Rothstein Ally Gets Sentence Reduction; Is Rothstein Up Next?

A disbarred lawyer serving a five-year prison term for his role in Scott Rothstein's massive $1.2 billion Ponzi scheme had his sentence decreased by nearly two years as a result of the substantial assistance he provided to federal prosecutors that led to the convictions of three other individuals linked to Rothstein's fraud.  Douglas Bates, 56, previously pleaded guilty to a wire fraud conspiracy charge on the eve of trial and just after another lawyer linked to Rothstein's scheme was convicted of similar charges at trial.  Prosecutors, citing the substantial assistance Bates provided that led to the conviction of two police officers and Rothstein's former law partner, filed a motion seeking the reduction that was granted by U.S. District Judge Donald Middlebrooks. With this marking the first government-requested sentence reduction following the conviction of dozens of Rothstein associates, the question now becomes when (and if) such a request will be made for Rothstein himself, who famously began cooperating with prosecutors days after he surrendered to authorities in late 2009.  

Background

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.   According to Rothstein, while the alleged settling defendant had already deposited the settlement funds with Rothstein’s firm, an 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, Rothstein first fled to Morocco before returning to surrender to authorities.  He later pleaded guilty was was sentenced to a 50-year prison term.  

Rothstein's 'Extraordinary' Cooperation

While much has come to light of Rothstein's lavish lifestyle prior to the scheme's collapse, his actions and whereabouts following his arrest have been shrouded in secrecy following reports he was extensively cooperating with authorities to implicate others involved in his scheme.  Indeed, it is likely Rothstein realized that he would not live out the entirety of his 50-year prison sentence.  It was later revealed that Rothstein is a member of the federal witness protection program, and his only public sightings since his arrest have come in court or at court-ordered depositions. While details have been scant as to the substance of his cooperation, prosecutors have characterized Rothstein's assistance as "extraordinary" as they have obtained the convictions of nearly three dozen individuals linked to the fraud.  On the civil side, a court-appointed bankruptcy trustee has successfully recovered hundreds of millions of dollars for Rothstein's victims - a recovery that has resulted in the unprecedented 100% return of investor losses. While reports are conflicting as to Rothstein's role in that result, ironically it was Rothstein's role with a TDBank employee that resulted in a large portion of the eventual recoveries.

Is A Reduction In Rothstein's Sentence Forthcoming?

Rothstein has been quite clear that his extensive cooperation has not been entirely for altruistic reasons. This is illustrated by the following exchange which took place during a 2011 deposition:

Q: Good answer. So, you hope that that's what is going to happen, but other than that no promises by the government or anybody?

A:  I'm hopeful at the end of all this, the government will see fit to ask Judge Cohn to reduce my sentence. There's no promise made to me.

- Scott Rothstein 2011 deposition testimony

Rule 35 of the Federal Rules of Criminal Procedure governs the correction and reduction of a federal criminal sentence.  Subsection (b) provides that,

(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.

On the day before the first anniversary of Rothstein's sentence, 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.

Fast forward four years.  During that time period, prosecutors have strung together an impressive (and undefeated) string of convictions for those who played various roles in Rothstein's fraud, including lawyers from Rothstein's firm, accountants and bookkeepers, and even Rothstein's family members.  Together, those convictions have resulted in over 60 years of prison sentences.  

Rothstein received his 50-year sentence in June 2010 - a sentence that was 10 years longer than the term requested by prosecutors.  Thus, he has served nearly 5 years of his sentence to date.  While any reduction would be at the sole discretion of prosecutors, Rothstein could be out of prison at the ripe age of 76 assuming that he receives a deal similar to that given to Doug Bates.  While Bates received a 33% reduction in his sentence for his cooperation, it is likely that many other considerations will factor into any reduction proposed for Rothstein.  While it certainly benefits prosecutors to encourage defendants to cooperate with the government, the breadth of Rothstein's fraud - his Ponzi scheme was one of the largest ever and was the largest in Florida's history - as well as the potential resulting public outcry may give pause to some before recommending a reduction that could allow Rothstein to emerge a free man one day.  

While prosecutors timely filed the Rule 35 motion, a hearing and subsequent ruling has been delayed while prosecutors determine the extent of Rothstein's cooperation.  Given the undeniable success prosecutors have achieved, of which a substantial portion is likely due to Rothstein's cooperation, it is likely that Rothstein's cooperation has amounted to the "substantial assistance" required under the statute.  With only a few active prosecutions remaining, it is likely that prosecutors have charged most if not all of the potential targets related to Rothstein's scheme.  This includes the prosecution of former TD Bank Vice President Frank Spinosa, at which Rothstein might be required to testify.

Notably, Rothstein himself has acknowledged that any chance for reduction is far from certain given a well-reported hiccup in his cooperation.  Rothstein is referring to his wife's arrest and subsequent prison sentence for concealing assets from authorities, including a large jewelry collection that included a 12-carat diamond ring.  Rothstein later admitted that he had been less than forthcoming with authorities about those assets.  It remains to be seen whether authorities will be willing to forgive that transgression in light of Rothstein's otherwise significant cooperation.

Previous Ponzitracker coverage of the Rothstein scheme is here.