Investor pumped millions into Rothstein's scheme

George Levin, a wealthy Fort Lauderdale investor with Wall Street connections, thought Scott Rothstein's confidential legal-settlement deals were a sure thing.

So much so that Levin invested as much as $125 million of his own money, and hundreds of millions more from other investors through his group of Banyon hedge funds.

As the fund's managing partner, Levin personally guaranteed initial investors an 18 percent return up front to woo them — and he told them they could expect to make 30 percent or more on the legal-settlement payouts. In his pitch, Levin called it a "high yield low risk'' investment strategy.

Levin would become Rothstein's rocket-booster, taking his little-known investment business to dizzying heights — though no one has accused him of conspiring with the Fort Lauderdale lawyer to dupe investors.

Here's how Rothstein's scheme worked: Investors would make an up-front payment at a discount to a plaintiff in a lawsuit who was expecting a series of "structured'' settlement payments from the defendant over months or years. The investors would later receive the full settlement amount at a hefty profit.

But it was all a scam. Federal prosecutors said there were no plaintiffs, no defendants, no lawsuits.

Now, Rothstein, 47, is under federal criminal investigation for running an alleged Ponzi scheme that could exceed $1 billion, and Levin and his Banyon Investment Fund will likely face scrutiny from the U.S. Securities and Exchange Commission, according to sources. The SEC is expected to examine whether Levin and Banyon sold unregistered securities or misled investors.

Levin has remained behind the scenes since the Rothstein scandal broke in late October.

But a spokesman for his group of Banyon funds has sought to portray him as a "victim'' who was just as shocked as every other investor who trusted Rothstein.

"Scott Rothstein was a gifted liar who befriended many well-known people in Florida, including Gov. Charlie Crist and Dan Marino," said Banyon's spokesman, Jesse Derris. "He used these people as stage props for his investment scheme. The idea that George provided the sole business credibility to Rothstein is a fallacy."

But in an April 2009 prospectus for potential investors, Levin took credit for helping "ramp up'' Rothstein's once small investment business to a $75 million-a-month juggernaut in just two years.

Levin's Banyon funds not only fed Rothstein's voracious appetite for capital but enabled the once-obscure lawyer to live like a tycoon, with more than a dozen homes, 21 cars and an 87-foot yacht. Levin, who was often seen at Rothstein's political and charitable fundraisers, lent the lawyer a respectability among investors that he would have never been able to attain on his own.

By the same token, Levin's financial strategy depended on Rothstein. He warned investors that the fund needed a steady flow of plaintiffs supplied by Rothstein — plaintiffs that turned out to be illusions.

Now Levin is facing financial peril: In addition to his personal guarantees to other investors, his fund borrowed as much as $200 million at one point to finance investments, records show. And Levin apparently kept rolling his own profits back into the investment, never taking out what he had put in before the whole thing collapsed last month.

Last week, Levin's confidant — Banyon's chief operating officer, Frank J. Prevé — was named as a defendant in a $100 million lawsuit filed by bilked investors accusing Prevé of conspiring with Rothstein.

The 147-page civil complaint describes Prevé as one of seven Rothstein co-conspirators — along with Toronto Dominion Bank, where Banyon and other investors' money was deposited in trust accounts.

The suit accuses Prevé of falsely claiming that Banyon had invested more than $8 million to induce another group, Razorback Funding LLC, into committing $32 million to a settlement deal.

Prevé sent a Razorback fund manager a copy of an Oct. 1 e-mail from Rothstein purporting to confirm Banyon's transfer of $8 million into a TD bank account.

But Prevé never put the $8 million in the bank, said William Scherer, the lawyer who filed the suit against Rothstein and TD Bank. "He lied to us," he said. "He cheated us."

Four weeks after that transaction, the scheme fell apart, Rothstein jetted off to Morocco, and his law firm faced bankruptcy.

Banyon's spokesman, Derris, said Scherer's allegations against Prevé and the hedge fund are "totally false," without elaborating. Prevé could not be reached for comment.

In a letter to Banyon lenders and investors this week, Levin attacked the suit's naming Prevé as a Rothstein co-conspirator.

"The allegation that Mr. Prevé had an office at the Rothstein law firm, or that he may have helped the Rothstein firm to mislead potential investors is a total lie. Period."

Scherer said he's preparing to add Levin and the Banyon Investment Fund as defendants to his lawsuit.

In Levin, Rothstein found a partner with both wealth and a history of success.

Levin, 69, made his first fortune in the retail industry in Philadelphia in the 1960s, making enough to retire to Florida at age 32.

Levin then expanded his reach into a variety of businesses: real estate investments around Florida, hotels in Atlantic City and Palm Beach, a timber farm in North Carolina, a yachtbuilder in Japan. In the mid 1990s, he helped salvage a Massachusetts computer company from bankruptcy and sold it to the software giant Oracle.

There have been missteps. In 1999, federal prosecutors charged one Levin company, Classic Motor Carriages, with fraud for misleading potential buyers of "kit cars."

Though neither Levin nor any employees were personally charged with wrongdoing, the company pleaded guilty to wire fraud and agreed to pay $2.5 million in restitution.

In a discloser to investors, Levin said he was unaware of the fraud at the time, and he set up a separate company to repay customer claims.

But that was nothing compared to his calamitous partnership with Rothstein, which took root in late 2006.

In a prospectus for investors — who were required to put up a minimum of $1 million — Levin said Rothstein was offering a slice of a "largely untapped market'' in settlements in multimillion-dollar employment and sexual harassment lawsuits. Their value, Levin said, was in their secrecy, suggesting a defendant would pay a premium for a plaintiff's silence.

It was the element of secrecy that kept the scheme alive. Levin told investors that, if details of a lawsuit leaked, a defendant could then sue the plaintiff for even more money than the settlement's worth — wiping away investors' profits. So, to maintain secrecy, the investors could never know the names of the plaintiffs or defendants in the lawsuits they thought they were financing.

"Confidentiality standards must be ultra high," Levin told investors in March 2008.

By that time, Levin and his partners had invested about $100 million in purported settlements with Rothstein. A year later, Levin said his fund had funneled some $656 million to Rothstein, ostensibly to buy settlements worth $1.1 billion, records show.

The scale of the scheme continued to build. Over the summer, Levin's pitch lured another $100 million from other investors. In October alone, $235 million washed through Rothstein's accounts at TD Bank from various investors, Scherer believes.

But then investors started demanding their money, and the scheme quickly unraveled.

"If Levin had pulled his money out earlier, it would have collapsed a long time ago," Scherer said.

Investor pumped millions into Rothstein's scheme 11/24/09 [Last modified: Tuesday, November 24, 2009 8:57pm]

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