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SEC sues Broward hedge fund operators for Rothstein ties
By Palm Beach Business.com
FORT LAUDERDALE — The Securities and Exchange Commission is suing two Broward County hedge fund operators, alleging that they created two “feeder funds” that became the biggest source of capital for the billion-dollar scam pulled off by Scott Rothstein.
The suit, filed in federal district court in South Florida, alleges that George Levin, 71 of Fort Lauderdale and Frank Preve, 68 of Plantation took investors for more than $157 million by selling them interests in the Rothstein scam and falsely claiming that the investments were safe.
"Levin and Preve fueled Rothstein's Ponzi scheme with the false sense of security they gave investors," said Eric I. Bustillo, head of the SEC's Miami regional office. "They promised to safeguard investors' assets, but gave Rothstein money with nothing to show for it."
Scott Rothstein, now serving a 50-year prison sentence after pleading guilty to racketeering charges, was a founding partner in the once-high-profile Fort Lauderdale law firm of Rothstein, Rosenfeldt and Adler. According to court documents, Rothstein sold investors shares in pending lawsuit settlements. Rothstein told prospective investors that the firm’s clients had won confidential settlements worth thousands and sometimes millions of dollars but who needed loans in the meantime, and were willing to pay high rates to get them.
Problem was the settlements were inventions of Rothstein’s all too fertile imagination.
Enter Levin and Preve, operators of the Banyon Income Fund and the Banyon 1030-32 LLP.
According to the SEC's complaint filed in federal court in Miami, Levin and Preve began raising money to buy Rothstein settlements in 2007 by offering investors short-term promissory notes issued by Levin's company — Banyon 1030-32.
Banyon did well enough that in 2009, Levin and Preve formed a second fund, Banyon Income, so they could solicit more money from investors. Banyon Income invested exclusively in Rothstein's settlements.
The SEC alleges that the materials Levin and Preve gave prospective investors omitted some facts and misrepresented others. They told investors that they would obtain documentation about the lawsuit settlements to ensure the safety of the investments. Levin and Preve, however, never checked any of the settlements, according to the SEC.
Altogether, the two men allegedly scammed $157 million from 173 different investors, according to the SEC’s lawsuit.
The SEC is asking the court for an order forcing Levin and Preve to surrender any ill- gotten gains from the scam, undisclosed financial penalties, and an order barring the two from violating of the federal securities laws.
