Can RRA Attorneys' Lose Earned Salaries to Clawback Law?

To be sure, the juicy part of the federal filing by the U.S. against Rothstein on Monday lists a number of his prized assets that were forfeited, like his 2009 Bugatti Veyron, touted as the most expensive street car available in the U.S. at about $1.7 million.

More striking to me, was the stunning revelation that could clearly place the firm’s principles in serious legal hot water, even to the extent that paid employees may be required to pay back some of their earnings to the government. Yes, it could arguably, actually happen.

You see, the government’s forfeiture filing from the Miami U.S. attorney's office said that Rothstein's now-defunct law firm, Rothstein Rosenfeldt Adler, in a single year earned about $8 million but paid its 150-person staff $18 million in salaries.

Specifically pointing out in its complaint that "The additional $10 million for salaries, as well as other expenses for operation of the law firm, came from the operation of and the funds generated by the Ponzi scheme." Assistant U.S. Attorney Alison W. Lehr is laying out the foundation for a ‘clawback’ of earnings but not just from those who were in the know, or perhaps, reasonably should have known.

The clawback provisions go after innocents who are revictimized by these schemes. The law is simply that you cannot lawfully acquire rights and title to stolen property. If the US is taking the position that nearly ten million dollars in salaries were paid to lawyers who had no right to those funds, who were reaping the benefit of stolen funds, why the government is potentially opening the door to making the lawyers pay back their illegally gained salaries.

You think it can’t happen? We have already been reading articles about how charities may have to give back monies, but so too could others who were unjustly enriched by the Ponzi scheme be required to give back monies they never should have lawfully gotten. Over 250 companies got clawback letters for close to $735 million in the Madoff mess.

If bankruptcy trustees have done this with hundreds of innocent investors in recent Ponzi schemes, such as the mini-Madoff Philip Barry scandal in Brooklyn, NY, and Madoff himself, why not here?

Who better to apply that standard too then lawyers? How is that for a new wrinkle? Of course, if the bundling of those political donations were also tied to kickbacks returning monies to the lawyers who made them, as rumor has it, then we may see some issues developing for all of them far more serious than just money.

Picking Up Pieces of the Past on a Wednesday Morning

The most important thing for me to do late on a Tuesday nite is to remember to move the garbage cans curbside for Wednesday morning pickup, but in the meantime..

I have joked recently in my blogs about how Bernie Madoff went to Hofstra College, my alma mater, and how weird it is that his class ring from 1960 was auctioned off by federal authorities Saturday in New York City. Never thought a class ring from the Harvard of Hempstead would be worth so much…then I spent yesterday afternoon reading about a Lawrence High School classmate I used to play stickball with at School #6 on Branch Boulevard when we were like ten years old. 40 years ago, in 1968, he was voted most likely to succeed by his classmates. But in 2008 what he succeeding in getting was a 20-year sentence for setting up a $400 million dollar hedge fund fraud, using his law firm as a tool. Hello, Scott Rothstein. Here is the article about Dreier, who also appeared on 60 minutes, about the brazen scam. Greed greed Greed. Kills ya'.

http://www.vanityfair.com/business/features/2009/11/marc-dreier200911

One passage in the article jumps out at me which could be a telling factor:

His epiphany, Dreier remembers, came in the summer of 2003, during a long walk he took on the beach near his vacation home, in Westhampton Beach, New York. He experienced a moment of clarity, he says, in which he saw the path he needed to take; unfortunately, it was a path that would lead to his downfall.

It happened one day when he found himself staring at a palatial beachfront home. His own house was inland. He had always wanted one right on the beach. It was at that moment, Dreier says, that he came to two conclusions. He would buy himself a big house on the beach. And he would get the money by dramatically expanding his firm, now renamed Dreier L.L.P. Dreier knows how ridiculous this sounds, that his criminal behavior can be traced to his yearning for a better beach house.

“I wanted to just, well, appease myself,” he says. “Well, not appease myself. Gratify myself … I was very, very caught up in seeing the criteria of success in terms of professional and financial achievement, which I think was a big part of the problem. But I thought it would make me happy. And I wanted to be happy again.”

