“I understand that there’s been an issue concerning my failure to disclose what I did with my wife and the jewelry. My hope is that at the end of the day that the government, they will see that I did a lot more good than bad.”
— Scott Rothstein 2011 deposition testimony
A federal appeals court has ruled that disbarred Florida attorney Scott Rothstein cannot force prosecutors to abide by a now-withdrawn request to cut his lengthy prison sentence, finding that prosecutors had absolute discretion to withdraw the motion after concluding that Rothstein was untruthful during his period of cooperation after his arrest. Rothstein, who famously fled south Florida for Morocco with over $10 million in cash and jewelry as his $1.2 billion scheme imploded only to return days later to plead guilty, has been serving a 50-year prison term in federal witness protection since his sentencing in June 2010 while also assisting the government in targeting other co-conspirators who aided his fraud. While Rothstein’s cooperation has undeniably assisted authorities in securing convictions against some of those co-conspirators and recovering assets from culpable third parties, the denial of his last-gasp attempt to resurrect his sentence reduction guarantees he will die in prison for his misdeeds.
Scheme and Arrest
Beginning as early as 2005, Rothstein promised lucrative returns to potential investors through investments in highly confidential legal settlements purportedly emanating from sexual harassment, whistle-blower, and qui tam actions against large corporations. Rothstein told potential investors that the alleged settling defendant had already deposited the settlement funds with Rothstein’s firm and that the investor could “purchase” the right to payment of that settlement at a discount. Investors were sworn to secrecy, and Rothstein and his law firm became well-known in Ft. Lauderdale. All told, the scheme raised over $1 billion from investors, with Rothstein spending freely on lavish houses, exquisite cars, and fine jewelry. After the scheme collapsed in late 2009, dragging down Rothstein’s 70-lawyer firm with it, Rothstein first fled to Morocco before returning to surrender to authorities.
After his arrest, Rothstein quickly changed his not-guilty plea to a guilty plea, and began cooperating with authorities. While Rothstein hoped that this cooperation would result in a lighter sentence, a Florida federal judge later sentenced him to a 50-year term – 10 years more than prosecutors’ recommended sentence. The sentence was the longest for any Florida Ponzi schemer, and ranked below only the 150-year sentence given to Bernard Madoff and the 110-year sentence handed down to Allen Stanford – both of whose schemes were multiple times larger than Rothstein’s.
Cooperation and Convictions
Rothstein’s cooperation appears to have started nearly immediately after federal authorities greeted his late 2009 return flight from Morocco, weeks after his abrupt departure marked the collapse of his Ponzi scheme and, by extension, his Fort Lauderdale law firm. Rothstein likely realized that, given the amount at issue and the likely lengthy prison sentence he would receive, his only avenue to not leaving prison in a coffin was to provide extraordinary cooperation and secure prosecutors’ post-sentencing recommendation that he be granted leniency.
Federal criminal procedural rules may have also heightened this urgency to cooperate. As Rothstein likely realized, prosecutors were only afforded a short window to recommend a sentence reduction. Pursuant to Rule 35(b) of the Federal Rules of Criminal Procedure,
(1) In General. Upon the government's motion made within one year of sentencing, the court may reduce a sentence if the defendant, after sentencing, provided substantial assistance in investigating or prosecuting another person.
It appears that Rothstein hit the ground running after his plane touched down, as evidenced by the government’s pre-sentencing memorandum which urged a 40-year sentence for Rothstein - a downward departure from the sentencing report’s non-binding recommended range - and stated that:
"The government concedes that a variance in this case is supported by several salient factors. While the defendant's criminal activity in this case can only be described as reprehensible, it is beyond dispute that his post-offense conduct has been extraordinary,”
Unsurprisingly, one day before the procedural deadline, prosecutors filed a Motion for Reduction of Sentence and Stay of Ruling. The Motion stated that Rothstein's cooperation, which had begun before he entered his guilty plea, was ongoing and would not be complete until a future time. Upon the completion of Rothstein's cooperation, the Motion indicated that a subsequent motion would be filed requesting a hearing at which Rothstein's nature, extent, and value of such cooperation would be detailed. This framework strongly implied that Rothstein’s path to a sentence reduction, while progressing, was not complete.
And cooperate he did. Over the next several years, Rothstein cooperated with civil and criminal authorities seeking to prosecute co-conspirators and recover funds for Rothstein’s victims. This included other lawyers in Rothstein’s firm and in the Fort Lauderdale community and arguably assisted efforts by the bankruptcy trustee appointed to unravel Rothstein’s law firm that ultimately resulted in a 100% return to creditors - a feat that has rarely been accomplished. This feat was largely possible due to hundreds of millions of dollars paid by TD Bank over its relationship with Rothstein’s scheme. As Rothstein’s lawyer remarked, “nobody to my knowledge has provided as much cooperation” in a similar investment fraud. And the results speak for themselves; Rothstein’s cooperation has resulted in over 60 years of prison sentences for his former acquaintances. An earlier Ponzitracker story chronicling the five-year anniversary of the collapse of Rothstein’s scheme compiled a list of the nearly 30 individuals that have been arrested or convicted based on their connection to Rothstein.
