EFTA01082728.pdf

Page I 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA 2 FORT LAUDERDALE DIVISION 3 CASE NO. 09-34791-RBR 4 5 6 IN RE: 7 ROTHSTEIN ROSENFELDT ADLER, III 8 Debtor. 9 10 11 Ft. Lauderdale, Florida 12 Monday, June 4, 2012 9:07 III. - 12:37 III. 13 14 15 2004 EXAMINATION 16 Of 17 SCOTT ROTHSTEIN 18 19 20 Examination of witness taken before: 21 Pearlyck Martin, FPR Friedman, Lombardi & Olson 22 23 24 25 FRIEDMAN LOMBARDI & OLSON EFTA01082728  Page 2 1 APPEARANCES: 2 BERGER, SINGERMAN, . by 3 Charles Lichtman, Esq. Paul Singerman, Esq. 4 Isaac Marcushamer, Esq. David Gay, Esq. 5 Attorneys for Trustee. 6 GENOVESE, JOBLOVE & BATTISTA, . by 7 John Genovese, Esq. Jesus Suarez, Esq. 8 Attorneys for the Trustee. 9 CONRAD & SCHERER, by 10 James Silver, Esq. Maxine Streeter, Esq. 11 Attorneys for Razorback Funding, LLC, D3 Capital Club & Other Investors. 12 13 FOX ROTHCHILD, LLP, by Heather Ries, Esq. 14 Attorney for Aran Development. 15 MCINTOSH SCHWARTZ, ., by 16 Robert McIntosh, Esq. Attorney for Iron Shore Indemnity 17 18 U.S. ATTORNEY'S OFFICE, by Laurence LaVecchio, Esq. 19 For the Government. 20 MARC NURIK, ., BY 21 Marc Nurik, Esq. Attorney for Scott Rothstein. 22 23 AKERMAN SENTERFITT, by Michael Goldberg, Esq. 24 Attorney for Official Commit to of Unsecured Creditors. 25 FRIEDMAN. LOMBARDI & OLSON EFTA01082729  Page 3 1 FURR & COHEN, ., by Robert Furr, Esq. 2 Attorney for Chapter 7 Trustee for Banyon 1030-32 and Banyon Income Fund. 3 STICHTER, RIEDEL, Et Al, by 4 Scott Stichter, Esq. Attorney for Robert Furr. 5 ALSO PRESENT: 6 Special Agent Guariglia 7 8 INDEX 9 10 WITNESS EXAMINATION FURTHER EXAMINATION 11 SCOTT ROTHSTEIN 12 (By Mr. Lichtman) 8 128 (By Mr. Singerman) 68 13 (BY Mr. Goldberg) 79 14 15 16 17 18 19 20 21 22 23 24 25 FRIEDMAN. LOMBARDI & OLSON EFTA01082730  Page 4 1 THE COURT: Let the record reflect this is 2 the Rule 2004 Examination of Scott Rothstein taken in 3 the case of Rothstein Rosenfeldt Adler, Case Number 4 09-34791-BKC-RBR. This particular examination is 5 taken pursuant to an order establishing second set of 6 protocols for Scott Rothstein's second deposition, 7 Docket Entry 3091 in the underlying RRA case. And 8 there are some other orders that are somewhat also 9 equally applicable as well. 10 If you'd please swear the witness. 11 Thereupon: 12 SCOTT ROTHSTEIN 13 was called as a witness and, having been duly sworn, 14 was examined and testified as follows: 15 THE WITNESS: I do. 16 MR. LICHTMAN: Okay. Thank you. 17 First, let the record reflect that we are 18 calling Mr. Rothstein as an adverse witness. 19 And the second thing I'd like to say is, 20 Scott, there are some areas of inquiry I'm going to 21 go through this morning on the 2004 Exam that we 22 touched on in the last Rule 2004 Exam in 23 December 2011. We are taking great pains to not be 24 repetitive, but there are some procedural reasons why 25 I need to ask certain limited areas of inquiry over FRIEDMAN. LOMBARDI & OLSON EFTA01082731  Page 5 1 again. 2 I think that you'll see that happen for the 3 most part only with respect to the Rule 2004 4 Examination, and with some luck over the course of 5 the next three weeks you will not see that happen. 6 To the extent that it does, it would probably be 7 minimal by various parties, but I think this is one 8 of the few instances. Okay? 9 THE WITNESS: Yes, sir. 10 MR. LICHTMAN: And what I think we'll next 11 do is take other appearances around the table. 12 MR. SINGERMAN: Good morning, Scott. I'm 13 Paul Singerman. I'm Chuck's law partner from Berger 14 Singerman. We are general counsel to Herbert 15 Stettin, the Chapter 11 Trustee. 16 Behind me and probably out of your line of 17 sight are our colleagues from Berger Singerman, Isaac 18 Marcushamer and David Gay. And at this moment I 19 would like to reflect on the record that regardless 20 of the attendance of more than two people from our 21 firm, the Berger Singerman firm will not be billing 22 the estate for attendance for the two lawyers at any 23 part of these proceedings. 24 Good morning, Scott. 25 THE WITNESS: Good morning. FRIEDMAN. LOMBARDI & OLSON EFTA01082732  Page 6 1 MR. GOLDBERG: Good morning, Scott. I 2 don't know how wide the angle is, if you see 3 everybody in the room. Michael Goldberg, I represent 4 the Creditor Committee, and I'll be asking questions 5 following Mr. Lichtman today. 6 MR. FURR: Good morning, I'm Robert Furr 7 THE WITNESS: Good morning, sir. 8 MR. FURR: I'm the Chapter 7 Trustee for 9 Banyon 1030-32 and Banyon Income Fund. 10 MR. SUAREZ: Good morning, I'm Jesus Suarez 11 with Genovese, Joblove and Battista. We are special 12 counsel, conflicts counsel for the trustee. 