Below is a highlight of Scott Rothstein's afternoon testimony on the third day of his 10-day deposition. It's a how-to on creating the trappings of a Ponzi scheme. Questioning Rothstein is Theresa Van Vliet, an attorney in the RRA bankruptcy.
Attorney Bill Scherer says Rothstein put a dollar figure on the amount of bribes he paid: $1 million. From the deposition transcript #6:
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Q You also testified, I believe, in response to some of Mr. Lichtman's questions on Monday that - of course, you were involved in illegal activity that constituted the Ponzi scheme itself, but that there were other illegal activities you were involved with during this operative time period. Do I recall your testimony correctly?
A Yes, as part of the Ponzi scheme all kinds of what I'll call tentacles, other arms of the illegal activity; correct.
Q Okay. Without going into who you may have been involved with those other tentacles of illegal activity with, if anyone, can you tell me what kinds of other illegal activity existed?
A Yeah. What I'll do is I'll give you general statements and then you can --
Q I'm looking for kinds, not specifics.
A We were involved in public corruption with politicians, we were involved in public corruption with law enforcement, we were involved in activities with mob related individuals, we were involved in activities involving the physical threats of other individuals. We were involved in the public corruption side of purchasing of political positions, we were involved in the manipulation of the judiciary.
Q Okay. Those very broad areas that you've just described, again without detailing specifically any instances.
A And those are I'm just saying, arms related to the Ponzi.
Q The tentacles that you described?
A I consider, for example, the check kiting and money laundering part of the actual Ponzi scheme different from what I just described to you.
Q Okay. The tentacles that you just described --
A Yes.
Q Did any of those illegal activities generate any proceeds to you apart from the Ponzi?
A Directly?
Q Yes or no?
A I'm just thinking, I want to give you a complete
answer. Directly, no.
Q Okay. Were any of those illegal activities of those tentacles that you just described done by you or others at your direction and in furtherance of the Ponzi
scheme?
A Almost all of them, almost all of them were done in furtherance of the Ponzi scheme.
Q Okay.
A In one way or another.
Q Okay. Now, you testified I believe this morning, and again I'm trying to do some follow-ups on some notes from this morning, that if T.D. had shut down your banking relationship that the Ponzi would have ended; do I recall your testimony correctly?
A Yes.
Q I believe also in answers to Mr. Scherer's questions on Monday you testified much to the same regard with Gibraltar Bank; do I recall your testimony correctly?
A Yes.
Q Why is it that you needed a bank, a financial institution, whether it was consistent with you or not, to complete your Ponzi scheme?
A Because the Ponzi scheme was based upon the extremely quick movement of huge sums of money. Without having a banking institution to effectuate the transfers and the movement and flow of money, we couldn't have done what we were doing. It would have been impossible.
Q Did any of your investors ever discuss the fact that they wanted their investments to flow through the banking system as a means of security?
A Yes.
Q And who of your investors said that and specifically what did they say; if you recall?
A Practically all of them wanted their -- I don't recall anyone saying you can keep the money in like a box.
Q Or in your credenza?
A Yes, in my credenza. And some of them actually tried to get me to utilize other banks, some said listen we have a banking relationship with XYZ bank, we want you to bank here and I would obviously create a scenario where that was not going to happen because the banking relationships were important to me, so everyone wanted me to be involved with a bank.
Q And you didn't want to switch banks from Gibraltar for example; why?
A Two reasons. Simple one, they were on board in the Ponzi scheme. Two, changing a banking institution
makes investors, unless they are requesting the change, makes investors hitch.
Q Now, in addition to running the Ponzi scheme through the law firm and perhaps some of these other tentacles you described, the law firm did have legitimate legal business; did it not?
A It absolutely did, yes.
Q In terms of the percentage of monies flowing through R.R.A. accounts at Gibraltar Bank, could you estimate what the percentage of those monies were attributable to legitimate legal work of the law firm?
A Taking into account the total sum of money flowing?
Q Yes, sir.
A Less than five percent.
