The Florida Bar has initiated investigations of 35 of Scott Rothstein’s partners, investigating trust account misdeeds and misappropriations.
The Miami-Herald has reported, here, that Florida Bar investigators are focusing on the equity and non-equity partners of the failed firm, which served as the foundation for Scott Rothstein’s $ 1 billion Ponzi scheme, one of the largest in Florida history, and whether any of the partners misappropriated client trust funds or otherwise lied about the status of those funds.
That the investigation has turned to Scott Rothstein’s former partners is unsurprising, given the massive nature of the Ponzi scheme that unfolded at their feet. Without concrete evidence of complicit behavior, investigators are likely wielding the only tool at their disposal: the trust accounts and the annual certifications that occur when lawyers renew their Florida Bar memberships. The highly technical focus on these largely perfunctory certifications is evidence that investigators have been unable to directly tie partners or other attorneys to the massive, $1 billion Ponzi scheme, and are seeking creative, if technical, links that tie these attorneys to the fraud.
What should the senior members of the firm have known about Rothstein and his practice? The firm’s partners, equity or non-equity, should have known that firm revenues were largely unsupported by firm employees, associates or staff, and that a significant disconnect was occurring between the work being performed by firm employees and overall firm revenues. Did any partner review firm revenue, by practice area, and determine which associates were assigned to these unique areas?
Given Rothstein’s extravagant lifestyle, did any partner determine the primary source of the firm’s significant revenues, and establish the link between those practice areas and the associates being assigned to the work? Did senior partners review payroll expenditures and establish the funding source for the shortfall between the payroll expenditures and ongoing, systematic revenue?
Even a cursory review of these patterns and linkages would have established that something was terribly wrong at Rothstein’s firm. These 35 partners either turned a willful blind-eye to these obvious problems, were blinded by Rothstein’s inflated generosity into believing that everything was fine, or were actively complicit in the fraud.
Evidence sufficient to support criminal prosecution of these attorneys will be difficult to uncover and nearly impossible to substantiate, but their collective ignorance, willful or haphazard, reveals a simple truth about the legal profession: attorneys are simply not very good at detecting, preventing or otherwise understanding fraudulent behavior.