Elsewhere, the news for the first amendment in Miami was not grand as the Supreme Court chose not to review the case of the book, Vamos a Cuba, banned by the School Board. I have written about it before, but here is the story on the front page of the Miami Herald:. Definitely my sentiments are with the ACLU and Howard Simon who commented that: ‘What the Supreme Court did was to give the School Board the power to cleanse the library shelves of various books `That sets a dangerous precedent.'’ Yup, it does. By the way, if you have any extra money to donate somewhere here at the end of the year, not that anyone does, the ACLU could use some.

Political correctness in schools, a very unhealthy thing. Speaking of which, it was nice to see Buddy Nevins- on his blog -back off of his totally unjustifiable criticism of Kevin Tynan. A lawyer who represents lawyers, with a passion for integrity and who served the Florida Bar as an Ethics Prosecutor, I think you can expect a new era of honesty on that school board, with a bulldog for fairness serving thereupon. And speaking of books, I have to get to writing a piece on my friend Tom Hayden, who I got to spend the day with in Miami after he lectured at the Miami Book Fair, catching up on politics and our mutual passion for baseball. It is hard to believe he is nearly 70, I am 60, and it has been 40 years since Grant Park and Chicago. Here is a link to Tom's new book, which, unfortunately, though hundreds showed up for his SRO talk, none of his books were shipped for him to sign- ouch;

http://www.paradigmpublishers.com/Books/BookDetail.aspx?productID=215088

Also at the festival, with a line out the door early Saturday morning, and overwhelming popular acclaim, some dude named Al Gore.

I also saw that a top DEA agent I have criticized in a blog about his drug war righteousness may soon be out of legal trouble. Magistrate Robin Rosenbaum has said the charges against him should be dismissed…Noticed also that the driver responsible for reckless driving and the fatal crash on I-95 Monday morning has tickets for careless and reckless driving from earlier this summer. How not surprising… So who is more of a threat to the public safety, that dude or the young San Francisco pitcher, Tim Lincecum, likely to win the Cy Young award again tomorrow for the second year in a row, busted for 3 grams of pot in Northern Washington. Hell, in northern California guys have that much residue in their carpet. Anyway, just did another legalization piece this week online for Counterpunch about how the American Medical Association has altered its stance on the rescheduling of marijuana from a Schedule 1 substance drug with no medical use to a lesser standard. Nice of them to catch up with the rest of the world.http://counterpunch.org/kent11162009.html

Was asked yesterday how I feel about the collapse of the national gay media in local markets with the bankruptcy of the Blade newspaper chain. It means the paper I founded ten years ago this month, and sold to them in 2004, is now extinct. I feel devastated, is how I feel, and I am absolutely sure there needs to be credible GLBT journalism in the South Florida community. Though there was a nice piece in the South Florida Business Journal and the Miami Herald, I posted about it on another one of my blogs: http://www.nationalgaynews.blogspot.com/

Later, and thanks for stopping by.

Breaking News: Scott Rothstein to Serve Tuesday as Guest Auctioneer at Lauderdale's Bernard Madoff Yacht Auction

Okay, so I took some liberty with the headline. Shoot me.

Pictured above, for your bidding pleasure, is a Bernie Madoff yacht, presently anchored and to be auctioned off here in Fort Lauderdale on Tuesday morning. While you are checking it out, Scott Rothstein's boat is also there, in a new federal wing called 'Ponzi Row.'

Meanwhile, Bernard Madoff's name gave extra value to his onetime possessions Saturday as they were auctioned for more than $1 million in New York. The auction conducted under the eye of U.S. marshals at the New York Sheraton Hotel and Towers brought in twice the expected amount, The Wall Street Journal reported. The 200 lots of possession once owned by Madoff and his wife, Ruth, included Rolex watches and diamond jewelry along with clothing and old yard signs.

Some of the Rolexes failed to sell. But an online bidder offered $14,500 for Bernard Madoff's personalized Mets jacket, almost 30 times its low estimate, and his class ring from Hofstra University, with a low estimate of $240, went for $6,000. Now this bugs me. No class ring from Hofstra is worth $6,000.

I am, of course, an alumni of Hofstra University. Graduated the school in 1971. The law school in 1975. Mr. Madoff went there before we became a university. He actually graduated from 'Hofstra College' in 1960. I am not too proud of this allegiance. Would have preferred my school getting written about if it was about a national championship.