Q Now, you've talked about a couple of terms during the course of your testimony over the past couple of days, one which was rock star lifestyle?
A Yes.
Q Now, what I may think of a rock star lifestyle and what you think of a rock star lifestyle may be different things. Tell me what you mean when you say rock star lifestyle.
A In its simplest terms it is the ability to do whatever you want whenever you want, wherever you want by whatever means you can think of. Chartering jets, not waiting in lines at any restaurant or any club, wearing the most expensive clothes, having access to the best clothiers, the best shoemakers, having access to the finest jewelry. Being able to shut down a store and bring your friends in and jewelry shop. And at concerts having backstage passes, being in the first row, first three rows of concerts, being on the floor at Heat games, box on the yard line at Dolphin Stadium.
If you just run the gamut of things like that, it's being close to famous people, being close to politicians, being close to the White House, being close to senators, it's this whole association with it that people could literally walk into a restaurant, into a facility a place like Capital Grill, for example, or the Versace Mansion, even before we had purchased it, purchased the interest in it, being able to walk in and say we're friends of Mr. Rothstein, he called ahead for us and getting a table and not waiting. That kind of thing.
Q Let's separate those - some of those sub areas of the rock star lifestyle, if you will, for a moment. Let's talk first about the association with politicians, prominent politicians, state, federal, local, national, whatever.
A Okay.
Q Was that trapping? Was this part of the rock star lifestyle where you would gain access to those politicians, was that important in furthering your Ponzi scheme?
A Absolutely.
Q Can you explain why to me?
A Sure, because the perception of power yields actual power. It's the closeness to these individuals, the ability to actually call them. Not to have your picture taken with them. It was the ability, for example, to be sitting in my office and contact the governor with a potential investor sitting in the office, just to chat or be able to have the governor call you when an important investor was in the room just to chat.
That led to an extreme sensation for the investor and for us of a significant amount of power. It added, most importantly, an air of legitimacy to our entire operation to R.R.A., to the investment strategy, and to all the other businesses we were doing for whatever reason, the public's general perception.
Even bright people's general perception is that if you're associating with politicians and associating with close to law enforcement, if you're associating with judges and the like, you must be legitimate.
Q And you just testified in response to that question about an example of a time where an investor might have been in and the governor or politician called you or vice versa. Would that happen with some regularity?
A Yes.
Q Did you take steps when ordering your investors to set up those kinds of communications?
A It's hard to answer that way. I didn't say okay, I have someone coming to a meeting so let me have so-and-so call, but I did have those people attend political functions with me and the like, whether it be a smoker or a boys' dinner where some prominent politicians were going to be there. A martini and smoker at my home where prominent politicians were going to be there. I did set those up for the purpose of increasing the level of our power and legitimizing us.
Q And was this air of legitimacy or patina as I recall the phrase you used as legitimacy?
A I used air, but patina is a nice word.
Q I'll use your -- was that air of legitimacy that you got from the political access, was that something that your investors commented to you about?
A Yes.
Q And without going into specific detail about what each may have said, give me a general gist of their comments in that regard.
A I was asked from time to time by certain investors if I could contact people on their behalf, on behalf of them or their children. I got one request to have an unnamed politician record a birthday message for somebody. It ran the gamut. I mean, yes, there was regular chatter about how close we were to the political hierarchy.
Q You also talked about in terms of another area of the rock star lifestyle your access to back stage passes and sky boxes and you know, courtside, whatever they call it down on the floor?
A Right.
Q At the Heat games?
A Right.
Q In terms of adding that air of power to you,were those events important to you in terms of furthering your Ponzi scheme?
A Absolutely.
Q Explain that; why?
A Several ways. One was it was a method of actually providing a reward to the people actually involved in the Ponzi, taking the bankers, the lawyers, the business people who were involved in the Ponzi to enjoy the finer things in life as part of the reward.
Q Talking about the reward program, we'll talk about the Scott Rothstein reward program in a minute. Focusing on the investors.
A Okay.
Q Was it important to you in furtherance of the Ponzi to provide that kind of an access to more entertainment related?
