payable over three months for an investment of $660,000. Why would
any plaintiff be willing to take $660,000 today when they could have the entire
$900,000 at the end of 90 days?
For an investor, that is an incredible return. Even more
incredible given the assurances from Rothstein that payments are guaranteed.
Sakowitz found the returns and Rothstein's showmanship to be intoxicating, but
was suspicious. The intoxication was enough for Sakowitz to have three meetings
When asked about volume, Rothstein said he was settling
3,000 cases per year, all without actually filing a lawsuit. The smallest of
his payouts was $500,000. When asked to speak to the attorneys handling the
cases, Rothstein claimed he was personally handling all of the cases.
The biggest red flag for me was Rothstein acting as a
seller of the settlements and the attorney for plaintiffs at the same time.
There is a terrible conflict between trying to get the best financial deal for
his clients at the same time he is trying to offer an enticing return for
"investors." A real attorney would have advised his clients to get a better
deal in structuring a settlement.
With all the red flags, it's easy to see why someone
would think that the investment was a fraud and not get involved. It's a bigger
step to call the authorities and make the assertion. Even being 90% sure that
it was fraud, that leaves a 10% chance that you're wrongly accusing an innocent
man, damaging both of your reputations.
Why did Sakowitz call the FBI? He interleaves
stories from his close-knit community with stories of charity and
self-sacrifice for the benefit of others. He writes about his parents as role
models and wanting to set a fine example for others.
Rothstein's walls were plastered with hundreds of awards
and plaques from charitable causes, plus photos of Scott with the governor of
Florida, the Broward County Sheriff, the Fort Lauderdale chief of police, other
politicians, famous athletes and entertainers. Given Rothstein's connection to
the political establishment, the predicament becomes who do you call to tell
you found the fraud. The Fort Lauderdale Police Department would be a bad a
choice. It turns out that when Rothstein fled the country, he had a police
escort to his plane from a lieutenant in the FLPD. After eliminating all of the
other government organizations appearing on Rothstein's wall of shake-n-smile,
he turned to the FBI. I found it interesting to hear how Sakowitz felt a sense
a relief after making the call.
I was drawn to the story for a few reasons. Sakowitz runs
Development Company, a real estate company. Like me, he is an attorney by
training, working in the real estate industry. As a compliance professional, I
am fascinated by the mechanics of fraud and Ponzi schemes. Sakowitz was kind
enough to send me a copy of the book to review.
Although the book provided great information and
perspective on the Rothstein fraud, I was hoping for more. Sakowitz provides
plenty of information about his own background to show why he turned in
Rothstein. He does not provide equivalent information to show how Rothstein
Most people do not wake up one morning and decide to
perpetrate a fraud on his clients, friends, business partners and anyone who
walks through his office door. Clearly greed was a factor. He must have seen an
opportunity to sell a settlement for his own benefit. It's not clear that
Rothstein felt the pressure to be a mover and a shaker or what the pressure was
that made him initially step over the line. Clearly his extravagant lifestyle
created the pressure to keep the scheme going. We certainly could guess at the
rationalization Rothstein used to justify his crimes. Perhaps he thought he was
supporting the political system, endowing charities and creating jobs.
I would have liked to read more about Sakowitz's thought
process in deciding to report Rothstein to the authorities. Walking away is
easy when you suspect a fraud. You merely risk passing on an investment.
Reporting a fraud does put you at risk. If you're wrong, you risk the personal
and professional repercussions. If you accuse a person like Rothstein,
who showed off a gun strapped to his ankle, you risk physical harm.
In the end, Rothstein was an evil man, blatantly stealing
money. Sakowitz was a good man, who saw through the greed, and took the extra
step to try and stop the evil man. That alone is makes a compelling story.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.