Rothstein Probe Focuses on Structured Settlements

The unfolding fraud scandal involving high-rolling South Florida lawyer Scott Rothstein raises questions about the nature of structured settlements. Did Rothstein manipulate these financial arrangements to his advantage or concoct something else entirely?

As The Am Law Daily and sibling publication the Daily Business Review have previously reported, Rothstein is implicated in a scheme that the FBI estimates could cost thousands of investors $1 billion. Those investors are now running to lawyers across South Florida, and some of them are trying to force Rothstein's 70-lawyer Fort Lauderdale firm into bankruptcy. (While Rothstein has yet to be criminally charged, the lawyer has sought to reassure investors that he's "gonna do the right thing.")

We reached out to five lawyers in South Florida -- some of whom were familiar with Rothstein and his practice at Rothstein Rosenfeldt Adler -- for their take on the nature of his fraud and what, if any, consequences it might have on structured settlements.

The traditional structured settlement is essentially an annuity. If, for example, a law firm were to settle a major case with the City of Miami that would pay out over one year, the firm might go to its lender bank and ask to borrow against the settlement. But when a settling party has a sketchier track record of creditworthiness, plaintiffs can sell their settlement stake to investors who assume the risk at a premium.

"Structured settlements are basically people buying annuities at a discount," says Edward Davis, an asset recovery lawyer with Miami's Astigarraga Davis uninvolved in the Rothstein case. "But they come with a risk, because presumably the person or entity that owes the money could default."

Rothstein's purported scam, which has been likened to a Ponzi scheme, focused on the pre- and post-settlement aspects of litigation. But rather than provide up-front litigation financing, Rothstein sought out investors to provide settlement funds for plaintiffs in need of the money right away.

Kendall Coffey, a former U.S. Attorney in South Florida now with Miami's Coffey Burlington, represents what remains of RRA. Coffey explains that Rothstein sold structured settlements in sexual harassment and qui tam/whistleblower suits to investors, some of them hedge funds.

"Rothstein promised people double their money back or something like a double-digit return in a finite timeframe," Coffey says. According to Coffey, Rothstein's uncle, Bill Brock, worked at RRA and set up investment accounts that also doubled as law firm trust accounts. That, Coffey says, could create liability issues for RRA. The trust accounts were held by TD Bank, which has hired Greenberg Traurig's Glenn Goldstein to cooperate in the widening inquiry.


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