A Yes. You find that people do business with people they like. People do business with people they like spending time with. So, it's very -- it's much easier to sell an investment when you are in a relaxed atmosphere much like you would with a legitimate investment. That was important and it certainly legitimizes it, being at a football game, socializing and not even talking about the business at that point in time and letting the investor get to know you and the people that are around you makes in much easier to ultimately sell the investment without the intrusion of too many questions and too deep of due diligence.
Q Now, you also talked about some of the more material things that you were able to afford yourself and perhaps others --
A Yes.
Q -- as a result of the Ponzi scheme?
A Yes.
Q I believe you mentioned fine clothing, fine shoes, food, the finest restaurants. Were things like cars and watches that you previously described also included in there?
A Sure. Cars, watches, other jewelry, cufflinks, expensive pens.
Q Those types of things, the more material possessions, can you give me a ballpark of how much over the life of the Ponzi, you in terms of yourself, not anybody else, but that you purchased for yourself, ballpark for me?
A I would think somewhere in the neighborhood 100 or 150 million dollar.
Q That 100 and 150 million dollars, did you obtain the money by which you bought these material things out of bank accounts, at least in part at Gibraltar Bank?
A Yes.
Q Did those trapping material wealth, the cars, the watches, the pens, the cufflinks, the clothes and the shoes and et cetera, did those personal items to you provide any benefit to the legitimate business of a law firm?
A No.
Q Similarly, did your political access provide any benefit to the legitimate practice of the law firm?
A It was intended to, you know, I suppose the trappings, all the other things you described in the first question were intended to to some extent also because the ability to show the appearance of extreme wealth in a manner that appears to be legitimate and making you legitimate also would lead to the ability to achieve legitimate clients. But the bulk of it was illegitimate, so properly qualifying my first answer and the question you just asked me, it would be both, but obviously much more to a greater extent the illegitimate business.
Q In terms of -- Let's go over some basic Ponzi for me. In terms of securing an investor's money --
A Yes.
Q -- and getting them into the investment, did you take steps to convince an investor that his or her monies were going to be secure with you?
A Sure.
Q Tell me what kind of steps you would take to do that.
A First thing was having a solid banking relationship with a good, well-known bank, where the people in the bank would assist you in legitimizing you and making the investor feel safe.
The appearance of extreme wealth coupled with personal guarantees, the appearance of an extremely wealthy and profitable law firm coupled with law firm guarantees made investors feel extremely secure because the theory - and I actually had conversations with some of my co-conspirators about this was that all in all when people may have been squimish about a particular investment, they would look at us as a second source of recovery because we appeared to be extremely wealthy.
When I say we, I mean me and my partners and the firm, in general. So, all of that melded into the entire picture we were painting for people.
Q You said you had conversations with other of your co-conspirators with regard to the need to portray to investors that their money was secure?
A Sure.
Q Tell me who you spoke to and the substance of those discussions.
A I'll give you to the best of my recollection.
Q Of course.
A There were several conversations with David Boden. When David was looking, I was moving out of 2308, which was Ricky Williams' house into Isle of Bahia and David was talking about moving into the house and
renting it from me.
Q Into the one on Castilla --
A Into . We had discussions about it. I said listen, you go in there, I said, it's important for a lot of reasons. It would be great for you and your family, it's close to the office, I said, and I mean it's going to give you the air of just fantastic wealth and that's good for all of us.
That's a place you can entertain Mr. Pearson's, you know, investors, you know, as well as legitimate entertainment. That is the type of conversation we had.
Q And again, the Pearson you're referring to is the sub Ponzi, if you will, that you were referring to a couple days ago?
A Right. The Richard Pearson sub Ponzi. I had conversations all the time with Stu. I mean, Stu would comment to me -- I remember him, I had purchased a Ferrari for him for his birthday and one of the comments after he had it for a short period of time was that he felt it was easier in business because he all of a sudden had for whatever reason an increased level of respect because of the car he drove.
And we used to joke around about that, so that was another conversation I had with Mr.Rosenfeldt.