13 THE WITNESS: Good morning. 14 MS. RIES: Good morning, my name is Heather 15 Ries from Fox Rothchild, and I represent Aran 16 Development in one of the adversary proceedings. 17 THE WITNESS: Good morning to you. 18 MR. SILVER: Good morning, Scott. I'm Jim 19 Silver, I'm with the law firm of Conrad & Scherer. 20 We represent Razorback Funding and other victim 21 creditors. And specifically when we take your 22 deposition this afternoon, we'll be representing 23 seven individuals and entities who are part of the 24 Razorback victim group, specifically Viceroy Global 25 Investments, Inc., Concorde Capital, Inc., FRIEDMAN. LOMBARDI & OLSON EFTA01082733  Page 7 1 Associates, Harvey Wolinetz, Jacob Mussry, Nassim 2 Mussry and Scott Morgan. And with me today is my 3 partner, Maxine Streeter. 4 THE WITNESS: Good morning. 5 MR. MCINTOSH: Good morning, Scott. My 6 name is Robert McIntosh, I represent Iron Shore 7 Indemnity, one of the insurers in the 1030-32 Banyon 8 case. 9 THE WITNESS: Good morning. 10 MR. GENOVESE: Good morning, Scott. John 11 Genovese, Genovese Joblove and Battista, special 12 litigation counsel for Herb Stettin. 13 MR. LICHTMAN: A quick note. 14 MR. LAVECCHIO: For the record, Lawrence 15 LaVecchio on behalf of the United States. 16 MR. LICHTMAN: Oh, yes. Can't forget him. 17 Quick note, the reason that certain people 18 are here today, like Aran Development and the 19 insurers, as an example -- well, the insurers are 20 part of the committee, but certainly Razorback, is 21 that they'll be asking you questions in the Rule 7030 22 depositions. The transcript from today will be 23 posted on the trustee's website, I'm going to guess 24 in the early evening today. And because it's 25 conceivable that there are questions that are being FRIEDMAN. LOMBARDI & OLSON EFTA01082734  Page 1 asked this morning and early afternoon that could be 2 relevant to their lines of inquiry and they won't 3 have daily copy because they'll be asking questions 4 subsequent to this deposition, that's why they are 5 there. 6 The deposition room will be filled with 7 much fewer people after today, except for what I 8 believe is the insurers' litigation, that will be the 9 last two days of the deposition. 10 Before we get started, Scott, do you have 11 any questions? 12 THE WITNESS: No, I'm good to go. 13 EXAMINATION 14 BY MR. LICHTMAN: 15 Q. Okay. Even though we know who you are, 16 please state your name for the record. 17 A. Scott W. Rothstein. 18 Q. Your date of birth? 19 A. June 10, 1962. 20 Q. Where did you grow up? 21 A. Bronx, New York. 22 Q. When did you move to South Florida? 23 A. 1976. 24 Q. Did you go to high school in the Bronx or in 25 South Florida? FRIEDMAN. LOMBARDI & OLSON EFTA01082735  Page 9 1 A. South Florida. 2 Q. What high school did you graduate? 3 A. Woody Anderson. 4 Q. What year? 5 A. Graduated high school in 1980. 6 Q. Okay. And then you went to college? 7 A. I did so. 8 Q. Where to? 9 A. University of Florida. 10 Q. And did you graduate? 11 A. I did. 12 Q. What year? 13 A. 1984. 14 Q. What was your degree in? 15 A. Criminal justice, bachelor of arts. 16 Q. Did you graduate with any honors? 17 A. I did not. 18 Q. Okay. Following University of Florida 19 undergrad, you then went to law school? 20 A. I did, sir. 21 Q. Where at? 22 A. Nova. 23 Q. And what year did you start? 24 A. Must have been -- I graduated in '88, so 25 must have been end of '84, beginning of '85. FRIEDMAN. LOMBARDI & OLSON EFTA01082736  Page 10 1 Q. So what did you do between the years that 2 you graduated college and the year that you started 3 law school? 4 A. I had about nine months off. I worked at 5 the Brahman automobile dealerships. 6 Q. All right. When you were in law school, was 7 there a particular emphasis in classes that you took? 8 A. Trial work. Other than that, no. 9 Q. Did you have any other education, formal 10 education besides Bar seminars? 11 A. No, sir. No, sir. 12 Q. What State Bars are you admitted to? 13 A. Florida. 14 Q. What year were you admitted? 15 A. 1988. 16 I'm no longer admitted, by the way. 17 Q. Yes, I understand you've been disbarred, 18 correct? 19 A. Yes. 20 Q. And that was also voluntary, as I recall, 21 correct? 22 A. I actually resigned and then they disbarred 23 me, yes. 24 Q. Okay. When you graduated law school we 25 are going to do this very quickly -- where did you FRIEDMAN. LOMBARDI & OLSON EFTA01082737  Page I I 1 work? 2 If you can just give me the names of the 3 places very quickly. 