Four days after Scott Rothstein fled to Morocco last month, a major investor e-mailed the Fort Lauderdale lawyer to ask him about a $300 million deficit in Rothstein's investment fund, court records state.
"We understand that the shortage is now 300m which is still manageable if we have your cooperation," the Banyon investment group's chief operating officer, Frank J. Prevé, wrote to Rothstein on Oct. 31. "Let me know."
Rothstein's response: "That is not the shortage … that is the amount of money needed to give the investors back their money. I really just need to end it frank. It will make it easier for everyone."
The e-mail exchange suggests that Rothstein, who returned from Morocco in early November to face a federal investigation into his massive Ponzi scheme, may have conspired with Prevé to bilk hundreds of millions of dollars out of investors, according to an amended lawsuit filed Wednesday.
The revised suit, filed on behalf of various investors who say they lost more than $100 million, names new defendants as co-conspirators with Rothstein, including Banyon Income Fund and its managing partner, George G. Levin.
The 289-page civil complaint claims that Levin held a meeting with one group of investors in Fort Lauderdale on Nov. 1 to discuss the shortfall in Rothstein's investment fund.
Levin not only had invested at least $125 million in Rothstein's legal-settlement deals, but he also lured other wealthy investors to put in hundreds of millions of dollars.
According to the suit, Levin told the investors that day that he had reached out to Rothstein to let him know the hedge fund, Banyon, "stood ready to provide shortfall financing if he was having trouble making payments."
But a lawyer who filed the amended suit said Rothstein's legal-settlement investments were not set up to be financed by loans.
Here is how Banyon pitched Rothstein's deals: Investors would make an upfront payment at a discount to a plaintiff in, say, an employment-discrimination lawsuit who was expecting a series of settlement payments from the defendant over a period of months or years. The investors would later receive the full settlement amount at a hefty profit.
Fort Lauderdale attorney William Scherer said Levin's meeting with the group of investors on Nov. 1 and his discussion of financing a shortfall in Rothstein's investment fund was suspicious.
Scherer's suit says Levin's conduct is "obvious evidence that the monies are either being misused or are a part of a Ponzi scheme." It further claims that "Levin's statement was a thinly-veiled attempt to cover his tracks after Rothstein rejected Levin's last-ditch efforts to persuade Rothstein to keep the Ponzi scheme going."
A spokesman for Banyon said Scherer has a "tenuous grasp of the facts."
"This is a despicable attempt to turn a victim into a villain," said Banyon's representative, Jesse Derris.
Prevé's attorney, Robert Josefsberg, declined to comment.
Levin, through Banyon's companies, did as much as $75 million a month in investment deals with Rothstein in just two years, according to an April 2009 prospectus for investors. Banyon's companies purchased $1.1 billion in legal settlements from Rothstein at a cost of $657 million.
"(Banyon's) confidential offering memorandum provided investors a window into (Rothstein's) house of cards, and the hedge fund was just one of the investment consortiums feeding the Ponzi scheme's voracious appetite," according to the amended suit.
When Rothstein's scheme collapsed in late October, investors scrambled to reach the lawyer for answers — but he had left for Morocco.
Frantic investors reached out to his law firm, seeking the whereabouts of overdue payments, the suit says.
Rothstein's law partner, Stuart Rosenfeldt, assembled a team including the law firm's chief financial officer, Irene Stay, to answer the deluge of investors' calls over the Halloween weekend. When Stay refused to provide confirmation of the amounts in the investors' trust accounts, the suit says, she "began inconsolably crying (and) repeating the phrase, 'I don't want to go to jail.' "
Stay, also named as a new defendant in the suit, could not be reached for comments Wednesday.
Rosenfeldt then called Frank Spinosa, a vice president at Toronto Dominion Bank in Fort Lauderdale, where Rothstein had kept his investors' trust accounts. Spinosa, named as a defendant along with TD Bank, said the accounts "had been almost completely depleted."
Spinosa and TD Bank have denied any wrongdoing.