I probably had more conversations about the trappings of wealth and how it added to both legitimate and illegitimate business with Russ Adler because Russ was -- Russ chased the money, although he didn't achieve it in nearly as much of someone like a Rosenfeldt or a Lippman, but he chased the money as hard as anyone I had involved at any level. Even before he knew there was a Ponzi scheme, he would - how the hell are you guys making all this money, how the hell are you guys making all this money. That was a question Stu and I must have fielded that question a hundred times if we fielded it once.
I remember David Boden telling me, Russ won't leave me alone, he wants to know about your investments, and he wants to know where you're getting the money from. I said, go slow, you'll get there, piece by piece, and then as things started to come together and he started to learn what we were actually doing, we had deeper conversations. I used to joke around with him and tell him you need to get rid of that piece of shit car, you need to go buy a new car. If you want to get investors, you need a better car.
What are you dressed as? Rosenfeldt and I used to tease him. I mean, I dress kind of like that Willie Wonka. Don't say anything, Bill Scherer. You know, on occasion I would dress nicely at the bank, but on occasion I would, as my wife said, I looked like Willie Wonka in a very expensive suit.
Rosenfeldt and I used to tease Adler about what he wore. We used to say listen, you want to bring investors in, you're wearing that smuck -- I didn't say smuck, I said smocka. You know that rag, that's the type of conversations I had with Mr. Adler, you got to carry yourself better. Right down to the pen that he used.
Q As a matter of fact, did you ever give him a more personal shopping kind of him a more personal shopping experience?
A I gave Adler, Rosenfeldt, Boden, Lippman on occasion, I gave them all personal shopping experiences.
Q Now, let's go back to your investors. We kind of detoured off into the haberdashery word.
The investors, in addition to thinking their investments were going to be secure, was it also important for them to have some sense that they were really going to get a return on their profits?
A Absolutely.
Q How did you convince them that that was in fact going to happen?
A I had to convince them that the money was really there. We utilized fake bank statements, we used on-line fake bank statements, we used meetings with actual bankers like Mr. Harris and Mr. Spinosa and used past performance, past history with other investors and even when there was no past history we always had George Levin and Mr. Preve to pretend there was a past history to make sure people believed that it was a safe investment.
Q Now, in addition to the political contributions, I'll call the entertainment kind of things, sports and the concerts and whatnot and the clothing and the personal trappings of wealth, did you also use philanthropic contributions to raise that air of legitimacy, that patina of legitimacy?
A That's an interesting question. I've had this discussion with other people and initially and actually, personally, I didn't. I wanted to help these people, I wanted to give the money. It turned out that I was adding an air of legitimacy without really intentionally doing it. So, even when I first started, when I first came back from Morocco, without getting into too much detail, and discussing with certain people, I never looked at the charities that way.
I looked at the restaurants and the other businesses and all the other things and the politicians and the athletes and the like that way. I didn't look at the charities that way.
Q Now, did -- maybe an obvious question, but in order to further your Ponzi scheme and keep it alive, was it important to avoid, as you discussed before, BSA/AML questions and any other scrutiny by law enforcement?
A Absolutely.
Q We'll get into it in much more later, but what general steps did you take other than those we're going to discuss in terms of the bank, what other steps did you take to avoid law enforcement scrutiny; if any?
A I utilized law enforcement itself.
Q Without going into detail with regard -- strike that. Let me think about that one. I'll come back to that unless I draw an objection from Miss Stone. They were quiet through that entire time. I'm going to try to get them through that process without an objection.
A Okay.
Q Now, did any of your investors ever question the high rate of return that you were offering on the investments?
A Yes.
Q And when I'm talking about the investments, in this regard, I'm talking about the settlement scam.
A Yes.
Q What kind of questions did they ask?
A They were all around too good to be true genre of questions. How is this possible, how could you possibly return this amount of money, why would people want to give up that much money, that type of question.
Q You talked about rewards that you gave to people that were assisting you in furthering the Ponzi scheme?
A Yes.
Q We've talked about cash payments that you made to certain individuals at T.D. Bank; correct?