4 A. Sure. Let me give it to you in a straight 5 line. In law school and then right after, Gunther and 6 Whitaker. Right after that, the law firm Kaplan, 7 Kusnick and Rothstein. That firm then changed Kaplan, 8 Kusnick, Rothstein and Salomon. Then Kusnick, 9 Rothstein and Salomon. Then Kusnick Rothstein. Then 10 Scott W. Rothstein, . Then Phillips, Eisinger, 11 Koss, Kusnick, Rothstein and Rosenfeldt. Then 12 Rothstein Rosenfeldt. Then Rothstein, Rosenfeldt, 13 Dolin and Pancier, and then Rothstein Rosenfeldt 14 Adler. 15 Q. Okay. What type of law did you practice 16 immediately after law school when you were at Gunther 17 Whitaker? 18 A. Mostly Section 1983 civil rights stuff, some 19 general insurance litigation, construction, that kind 20 of stuff. But the bulk of my practice was with Bobby 21 Schwartz doing Section 1983 defense work. 22 Q. Did that change in terms of the nature of 23 your practice as time went on? 24 A. Yes. Eventually I did -- there was a period 25 of time when I did personal injury plaintiffs and then FRIEDMAN. LOMBARDI & OLSON EFTA01082738  Page 12 1 the emphasis went to labor and employment law. 2 Q. When would you say that your practice area 3 migrated over to labor and employment law? 4 A. It happened while I was in Scott W. 5 Rothstein, . I do not remember the year. 6 Q. Did you become certified with the Florida 7 Bar? 8 A. No, sir. 9 Q. How much of your practice would you say was 10 labor and employment from the time that you were 11 with -- when you formed your own . to and through 12 and including the time that you were at RRA? 13 A. It varied. Anywhere from 60 to 80 percent. 14 It just depended upon the time period. 15 Q. And what would you say in that time period 16 the rest of your practice was focused on? 17 A. A myriad of things. It was -- it was 18 everything, Chuck. 19 Q. Okay. 20 A. All different types of litigation. 21 Q. Commercial, business litigation? 22 A. Commercial, yes. 23 Q. Torts? 24 A. Yes, sir. 25 Q. Including personal injury? FRIEDMAN. LOMBARDI & OLSON EFTA01082739  Page 13 1 A. Yes. 2 Q. Okay. 3 A. Yes. 4 Q. What year did you marry Kim? 5 A. I actually don't recall 6 Q. Are you still married? 7 A. I am. 8 Q. Okay. 9 A. Maybe not after that answer, but I am. 10 Q. Glad to see that you still have your sense 11 of humor. 12 What led you to forming RRA in its first 13 iteration or name which was -- I think you said it was 14 Rothstein Rosenfeldt? 15 A. Stu and I were in conflict with one of the 16 partners at Phillips Eisinger, Gary Phillips. We 17 decided to break off and form our own firm. 18 Q. Briefly, what was the nature of the 19 conflict? 20 A. They were accusing us of impropriety and we 21 were accusing them of impropriety. 22 Q. Was there impropriety on either or both 23 sides? 24 A. Both sides. 25 Q. What was your impropriety? FRIEDMAN. LOMBARDI & OLSON EFTA01082740  Page 14 1 A. We were taking money that didn't belong to 2 us, and they were taking money that didn't belong to 3 them. 4 Q. Okay. So then you formed RRA? 5 A. That's correct. 6 Q. How many lawyers were there in the firm when 7 you first founded it? 8 A. Somewhere -- approximately seven. 9 Q. Who were the shareholders? 10 A. Stuart Rosenfeldt and myself. 11 Q. By "shareholders" I mean those that actually 12 owned the equity of the . as opposed to being 13 shareholders in name, which I know occurred at RRA. 14 It would be Stuart and you? 15 A. That's correct. 16 Q. All right. And when was that? 17 A. I don't remember the year we were formed. 18 Q. Safe to say that it would be roughly 2002, 19 2003? 20 A. I'd be guessing, Chuck 21 Q. Okay. Don't guess. 22 MR. NURIK: Chuck, are we talking about RRA 23 or one of the predecessor firms? 24 MR. LICHTMAN: Well, I'm talking about RRA 25 because my belief is that the entity that Scott FRIEDMAN. LOMBARDI & OLSON EFTA01082741  Page IS 1 formed with Stu went simply through name changes as 2 opposed to dissolving and reformulating them. 3 Would that be a fair statement, Scott? 4 THE WITNESS: That's correct. 5 BY MR. LICHTMAN: 6 Q. Okay. And to be sure, it was a Florida 7 professional association? 8 A. Yes, sir. 9 Q. The other roughly five people that formed 10 RRA with you, I'm going to refer to it as RRA even 11 though it wasn't titled RRA at the very beginning. 12 Did they have any titles such as partner or 13 shareholder? 14 A. The other people that formed it with us? 15 Q. That joined the firm when Stuart and you 16 formed it. Forgive me if I was imprecise. 17 A. No, that's okay. 18 Dolin and Pancier were considered 19 shareholders at that time. 20 Q. Okay. What was the nature of the practice 21 when it first formed? 22 A. Labor and employment. The bulk of our 23 practice was labor and employment at that time. 24 Q. Now, we are going to make a leap and we are 25 going to start talking about the Ponzi scheme a little FRIEDMAN. LOMBARDI & OLSON EFTA01082742  Pagc 16 1 bit, okay? 2 A. Okay. 3 Q. All right. 4 A. Yes, sir. 5 Q. When did the Ponzi scheme begin? 6 A. There's really not a precise date for the 7 Ponzi scheme because it started out in the form of 8 what we refer to as bridge loans, where we were 9 borrowing money and paying it back with exorbitant 10 interest. 11 Q. Right. Do you agree that was in 2004 or 12 perhaps earlier? 13 A. That would be approximately correct. 14 Q. What is there that would refresh your 15 recollection, or what documents if I were to look 16 at -- do you recall your first bridge loan? 17 A. I don't recall the first one, but all you 18 need to do is find in our records the original 19 promissory note to whoever we did the first bridge 20 loan with, and that would be it. 21 Q. You would agree then that bridge loans were 22 the genesis, really the first acts of the Ponzi 23 scheme? 24 A. Yes. 25 Q. Okay. How long did you do the bridge loans FRIEDMAN. LOMBARDI & OLSON EFTA01082743  Page 17 1 for, approximately? 2 A. On and off we did them consistently through 3 the entire Ponzi scheme in some form or another. The 4 bulk of it would have been the first couple of years 5 before. 6 What you need to do is just look at the 7 documents, Chuck, and see the first time we did a deal 8 with Preve, Levin and Banyon. Everything before that 9 would have been -- should have been, to my 10 recollection, bridge loans. 11 Q. Was there a point where the Ponzi scheme 12 changed in nature or scope so that it became founded 13 on other types of transactions? 14 A. Yes. 15 Q. Would you describe that for me, please? 16 A. At some point in time I was introduced to 17 George Levin by Howard Gruverman. Through Levin I met 18 Mr. Preve, Frank Preve. I pitched Mr. Levin and Preve 19 the whole settlement, fraudulent settlement deal. I 20 pitched it as a real deal. Mr. Levin invested and it 21 was at that point in time that we began selling the 22 fraudulent settlements. 23 Q. How did you come up with the idea of the 24 fraudulent settlements? 25 A. I don't recall the exact genesis, Chuck. It FRIEDMAN. LOMBARDI & OLSON EFTA01082744  Pagc 18 1 was me thinking of some way to justify taking this 2 money. 3 Q. Is it a fair statement that it was your 4 idea, though, as opposed to somebody planting the seed 5 of the idea in your mind? 6 A. No, it was completely my idea. 7 Q. Okay. If I understand your testimony, 8 Mr. Levin and Preve, at the time that you first 9 solicited them for those settlement deals, did not 10 know that there was -- that they were false deals, 11 that they were fictitious transactions, correct? 12 A. That's correct. 13 Q. Did Gruverman at any point in time 14 participate in the Ponzi scheme? 15 A. He did. 16 Q. What was his role? 17 A. He invested in the deals. 18 Q. As an investor, correct? 19 A. Correct. 20 (Thereupon, Mr. Stichter entered the room.) 21 BY MR. LICHTMAN: 22 Q. Did he know that the deals were fictitious? 23 A. At first, no. I'm not sure whether he 24 actually ever did or not. I don't have a specific 25 recollection. FRIEDMAN. LOMBARDI & OLSON EFTA01082745  Page 19 1 Q. For the record, because the issue of Levin 2 and Preve was covered in such depth in December, I'm 3 not going into that. I don't want you to think that 4 I'm ignoring it, it's just that it's been covered, 5 okay? 6 A. Yes, I understand. 7 MR. LICHTMAN: And we have somebody else 8 who just showed up for the deposition, if we can get 9 an appearance, please? 10 MR. STICHTER: Scott Stichter. 11 MR. LICHTMAN: Representing? 12 MR. STICHTER: Robert Furr. 13 MR. LICHTMAN: Okay. 14 THE WITNESS: Sorry, representing who? 15 MR. LICHTMAN: Robert Furr. 16 MR. FURR: The Chapter 7 trustee for Banyon 17 entities. 18 THE WITNESS: Thank you. 19 MR. SINGERMAN: Did you hear that, Scott? 20 THE WITNESS: I did. Thank you. 21 BY MR. LICHTMAN: 22 Q. So, describe for me generally how you grew 23 the Ponzi. 24 A. I guess the simplest way to explain it is, I 25 started doing deals with Levin at -- just with Levin. FRIEDMAN. LOMBARDI & OLSON EFTA01082746  Pagc 20 1 There were no outside investors, to my knowledge. 