SEC charges two feeders in Rothstein Ponzi

The Securities Exchange Commission filed a complaint against two fundraisers for Scott Rothstein's Ponzi scheme today, two and a half years after the billion-dollar fraud imploded.

Multimillionaire businessman George Levin, pictured above with Rothstein, and his associate Frank Preve raised $157 million for scheme from 173 investors involved in their Banyon hedge fund, according to the SEC, and misled investors about the risk involved in purchasing what were bogus legal settlements from Rothstein.

Recommended Videos



Banyan promised that it would obtain documents that ensured the safety of the investments, according to the SEC, but "often purchased settlements from Rothstein without obtaining any documentation whatsoever."

The complaint also alleges the two men took on new investors after Rothstein failed to pay on previous bogus legal settlements. 

"Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the settlements Levin and his entities had purchased," the SEC alleges in the complaint. "They also failed to inform investors that Levin's ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein."

The charges are civil rather than criminal, meaning they carry no possible jail time. In the past, a company owned by Levin, Classic Motor Carriages, was hit with wire fraud charges after numerous complaints from customers and Preve had been convicted of bank fraud.

Here's the press release:

The SEC alleges that George Levin and Frank Preve, who live in the Fort Lauderdale area, raised more than $157 million from 173 investors in less than two years by issuing promissory notes from Levin's company and interests in a private investment fund they operated. They used investor funds to purchase discounted legal settlements from former Florida attorney Scott Rothstein through his prominent law firm Rothstein Rosenfeldt and Adler PA. However, the settlements Rothstein sold were not real and the supposed plaintiffs and defendants did not exist. Rothstein simply used the funds in classic Ponzi scheme fashion to make payments due other investors and support his lavish lifestyle. Rothstein's Ponzi scheme collapsed in October 2009, and he is currently serving a 50-year prison sentence.

The SEC alleges that Levin and Preve misrepresented to investors that they had procedural safeguards in place to protect investor money when in fact they often purchased settlements without first seeing any legal documents or doing anything to verify that the settlement proceeds were actually in Rothstein's bank accounts. Moreover, as the Ponzi scheme was collapsing and Rothstein stopped making payments on prior investments, Levin and Preve sought new investor money while falsely touting the continued success of their investment strategy. With their fate tied to Rothstein, Levin and Preve's settlement purchasing business collapsed along with the Ponzi scheme.

"Levin and Preve fueled Rothstein's Ponzi scheme with the false sense of security they gave investors," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "They promised to safeguard investors' assets, but gave Rothstein money with nothing to show for it."

According to the SEC's complaint filed in federal court in Miami, Levin and Preve began raising money to purchase Rothstein settlements in 2007 by offering investors short-term promissory notes issued by Levin's company - Banyon 1030-32 LLC. In 2009, seeking additional funds from investors, they formed a private investment fund called Banyon Income Fund LP that invested exclusively in Rothstein's settlements. Banyon 1030-32 served as the general partner of the fund, and its profit was generated from the amount by which the settlement discounts obtained from Rothstein exceeded the rate of return promised to investors.

The SEC alleges that the offering materials for the promissory notes and the private fund contained material misrepresentations and omissions. They misrepresented to investors that prior to any settlement purchase, Banyon 1030-32 would obtain certain documentation about the settlements to ensure the safety of the investments. Levin and Preve, however, knew or were reckless in not knowing that Banyon 1030-32 often purchased settlements from Rothstein without obtaining any documentation whatsoever.

Furthermore, the SEC alleges that Banyon Income Fund's private placement memorandum misrepresented that the fund would be a continuation of a successful business strategy pursued by Banyon 1030-32 during the prior two-and-a-half years. Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the prior settlements Levin and his entities had purchased. They also failed to inform investors that Levin's ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein.

The SEC's complaint seeks disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.