A Yes, that's correct.
Q With regard specifically to anyone involved with Gibraltar Bank, did you ever make a cash payment to anyone at Gibraltar Bank?
A Not that I recall.
Q Did you ever provide anyone at Gibraltar Bank with any form of compensation, non-monetary compensation, any reward, any perk?
A Yeah, I gave John Harris either one or two watches, couple of pairs of cufflinks. And then there was the rock star lifestyle as we're describing it, especially where John Harris was concerned, that was his main form of payment along with the promise of a high-paying job when he was ready to leave the bank.
Q Let's talk specifically about what kind of things you gave Harris and then we'll get into what he did for you afterwards.
A Sure.
Q First of all, you mentioned that you gave him one or two watches; is that correct?
A Yes.
Q Are we talking a Timex here or are we talking a Rolex; what are we talking?
A One that I know I gave him was a Rolex. I believe it was -- I believe it was the Yacht-Master stainless bracelet, platinum bezel. I believe that's the watch. He had seen me wearing one - and actually I recall buying more than one, I bought one for Steve Lippman also. I recall giving Mr. Harris a Rolex and there was another watch that he wanted to have and it was a vintage piece and I just don't remember what it was.
Q What are we talking about in terms of the cost of this Yacht-Master?
A Probably somewhere in the neighborhood of $20,000, maybe a little less.
Q How about the vintage watch?
A It probably was in excess of $20,000.
Q Now, the cufflinks, I mean, what are we talking about there?
A Those were expensive. I purchased most of my cufflinks at Bergdorf Goodman in New York, they have a section in the men's department that sells very unique, very expensive cufflinks, and it was not unusual to spend $2,500, to six or $7,000 for a single pair of cufflinks.
Q How many pairs of cufflinks did you --
A My recollection is it was two, three. I either gave him two and Tracy Weintraub three, or Tracy Weintraub two and him three.
Q Okay. And just so the record is clear who is Tracy Weintraub?
A He was a senior partner with Berenfeld Spritzer, our accountants, our CPAs.
Q Any other kind of tangible personal items that you gave to Mr. Harris that you can recall?
A I may have -- I have a vague recollection of purchasing him an expensive bottle of Louis XIII.
Q For those of us who are not spirits aficionados, what is that?
A Just a lovely spirit. Very expensive spirit, a bottle in one of the crystal decanters could be $10,000, 15,000, just depends upon the decanter and the size.
Q You testified previously that Harris enjoyed the rock star lifestyle with you; is that right?
A Almost more than anyone I was doing business with, yes.
Q And in terms of, for example, sporting events, how often would John Harris accompany you to sporting events at the level you have described in terms of the boxes and things like that?
A John was on our permanent list of guests for the Dolphins stadium. So he was invited to - he may have missed a game or two, but he was invited to every single Dolphin game that while I had those tickets he was always invited and he came to most of them.
Q That's tickets or a box?
A No, I had a suite. You get him a ticket though to get upstairs, but, yes, I had a suite. He came to a lot of Heat games with me. He took -- he never went with me to hockey games, I didn't like to go to hockey games, but we used to give him our hockey tickets.
And he's one of the people that traveled more extensively with me. He flew to New York with me and a bunch of the hedge fund guys for a Dolphins, I believe it was a Dolphins Jets game that we all flew up for. I think he flew on that, I think he was on that one. He flew on so many, honestly, it's very difficult to remember which ones he was on. I seem to remember him going to New York with us on a trip so there was a big lunch at Harry Cipriani's before and I remember him being there.
Then there was a couple of the big college games, like the BCS game or the national championship game, and he either came to one or both of those. He traveled extensively with us.
Q When you are talking about he would travel extensively with you on airplane flights, would these be commercial or private flights?
A No, you are talking about the charter of -- usually I chartered medium to heavy jets. So you're talking about a charter that costs, I mean you can look it up, I'm sure it's on the American Express bills or on checks, but you're talking about a charter that might cost 40,000, 50,000, 60,000 dollars with let's say 10 passengers. So, you're talking about a ticket that could run anywhere from 4,000 to 6,000 dollars a person plus food and drink.