I suppose he is now our most famous alum, and indeed was serving on our Board of Trustees when his billion dollar scam went public. Now he may be serving as a trustee but if so, it is in a federal prison. Guessing we don't have any special plaques to give out to him right about now. But I am willing to bet one of my fellow alumni bought up his ring. Probably to bury it.

Three boats and a Mercedes go on the block Tuesday here in Fort Lauderdale. Does anyone doubt if Scott were not about to be indicted, and his schemes were still not known to the public, he might in fact have been one of the bidders, parking that Madoff Mercedes right in front of Bova Prime? How the pendulum swings.

Think though, about this. A week ago I did a light hearted column about how the feds will have to raise monies to pay back Scott's investors by selling the autographed memorabilia from his office on E Bay. Guess what? There is a lot of truth in humor. When you see they are selling the shoes belonging to Ruth Madoff, and Bernie Madoff's class ring from 50 years ago, can Dan Marino's and Al Lamberti's autographed picture with Scott Rothstein be far behind?

http://www.sun-sentinel.com/business/sfl-madoff-boats-auction-090909,0,2535443.story

Bernie Madoff Will Lose Tickets at New Mets' Stadium

Looks like baseball fan Bernie Madoff is going to miss out on his prime Citi Field seats at the Mets' new stadium. The tickets are going on the auction block.

The New York Mets season tickets, just behind home plate, will likely be resold by the trustee for Bernard L. Madoff Investment Securities LLC.

"We have no intention of not monetizing them and letting them go unused," trustee Irving H. Picard said Saturday in an e-mail to The Associated Press. "When we have something to announce, we will do so."

Mets executive vice president David Howard said the seats were paid for and were in either the first or second row behind home plate, a section known as Delta Club Platinum. They list for $695 each for opening day on April 13 and June interleague games against the New York Yankees, all classified as platinum by the Mets.

They cost $595 for gold games, $495 for silver games, $395 for bronze games and $295 for value games. Overall, the season ticket comes to $40,095 per seat, an average of $495.
"They're paid for. They can do with them what they want to," Howard said.

Mets owners Fred Wilpon and Saul Katz were close to Madoff, who pleaded guilty March 12 in federal court to 11 counts, including securities fraud and perjury, stemming from a Ponzi scheme prosecutors said was worth $64.8 billion. The 70-year-old Madoff could get up to 150 years in prison at sentencing June 16.

Wilpon, Katz and many entities of their company, Sterling Equities, and various affiliated foundations are among the swindled creditors. It will bring a new dimension to the team when the first base is stolen at the new stadium. It won't have been by an athlete. It will have been by Bernie. What I really want to know is why are we still calling it Citi Field after Citi Bank? I am thinking it should be:

a) Taxpayer's Park

b) Bailout Ballyard or

c) People's Stadium

Or do something different. Let's name it after a hero. Let's call it Jackie Robinson Park.

Madoff Wants Out of Jail Before Sentencing and Editorial Cartoon of the Day

Off the Wall Street Journal Blog by Ashley Jones, who just replaced Dan Slater.

First, as anticipated, Bernie Madoff, who pleaded guilty on Thursday to 11 charges related to his operation of a $65 billion Ponzi scheme, has appealed Judge Denny Chin’s decision Thursday to revoke his bail. Click here for the WSJ story; here for the filing. A hearing in front of a three-judge panel of the Second Circuit is scheduled for Thursday. Madoff is currently being held in the Metropolitan Correctional Center in lower Manhattan.

Madoff’s lawyers argued in the filing that their client isn’t a flight risk, noting his assets have been frozen, that he has previously complied with his bail conditions and that he “dutifully appeared” in court to plead guilty despite knowing he faced a lengthy prison term.

“The district court’s conclusion that Mr. Madoff is a flight risk is clearly erroneous,” Horwitz and Sorkin said. “The risk of Mr. Madoff’s flight in this case is virtually zero because the lower court’s previous bail orders set stringent safeguards to ensure that Mr. Madoff is both sufficiently dissuaded from fleeing and is closely monitored while detained in his home.”

Prior to a conviction at trial or a guilty plea, the burden is on prosecutors to show a defendant isn’t eligible for bail — namely he’s a risk of flight or a danger to the community.

