Monday, April 29, 2013


One of Rothstein's Ferraris, up for government auction.
Readers often ask me why any non-financial company needs a compliance department, to protect itself from financial crime. The answer is that a good compliance officer can often spot a financial crime in progress. Let's take today's case, another in a long list of companies sued by the receiver in the Scott Rothstein Ponzi scheme, in the bankruptcy of his law firm. Most of you are familiar with that case.

Mr. Rothstein's luxury automobile dealer was sued, by the receiver, for $560,280, for the two Ferraris and two Maseratis* that he bought there, in what we call a clawback suit, seeking to recover the criminal profits that purchased the automobiles. The dealer was forced to settle for around half of the amount claimed. He did obtain an agreement that allowed him to recover one-half of the proceeds of the sale of one of the Ferraris, and was allowed to make an unsecured claim for $56,250. Obviously, he lost a substantial amount of money, making him yet another victim of the Ponzi scheme.

Could an in-house compliance officer have prevented the sales, and the ultimate loss ? Many compliance officers today are also attorneys, and any good lawyer would probably have checked the civil dockets, both state and Federal, to ascertain exactly how a lawyer not at a major law firm could afford to pay cash for four high-end cars. He would have found precious little litigation, and could then have raised the alarm of a possible financial crime in progress, delaying or even killing the sale.

Therefore, the next time that someone outside the financial world complains about having to create a compliance department in his shoppe, relate this story to him, please.
* Rothstein is reported to have stated, in a deposition taken subsequent to his conviction, that the Ferraris were his personal automobiles, but "the Maseratis were bought as gifts for his co-conspirators"
[direct quote]. Even whilst serving a term of imprisonment of 50 years, I note that he has retained his arrogance.

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