2 Q. When you say doing deals, meaning that -- 3 Scott, when you say that you were doing deals with 4 Levin, you mean that he was putting in his money and 5 thinking that they were settlements and that was the 6 cash that was generated for the Ponzi as opposed to 7 him -- 8 A. That's correct. 9 Q. Right -- as opposed to him having investors 10 at that time, correct? 11 A. Yes. To my knowledge it was all his money 12 in the beginning. And then as time went on and the 13 Ponzi scheme grew, we turned into settlement packages, 14 which I believe is the documents that you guys are 15 calling the deal documents. 16 Q. The settlement packages, those were 17 formulated by Mr. Preve and you; is that correct? 18 A. That is correct, sir. 19 Q. Okay. Again, I'm going to state this from 20 time to time on the record, just so it's clear. This 21 is an area that was covered at length before so we are 22 not going to delve into it much more. 23 What I'm trying to accomplish, Scott, is to 24 get some broad-brush paint stroke issues out of the 25 way, tell the story a little bit without delving into FRIEDMAN. LOMBARDI & OLSON EFTA01082747  Page 21 1 all the detail that's been covered. Got it? 2 A. I understand, Chuck. Thanks. 3 Q. Okay. Did the Ponzi scheme in any way 4 continue to grow after Levin and Preve, who we'll call 5 Banyon also, started doing investments with you? 6 A. Did it continue to grow? 7 Q. Yes. 8 A. Yes, it did. 9 Q. How? 10 A. Eventually it got to the point where Levin 11 and Preve thought we could go to outside investors and 12 sell the product. 13 Q. Do you recall 14 A. Which we did. 15 Q. Do you recall approximately when that was? 16 A. I don't recall the date. No, sir. 17 Q. There were some other -- 18 A. You can tell -- I'm sorry, you can tell 19 based upon the deal packets. 20 Q. There were some other feeders -- 21 MR. SILVER: Can we hear the rest of the 22 answer? I'm sorry. 23 MR. LICHTMAN: I think I interrupted you. 24 I apologize. 25 THE WITNESS: Yes, you can tell the exact FRIEDMAN. LOMBARDI & OLSON EFTA01082748  Page 1/ 1 date of what investor came in by simply looking at 2 the deal packets, with one exception. You have to 3 look at the Levin records to determine whether or not 4 he was bringing in investor money unbeknownst to me. 5 Because there were points in time during the Ponzi 6 scheme where I believed that Levin was investing his 7 own money when in reality he had a large number of 8 private investors whose money he was investing. 9 BY MR. LICHTMAN: 10 Q. The basis for that belief is what? 11 A. I was told. 12 Q. By whom? 13 A. By Mr. Preve. 14 Q. Describe your understanding of the 15 relationship between Preve and Levin. 16 A. Levin was the owner of the company and Preve 17 acted as the man basically running the business on the 18 day-to-day basis. 19 Q. When you say the business -- 20 A. CFO, COO. 21 Q. When you say "the business," meaning the 22 business that Mr. Levin was engaged in as part of 23 Banyon? 24 A. Yes. 25 Q. Did you view them as partners? FRIEDMAN. LOMBARDI & OLSON EFTA01082749  Pagc 23 1 A. And most of his other businesses. 2 Q. Okay. 3 A. I really couldn't 4 Q. I'm sorry. 5 A. Go ahead, Chuck. 6 Q. Did you view Levin and Preve as partners? 7 A. At times I did and at times I didn't. For 8 the most part, no. 9 Q. Okay. There were other people that brought 10 money into the Ponzi scheme as well, other feeders, 11 correct? 12 A. That's correct. 13 Q. Can you give me some of their names? 14 A. Do you want the names of the individual 15 investors or do you want the names of the umbrellas 16 that brought in the bulk of the funds? 17 Q. Yes, the umbrella, the principals of the 18 feeders. 19 A. All right. There was the New York hedge 20 fund, that would have been Centurion, Platinum and 21 Level 3. That was all under the Levin-Banyon-Preve 22 umbrella. There was the Szafranski Group, that would 23 have been Sochet, Damson, Coquina, Mel Klein, those 24 guys. Other investors that I didn't know, Szafranski 25 was bringing in. Same thing with Levin-Banyon FRIEDMAN. LOMBARDI & OLSON EFTA01082750  Page 24 1 umbrella. Lots of people that I didn't know were 2 being brought in. 3 There was the, what I'll call the Clockwork 4 umbrella, which it's called at this time Razorback, 5 since that's what you guys have called it in the 6 litigation, the Razorback umbrella. I'm not really 7 sure even as I sit here today who brought them in 8 because lots of different people were trying to take 9 credit for the Von Allmen Group and Bekkedam and the 10 like. Actually, Bekkedam was trying to take credit 11 for Von Allmen. Levin tried to take that credit for 12 them. That was a very confusing umbrella. 