A Hiccup
But Rothstein’s cooperation strayed at one point, ostensibly in an effort to protect his then-wife Kim Rothstein. Authorities arrested Kim Rothstein and alleged that she had concealed assets, including a large jewelry collection that included a 12-carat diamond ring, with her husband’s assistance and had attempted to pawn those assets for cash. Kim Rothstein later pleaded guilty and served a short prison sentence, and Rothstein later admitted that he had been less than forthcoming with authorities about those assets.
In a Ponzitracker story several years ago, I pondered whether this hiccup might ultimately derail Rothstein’s path for a reduced sentence:
It remains to be seen whether authorities will be willing to forgive that transgression in light of Rothstein's otherwise significant cooperation.”
Chuck Malkus, who penned ”The Ultimate Ponzi: The Scott Rothstein Story,” shared these doubts and presciently predicted that:
Rothstein’s cooperation, however, is tainted due to the fact that he was not completely honest with the feds about his wife Kim her million dollars of hidden jewelry, obtained with stolen money. Because Scott Rothstein was not truthful with investigators, it probably will cost him receiving any sentence reduction.
Prosecutors Withdraw The Request For Reduction and Rothstein Fights
In September 2017, prosecutors withdrew their motion to reduce Rothstein’s sentence on the basis that he “provided false material information to [the Government] and violated the terms of his plea agreement.” Yet Rothstein must have realized that he gave the government no other choice given what a precedent of blessing substantial - not absolute - cooperation would mean for future criminal prosecutions. The lower standard not only cheapens the value of cooperation but would arguably prompt a slippery slope where a defendant’s cooperation would be tabulated like balls and strike rather than a binary “yes” or “no” approach.
As expected, Rothstein vehemently opposed the motion, claiming that he was entitled to an evidentiary hearing before his sentencing judge to probe the extent of his cooperation and decide whether prosecutors had the right to unilaterally withdraw their request for a reduced sentence. After this request was denied, Rothstein appealed to the U.S. Court of Appeals for the Eleventh Circuit.
In reviewing Rothstein’s contention that any “discretion” reserved by the Government ended when the “placeholder” Rule 35 motion was filed in June 2011 and that he was not adequately warned that the motion could later be withdrawn, the Eleventh Circuit first examined Rothstein’s plea agreement which provided that authorities would have “sole and unreviewable” discretion to determine the “quality and significance” of Rothstein’s cooperation. The Court also noted that authorities’ motion for reduced sentence - which was joined by Rothstein’s attorney - “expressly reserves the right to withdraw this motion if, in the judgment of the [Government], [Rothstein] should fail to comply with the terms of his plea agreement, fail to testify truthfully, or falsely implicate any person or entity.” The Court ultimately rejected Rothstein’s contentions, observing that:
But we see nothing in the plain language of this agreement that counsels us to limit the Government’s discretion when it comes to withdrawing a motion.4 Holding that the Government had implicitly relinquished the power to withdraw a placeholder motion would use a technicality to intrude on prosecutorial discretion in this field in a manner that this Court has continually refused to do. ..
We are faced with the purely legal question of whether the Government had full discretion to withdraw its Rule 35 motion based on its own unreviewable evaluation of Rothstein’s assistance to the investigation – and we concluded that the Government did have this discretion.
End of the Road?
Barring any extraordinary developments, this likely marks the end in a story that began nearly ten years ago when a then-reputable and high-flying attorney spent his final hours as a free man on a private plane contemplating a fugitive’s life in Morocco - a country that Rothstein knew did not have an extradition treaty with the United States. Like many of the calculations which spurred, exacerbated, and ultimately imploded his scheme, Rothstein’s decision to return to the United States must have at least been partially self-preserving and inspired by a calculation that he could either beat the charges or secure what would not be an effective death sentence. However one wants to read into the calculation, it appears that Rothstein almost succeeded; he readily volunteered incriminating information about friends, associates, and former law partners. But whether out of an inability to resist or a familial urge to protect, his transgression came in assisting his wife to shield assets that could fund her lifestyle after his arrest. Rothstein will now seemingly have several decades to ponder this fateful choice, and he will likely soon fade from the public eye given his already-obscure existence in the federal witness protection program. Despite starting out and culminating with a ‘bang,’ Rothstein’s story is likely to end with a ‘whimper.’
A copy of the Eleventh Circuit’s decision is below:
