Banking and Finance

SEC Wins Civil Fraud Case Against Rothstein Promoter

 A Miami federal jury handed a victory to the Securities and Exchange Commission as it convicted a Fort Lauderdale investment manager of funneling more than $150 million from over 150 investors to Scott Rothstein's massive $1.2 billion Ponzi scheme. George G. Levin, 74, was convicted of five counts of securities fraud after less than three hours of jury deliberations. The Commission is seeking disgorgement of ill-gotten gains, injunctive relief, and civil monetary penalties, which will be decided by U.S. District Judge Ursula Ungaro in the near future.

Levin began working with Frank Prevé to solicit investors for Rothstein's scheme in 2007, at first offering potential investors the ability to invest in promissory notes. The promissory notes offered investors annual rates of return ranging from 12% to 30%, and typically carried a 180-day term, and the pair sought to profit by keeping any excess return paid by Rothstein on the investments. Through the issuance of the promissory notes, the pair raised nearly $60 million from 90 investors to invest in Rothstein's scheme. 

As Rothstein's scheme grew, he pressed Levin for additional funding and claimed that he was experiencing problems in his ability to keep the scheme going. To convince Levin, Rothstein claimed that his clients, the alleged plaintiffs entering into the settlements, had filed complaints with the Florida Bar and that the scheme could grind to a halt if he was disbarred. According to Rothstein, the only way he could continue the scheme was with $100 million in fresh financing from Levin and Prevé. This was followed by the cessation of payments on the settlements that Levin and Prevé had already purchased - bringing Levin's investment strategy to a halt and threatening the returns he had promised to his investors.

In early 2009, Levin formed the Banyan Income Fund, L.P. ("Banyan") as a "feeder fund" with the stated purpose of investing solely with Rothstein. Between May and October 2009, Banyan raised approximately $100 million from 83 investors to invest with Rothstein. In the Private Placement Memorandum ("PPM") provided to investors, Banyan represented that a settlement would undergo a verification process that included an independent third-party verifier to review the unredacted settlement documents and bank account balances to ensure everything was in order. As with the earlier investments, the documents represented in the PPMs were not obtained, and Rothstein again failed to make payments on a majority of the purchased settlements. Several months later, Rothstein's scheme collapsed, and Banyan investors lost the majority of the $100 million they had invested.

Prevé was criminally charged last summer, and subsequently pleaded guilty to one count of conspiracy to commit wire fraud. 

 For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

For more information about LexisNexis products and solutions, please connect with us through our corporate site.