13 Then there was the Boden/Pearson umbrella. 14 They had what's commonly now referred to as the 15 subPonzi going. 16 Q. Just for one moment I want to go back to the 17 Clockwork, Razorback, Bekkedam, Von Allmen. 18 You used the phrase a moment ago that 19 everybody was trying to take credit. Who do you mean 20 by that, "take credit"? 21 A. Von Allmen was I guess what you would call a 22 big fish. He had access to a lot of his own money and 23 certainly gave the appearance of having access to a 24 lot of other potential large investors. And it was a 25 constant source of battle between Bekkedam, Levin, FRIEDMAN. LOMBARDI & OLSON EFTA01082751  Pagc 25 1 A.J. Discala, as to who brought Von Allmen in. 2 Q. What would be the advantage -- 3 A. As a matter of fact -- hang on a second. As 4 a matter of fact, Von Allmen and Barry Bekkedam, were 5 at one time friends. If you look at all the 6 correspondence you'll see that they had a falling out 7 over this whole thing. 8 Q. What would the advantage be to somebody 9 wanting to take credit with you for bringing in people 10 into the Ponzi, was it ego or fee or what was it? 11 A. A combination. Some ego, but mostly the 12 fact that I tended to give the very higher interest 13 deal to the people who were bringing the most money to 14 the table. 15 Q. Okay. So speaking of bringing money to the 16 table, do you know how much money actually circulated 17 through the Ponzi during its lifetime? 18 A. I can give you a guesstimate now based upon 19 what I've heard from my last testimony, what I've 20 read. 21 Q. Based upon your best estimate as the 22 principal that ran the Ponzi scheme, tell me what you 23 understand the amount to be. 24 A. In the neighborhood of $2 billion. And 25 that's with recirculating money back and forth. FRIEDMAN. LOMBARDI & OLSON EFTA01082752  Page 26 1 Q. Now, I know you would agree that the 2 interest rates that were provided on these 3 transactions were definitionally we'll call it 4 usurious. Would you agree to that? 5 MR. SILVER: Objection to form. 6 BY MR. LICHTMAN: 7 Q. Do you have an understanding as to Florida 8 usury law? 9 A. Somewhat. 10 Q. You agree that the transactions that you 11 entered into all were above 25 percent per annum as an 12 interest rate? 13 MR. SILVER: Objection to form. 14 THE WITNESS: Yes, far in excess. They ran 15 into 70, 80 percent, all the way up to 600 plus 16 percent. 17 MR. LICHTMAN: What was the basis of your 18 objection, Jim? 19 MR. SILVER: The use of the term "interest 20 rates" is vague and also calls for a legal 21 conclusion. And also presupposes that these were 22 loans as opposed to investments. 23 MR. LICHTMAN: Okay. 24 BY MR. LICHTMAN: 25 Q. Did you have an exit strategy for the Ponzi FRIEDMAN. LOMBARDI & OLSON EFTA01082753  Page 27 1 scheme? 2 A. Yes. 3 Q. Describe that, please. 4 A. We were investing Ponzi money in legitimate 5 businesses and the idea was to sell the legitimate 6 business to pay off the investors. 7 Q. Would examples of that include, for 8 instance, Jewel River Cruises, Casa Casuarina, Qtask 9 among others? 10 A. Yes, sir. 11 By the way, Chuck, just so you are clear. 12 Q. Yes. 13 A. That $2 billion number that I gave you 14 earlier 15 Q. Yes. 16 A. Okay -- that's that information I got from 17 all of you guys, that's not my number. That's a 18 number that people kept repeating during my last 19 deposition, that lagged over a 10-day period of time. 20 Q. Then just for a moment let me go back to 21 that and then we'll come back to the exit strategy. 22 A. Sure. 23 Q. Did you have a number that you believed from 24 your experience in handling the Ponzi, that you 25 thought was the sum of money that was recirculated FRIEDMAN. LOMBARDI & OLSON EFTA01082754  Page 28 1 through the Ponzi? 2 A. With all money in total, including the 3 monies we were stealing through the fake bonds and 4 everything else to support the Ponzi, I believed it 5 was in the neighborhood of a billion dollars or less. 6 Q. When you say "fake bonds," what do you mean? 7 A. There was money that we were stealing from 8 various individuals. In this particular case I'm 9 talking about the Morses, Ted and Carol Morse, to the 10 tune of about $58 million at its height that I include 11 in that number. 12 Q. Did you have any fake bonds as it pertained 13 to Silversea Cruises? 14 A. No. The answer to the direct question is 15 yes, with the following caveat. The CEO of the 16 company knew they were fake. 17 Q. The CEO being Albert Peter? 18 A. Correct. 