The burden shifts to the defendant after a conviction, said Bradley Simon, a white-collar defense lawyer at Simon & Partners in New York and a former federal prosecutor. “I just don’t see any basis for the Second Circuit to reverse the judge,” Simon said.

In other Madoff news, we also now know that Madoff says he held in assets just weeks after his multi-million fraud was revealed: between $823 million and $826 million. This was revealed in a document filed alongside his bail motion.

The bulk of the assets came in the $700 million he valued for the ownership of his business, which is now being liquidated in a bankruptcy proceeding. The rest is a list of various Robb Report possessions: a mansion in Palm Beach, Fla., estimated at $11 million, half-interest in a BLM Air Charter aircraft worth $12 million, and a Steinway piano valued at $39,000.

Editorial Cartoon of the Day

Bernie remains the number one lampooned person in America today.

Thoughts on a Fellow Alumni Named Madoff

An Intriguing Twist in the Madoff Madness

“He is going to be sentenced to 150 years. I hope he leads a very long life.”

Accountant Richard Friedman, who purportedly lost $3.1 million in the Madoff Scandal

Mr. Friedman just did a compelling interview on CNN about the man who swindled thousands and impacted millions, from renowned celebrities to successful citizens to disbelieving charities.

It is all over. He is in jail, probably forever.

Maybe one of the key efforts to make victims whole is to possibly have them claim to be car dealerships and have the government ‘bail them out.’ You know, I just can't ever remember missing a payment for a car and having the government call me, and say 'can we lend you some money to get through this difficult time?' A lot of average Americans do not feel so sorry for rich people getting screwed though. The average citizen has to wonder how stupid were some of these smart people?

Seriously, though, as one investor pointed out, if the monies he thought he made from Madoff were in the millions, then he has been paying hundreds of thousands of dollars extra in income taxes for years on ‘phantom income’ which he never earned.

I would think that the fairest way to approach restitution for these victims is to develop a mechanism whereby forensic accountants thoroughly reviewed the returns of those so affected and analyzed where they had wrongfully tendered overpayments to the IRS for income they never actually earned. It will not recapture their fortunes, but if they relied on falsified statements from Madoff to post excessively high returns, then they should have a right to amend the same and have the IRS return the money, no?

More than that, as a lawyer consulted by a number of victims, now very penniless, I think a number of potential legal actions may come out of all this. The first, as I said, would be to petition the IRS for legitimate rebates. But the second course of action I would explore is whether government regulators failed in their duties; whether the immunity of government officials should be challenged for gross negligence. How many of them failed to do their job? How did the SEC ignore a whistleblower?

And how many people at Madoff's firm knew and remained silent? How many were co-conspirators? How many lined their pockets and looked the other way? How many others belong in jail? How many are ultimately accountable?

The truth of the matter is that government regulators failed the public with respect to Mr. Made Off. The people charged with watching the store were asleep at the wheel. The issue is not just whether he worked alone. The issue is whether the prophylactic and protective mechanisms our government has set up to insure honesty in the investment community has been sufficient to guard a consumer, whether they have millions or hundreds.

Sadly, when you see banks fail, car dealerships close, airlines needing bail outs, you have to wonder how they have always been so opulent and luxurious to begin with. Now you know. They have never been using their own money. They have been using yours.

On this blog, I often enjoy reminiscing about my experiences at Hofstra University as a student in the 1960's. It was a young and growing school back then, evolving from a small Long Island college into a major and respected university. The Governor of New York State is a graduate of our law school. But he is not now or will never be our most famous graduate. So is the former United Senator from Minnesota, Norman Bruce Coleman, just defeated by Al Franken in his re-election bid. And so too are Francis Ford Coppola and the ever so talented actress, the late Madeline Kahn. Maybe even the top radio DJ, Dan Ingram. I have had the privilege of meeting them all.

However, it looks like I will never get to meet the most famous graduate of Hofstra University, an alumni of the class of 1960, when our school was but a neighborhood college. His name is Bernie Madoff, who only a year ago was a revered member of the Board of Trustees. Today he is the most disgraced man in America, a John Wilkes Booth of Finance. Not the proudest moment for my alma mater.