Q Now, how often do you recall Mr. Harris taking one of these private jet flights with you to sporting events; more than 10?
A I don't think it's more than 10, it certainly could be, the fortunate thing for you there are records that will show all that, there's all the flight manifests. It was a lot. It was more frequent than the other banking people.
Q You mentioned at one point in time you recall Harris being on a flight with you to New York with some of the hedge fund guys, correct?
A I'm almost a hundred percent certain. I don't want to guess, Ms. Van Vliet, and I'm fairly certain he was with us on that trip, seems like a trip he would have gone with us on. I have to see the manifest or pictures to do it.
But there was one -- just so I can clarify for you, if he was on that trip, there were a bunch of hedge fund guys on the trip, meaning the Centurion, Platinum, Level 3 guys.
Q Okay.
A You know what, I may be getting this all jumbled. Here's the problem you're going to have with me questioning me about the particulars of this. I did so much of this rock star lifestyle thing with so many people involved in the Ponzi scheme that it's hard to piece who was where when, because now I just remembered that I took a bunch of guys to the Super Bowl. I think that hedge fund trip -- actually they may have been on both, the hedge fund guys may have been at the Super Bowl and the --
Q Well, in any event --
A And the Dolphins Jets game, I really have to see the manifest to tell you.
Q In any event, did you ever take Mr. Spinosa to the Super Bowl?
A I don't believe I did, no.
Q In any event, the manifest, the flight logs would show who the passengers were?
A Absolutely, that's the best way to do it.
Q Did you always charter your jets from the same company?
A Other than the couple times that I actually chartered Ted Morse's plane, I always chartered through I think , percent of the time I chartered through a guy named Mark Lasic (phonetic) with, I think it was Blue Star.
Q Now, in addition to sporting events, the private plane trips and things of that nature, did Harris also receive rewards in the way of free meals and things of that nature?
A Yes. John and I -- John spent a significant amount of time with me. He was invited to almost all of our what I'll call boys' nights. On Wednesday nights my friends and I would go out, we used to go out for an expensive dinner and then out drinking or to a gentleman's club or both. He was invited to most of those, he never had to pick up a tab. He may have tried to or actually did pick up a tab maybe for all of us on one or two occasions, but I would venture to say he ate dinner with me with them times, a hundred times, very frequently.
Q What kind of time period are we talking about here knowing that the Ponzi blows up on or about August 31, 09; how far back?
A I started entertaining John right from the beginning even before we had a banking relationship because before I went to Gibraltar I was already leaving a crappy relationship, just in general a crappy relationship with Colonial. And both on the legitimate and illegitimate side I wanted to have a good banking relationship where I was going. I remember at the time I started banking with Gibraltar it was the very earliest stage, pre settlement documents, pre anything in the Ponzi.
So, I started entertaining John right from the get-go and so it would be the entire span of the time, figure out when I started banking with Gibraltar, 2006, so it would have run '06 to '09.
Q We'll get to that in a second in the documents. Any other kind of large ticket items that you would have supplied Mr. Harris with in return for his --
A Large ticket items, escorts, expensive escorts.
Q When we're talking escorts we're talking in the common parlance, prostitutes?
A Yes.
Q And how often would that service be rendered to him?
A Generally, when we had boys' night or we had one of our boys' outings and myself or myself and Mr. Morris would supply escorts for the people that were going out with us, he would be included.
Q And would these -- would this happen on this every Wednesday night boys' night out?
A Not every Wednesday night. No, no, no. Not every Wednesday night.
Q All right.
A But I mean just so you have the whole picture of what was going on in this rock star lifestyle, there were many nights where after the boys, after we went out to dinner, a group of us might go to Solid Gold and John would enjoy the company of a lady there on our dime as well, on our tab. Escorts probably , escorts over the couple years.
Q Anything else you can think of?
A I bought him a couple suits from [Moda Mario]. Let's see what else. I can't think of anything else. If anything else pops into my head I'll let you know.