A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by other investors, rather than from any actual profits earned. In the case of Scott Rothstein’s alleged scam, the investors thought they were purchasing structured settlements from clients of his law firm, Rothstein Rosenfeldt Adler. Rothstein used the law firm to give him credibility as he persuaded many of South Florida’s elite to invest in his scheme. In some of the meetings, Rothstein used cases that were popular in the media to seduce investors into buying. He promised huge returns and zero risk. Shocking is the apparent lack of due diligence on the part of his investors, who seem to have just handed over their money with little to no research.
Most Ponzi Schemes collapse under their own weight, because eventually the payments to investors exceed the money the scheme is bringing in. The recent example of Bernard Madoff powerfully illustrates the ability of a Ponzi scheme to delude both individual and institutional investors, as well as authorities. Madoff’s Ponzi scheme stands as the largest case of investor fraud committed by a single person in history. Prosecutors estimate Madoff’s fraudulent take to total $64.8 billion. Scott Rothstein’s ill-gotten gains are estimated at $1.2 billion.