Yep, another Ponzi has been exposed. Though not quite in Madoff's league, it is still a big one at $1.2 billion. One Scott Rothstein created a large 70-lawyer law firm in Florida where he used the scheme to buy influence. According to news reports, he made generous donations to political campaigns, owned "hundreds" of cars, homes, jewelry, watches and businesses. He used the faux wealth to hobnob with politicians, sports celebrities and support an extravagant lifestyle. When discovered, he got on a private jet and fled to Morrocco with $500,000 in cash after wiring $16 million to Casablanca.
While all this is interesting, I want to know how he did it. Early reports indicate that his law firm "fabricated employment discrimination and other civil settlements". In other words, because cases take a while to settle, a plaintiff can get paid sooner by selling their award. Say you spill coffee on yourself and successfully sue McDonalds for having hot coffee. The jury shows up drunk and you win a $1 billion award. Obviously, McDonalds is going to appeal and you aren't likely to get the whole $1B. So a law firm arranges for "investors" to pay you $15 million in exchange for whatever they can wring out of the appeal, naturally hoping McDonalds is willing to pay $25 or $50 million just to make the case, risk and publicity go away. (I'm making these numbers up, by the way. And I have no idea what cases Rothstein worked on; this is just an example).
Apparently, he fabricated the cases that investors "invested in" to build the ponzi scheme and had an army of lawyers helping out. To me, the moral of this story is that one should not "invest" in lawsuits. A lawsuit is not an "investment" in my not so humble opinion. People tend to see anything with an expected profit at the end as an "investment". To me, investments should be based on not just solid economic foundations, but also be related to something productive. Otherwise isn't it just gambling? Why not "invest" in the Saints winning the Superbowl? Or "invest" in the outcome of an election? As I've said many times, gambling is not investing.
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At least Ponzi himself had something that would pay real returns on a very small scale, for a while anyway. Totally unworkable at any significant size, but still.
ReplyDeleteNow we're into the realm of TV rackets. I see these ads for "I'll gladly pay you now for that money you expect to get over time" deals all the time. Why not invest in some of the others, or at least use them as semi-plausible engines for your own Ponzi scheme.
Ponzi scheme based on imagined returns from "Zero money down real estate investments!"
Ponzi scheme based on the difference between real value and the amount paid for "Send us your gold jewelry now!"
Any way you can see to base a Ponzi scheme on Sham-Wow sales?