19 Q. Okay. We have a deposition scheduled 20 tomorrow on Albert Peter and Silversea Cruises, so I'm 21 going to defer on that until tomorrow to make best use 22 of the time today. 23 A. Very good. I think I'll be here tomorrow. 24 Q. With respect to the exit strategy, though, 25 tell me what your thought was, as an example, on FRIEDMAN. LOMBARDI & OLSON EFTA01082755  Page 29 1 Qtask. If you can be specific. 2 A. Sure. The way I was sold Qtask by the two 3 main partners there, Mr. -- what's his name Wolfgang, 4 Von Wolfgang, Von Wolfsheild. 5 Q. Reichart Von Wolfsheild? 6 A. I was pretty close. And Russell Mix. And 7 then the way I was sold it by two people from my firm, 8 Russell Adler and Rob Buschel, was that this was 9 groundbreaking technology, that it would eventually be 10 worth a fortune, and hence my decision to invest in 11 it. I hoped that down the road we would be able to 12 sell it and cash out all the Ponzi investors. 13 Q. Would it be a fair statement that you wanted 14 to buy some of these side businesses, such as Qtask, 15 because the Ponzi had created a lot of debt and what 16 you were hoping was that all these side businesses 17 would help you buy your way out of the Ponzi? 18 A. Yes, sir. 19 Q. So would you then agree that these 20 businesses that you bought were not for RRA's benefit 21 but for your benefit in terms of trying to close down, 22 shut down the Ponzi? 23 A. That's correct, that was their main purpose. 24 Q. Okay. Let me migrate then to the, we'll 25 call it, the toys. And by toys I'll include in that FRIEDMAN. LOMBARDI & OLSON EFTA01082756  Page 30 1 realm, houses, jewels, cars, things of that nature. 2 Got it? 3 A. Okay. 4 Q. Okay. Would you agree with that? 5 A. Yes, sir. 6 Q. Would you agree that the toys existed to 7 help in a sense, aside from having toys, promote you 8 to give your investment business a vestige of success 9 and respectability? 10 A. Yes, sir. 11 Q. Would you agree that those toys really had 12 nothing to do with RRA except that you took money from 13 RRA accounts to buy those toys? 14 MR. SILVER: Objection to form. 15 THE WITNESS: Yes, sir. 16 MR. LICHTMAN: What's the objection? 17 MR. SILVER: Well, when you say "RRA 18 accounts," there were numerous accounts, some were 19 actually operating accounts with RRA's legitimate law 20 firm revenue, others were trust accounts with stolen 21 investor funds. So your question is vague. 22 BY MR. LICHTMAN: 23 Q. Would you agree that the accounts that were 24 titled with RRA were under your control, for the most 25 part? FRIEDMAN. LOMBARDI & OLSON EFTA01082757  Page 31 1 MR. SILVER: Objection to form. 2 THE WITNESS: They were all under my 3 control and Stu Rosenfeldt's control, that's correct. 4 BY MR. LICHTMAN: 5 Q. And you commingled funds out of those 6 accounts as well? 7 MR. SILVER: Objection to form. 8 THE WITNESS: Yes, tremendously. 9 MR. SILVER: I didn't hear the answer. 10 MR. SINGERMAN: Could you repeat your 11 answer? You said yes -- 12 THE WITNESS: Yes, tremendously. 13 BY MR. LICHTMAN: 14 Q. And that when you needed money for one idea, 15 regardless of what it was, whether it was to pay an 16 investor or to buy a toy, as an example, you would get 17 the money from whatever account had the money in it at 18 that particular point in time? 19 A. Yes. I had someone within RRA move it to 20 where I needed it and then I took it. 21 Q. And I assume that was Ms. Villegas? 22 A. No, Ms. Stay. 23 Q. Ms. Stay, okay. 24 And also, from time to time, when needed, 25 you would go into any of those accounts to fund FRIEDMAN. LOMBARDI & OLSON EFTA01082758  Pagc 32 1 operating expenses of the firm? 2 MR. SILVER: Same, objection to form. 3 MR. LICHTMAN: Meaning RRA. 4 THE WITNESS: That's correct. 5 MR. LICHTMAN: One second, Paul I mean, 6 Scott. 7 Can you read back my last question? 8 (The question was thereupon read by the 9 reporter as above recorded.) 10 BY MR. LICHTMAN: 11 Q. I just wanted to make the question more 12 clear. 13 From time to time as RRA needed money for 14 its operations, did you take funds from any of the RRA 15 related operating or trust accounts, whichever 16 accounts had the money, to fund RRA operating 17 expenses? 18 A. Yes. 19 Q. Okay. You agree then that you intended that 20 in terms of the Ponzi scheme you were the principal 21 beneficiary of the Ponzi scheme? 22 A. Yes, sir. 23 Q. Do you agree that to the extent that if 24 anyone else ever got something of value out of the 25 Ponzi scheme is because you needed them to do FRIEDMAN. LOMBARDI & OLSON EFTA01082759  Page 33 1 something to help assist in connection with the Ponzi 2 scheme? 3 A. Can you repeat that question, Chuck? 4 Q. Do you agree that to the extent that anyone 5 else got money out of the Ponzi, got something of 6 value out of the Ponzi scheme, it's because you got 7 them that item, that value, whatever it was, because 8 you needed them to help you in the Ponzi scheme? 9 MR. SILVER: Objection to form. 10 THE WITNESS: Your answer is correct for 11 the large percentage of the money that I spent, but 12 it's incorrect with regard to, for example, gifts 13 that I bought people or I spent money that had 14 nothing to do with the Ponzi scheme. 15 And I guess Stu Rosenfeldt, because I 16 wasn't trying to get Stu to do anything specifically. 17 Although I suppose the giving of the money to him 18 did, in fact, whet his appetite for allowing the 19 Ponzi to continue, so you can relate it that way. 20 But the answer to your question is, the 21 bulk of the money was always related to the Ponzi 22 scheme. Gifts, toys, etcetera related to the Ponzi 23 scheme. 24 BY MR. LICHTMAN: 25 Q. Indeed with respect to Stu Rosenfeldt, he FRIEDMAN. LOMBARDI & OLSON EFTA01082760  Pagc 34 1 was a signatory on most, if not all, of the RRA 2 related trust and operating accounts, correct? 3 A. That's correct. 4 Q. And do you agree that one of the aspects of 5 establishing the legitimacy of those accounts and 6 continuing the Ponzi scheme was having his name on 7 those accounts? 8 A. Yes, sir. 9 Q. Do you agree also that if something enhanced 10 RRA, we'll call it political contributions or 11 influence, may be even exorbitant salaries, that the 12 ultimate purpose of those items was to enhance RRA so 13 you can run the Ponzi scheme and then loot it, loot 14 RRA? 15 A. Yes. 16 Q. When did the Ponzi scheme begin to fail? 17 MR. NURIK: Chuck, I think you need to 18 rephrase that question since by definition it fails 19 when it begins. 20 MR. LICHTMAN: Okay, that would be true. 21 BY MR. LICHTMAN: 22 Q. At what point in time did you come to 23 realize that things were getting increasingly 24 difficult to maintain, the Ponzi scheme, and that it 25 was about to we'll call it explode and be revealed? FRIEDMAN. LOMBARDI & OLSON EFTA01082761  Pagc 35 1 A. There were a multiple -- there were multiple 2 times when that occurred. It occurred when the hedge 3 funds cut us off. It occurred in various points in 4 time when we were unable to find any new investors. 5 That would have been right around the time that 6 Szafranski started. And ultimately occurred in the 7 middle -- probably April 2009 forward. 8 We are talking about a myriad of things 9 happening that had us believing that the Ponzi was 10 ultimately going to crash. And then 11 September/October 2009 I knew it was going to crash. 12 Q. Let me address each of those very quickly. 13 You said the hedge funds, let's just -- I know a lot 14 of time was spent on some of these areas. I'm going 15 to skip that and defer to John, John Genovese, to ask 16 questions on the hedge fund. 17 A. Okay. 18 Q. Let me focus, actually, on the very end 19 because most of the areas that would be covered in 20 those four categories of the hedge funds, couldn't 21 find new investors, Szafranski, middle of 2009. That 22 was all covered in your deposition in December, so let 23 me just address briefly September and October of 2009. 24 What were the facts that you were looking at 25 that led you to conclude that the Ponzi was ultimately FRIEDMAN. LOMBARDI & OLSON EFTA01082762  Page 36 1 about to explode and totally shut down? 2 A. We had extended ourselves on a 3 return-on-investment basis that was not sustainable 4 and the amount of money we were able to bring in 5 despite the fact that we had some very large 6 investors, Mr. Sochet, Mr. Von Allmen, other people 7 through them, the Coquina Group, despite their 8 investments, there was no way we were going to be able 9 to make the final payments. And ultimately we had -- 10 I had cut a huge deal with the Clockwork Von Allmen 11 group and had a huge deal pending with Sochet, and 12 there was no way I was going to be able to generate 13 enough money to make those payments. 14 Q. I think that it's clearly been established 15 that the Ponzi failed at the very end of October 2009. 16 Was there an event that week 17 A. Correct. 18 Q. Was there an event that week that signaled 19 the very end of the Ponzi? 20 A. I'm not sure I understand, Chuck, what you 21 are asking me, signaled the end. 22 Q. Was there a final event, a payment that was 23 due that you weren't making, somebody that would -- 24 A. Yes, there was a payment to -- there was a 25 payment to the C