Fraud Triangle Essay

Custom Student Mr. Teacher ENG 1001-04 10 April 2016

Fraud Triangle

Scott Rothstein was a prominent Fort Lauderdale attorney. From 2004 until 2009 Rothstein ran South Florida’s largest Ponzi scheme (Franceschina, 2010). His Ponzi scheme collected 1.2 billion dollars during the time it was in operation, and like all Ponzi schemes he relied on payments by new investors to pay the previous investors. When his scheme began to fall apart, Rothstein fled to Morocco. He eventually returned to the United States to try and make a plea deal for a reduced sentence in exchange for his cooperation. (Burstein, 2012). Rothstein is currently serving a 50-year sentence. Methodology

In order for Scott Rothstein to perpetrate his crime he would find investors to invest money in lawsuit settlements. He would tell investors that his clients had reached a settlement on a lawsuit, and instead of taking payments they would like the money upfront. The clients would be willing to take less money in exchange for a lump sum payment. The investors were guaranteed a 20 percent return on their money (Kestin, 2009). The suits were not real and Rothstein would make up the cases and all the supporting documents to make the investment look legitimate. Rothstein promised his investors large returns and he had always managed to pay investors in the past (Kestin, 2009). He had the help of several people including his uncle and bank officers from TD Bank and Gibraltar Private Bank & Trust. Rothstein testified that Frank Spinosa, a TD Bank officer, would falsify documents for him after he gave him cash. Rothstein also testified that he invested money and became a shareholder in Gibraltar Private Bank & Trust after a bank official told him that the bank wouldn’t investigate a shareholder for having numerous large transactions and overdrafts. Another officer at that bank would help him move money from different accounts to cover expenses in exchange for expensive gifts (Weise & Nesmith, 2012). Gibraltar Bank and TD Bank both have denied having any knowledge of Rothstein’s activities. However, both banks have reached
settlements with investors in the Rothstein case. TD Bank has also been found liable for 67 million dollars by a judge in Miami. Rothstein also implicated his uncle by saying that he worked with bank officials to get them to produce fake documents to help him continue his fraud (Burstein, 2012). Rothstein would not have been able to perpetrate his fraud on investors without the help of his accomplices. In the Miami Herald he is quoted as saying, “The perception of power yields actual power” (Grimm, 2012). Personal characteristics of Rothstein’s

Rothstein was a very charismatic person. He enjoyed living a rich lifestyle. Rothstein called his lifestyle, “rock star lifestyle”. His way of life included a condo close to his office that was used for sex with prostitutes by him and many of his partners. Rothstein said that he bribed many officials in Fort Lauderdale and that he seduced many others with his image. He said he spent a million dollars on bribe money (Grimm, 2012). His flashy life included having the best of everything, the best clothes, the best shoes, front row seats at concerts and the ability to close down a store and take your friends shopping (Kestin, 2009). Clues

There are several clues that should have alerted clients and authorities. Anytime a return on money is guaranteed the investor should be suspicious, especially when no other investment is performing as well. Rothstein was offering huge returns for short term investments. One potential investor wanted to know why a person wouldn’t just wait 90 days to get the full amount of 900,000 dollars instead of taking a lump sum payment of 660,000 dollars. Another clue for this investor was the fact that the investment was guaranteed (Cornelius, 2010). Downfall of the scheme

The main action that brought about the discovery of the fraud was when Rothstein couldn’t get enough new investors to pay off his earlier investors. Until the fall of 2009 Rothstein was successful in getting enough capital to pay off earlier investors and still have enough cash to live his lavish lifestyle (Weise & Nesmith, 2012). An investor by the name of Mr. Sakowitz decided to contact the FBI after he had three meetings with Rothstein. Mr. Sakowitz said that he had several red flags during the
meetings: •He was concerned about the large amount of return in such a short period. •He was concerned that Rothstein told him he was handling 3000 cases a year personally. •He was concerned that Rothstein was acting as the attorney for both sides. Mr. Sakowitz decided to contact the FBI and because he was suspicious of a Ponzi scheme (Cornelius, 2010). Conclusion

Rothstein perpetrated the greatest Ponzi scheme in South Florida history. His greed drove him to commit crimes against his family, friends, and innocent people that believed in him and wanted to live the American dream with him. Like most white collar criminals he had no prior record. He had the opportunity to commit fraud because people trusted him and he worked hard to build a legitimate front. He had pressure to commit fraud because he wanted to continue with his outlandish lifestyle. The third leg of the fraud triangle is rationalization, I can only guess as to how he rationalized his fraud. Most white collar criminals need to find a way to justify their crime so that they can still feel good about themselves even though they are committing a crime. Only Rothstein knows how he rationalized his crime, but perhaps that is why he gave so much money to charity.

Burstein, J. (2012, March 2). Last defendant in Rothstein Ponzi scheme case settles. TC Palm. Retrieved From

Cornelius, D. (2010, October 13). The Corruption of Scott Rothstein[Web Log Post]. Retrieved from

Franceschina, J. (2010, June 9). Scott Rothstein gets 50 years. The Sun-Sentinel. Retrieved From 20100608_1_scott-rothstein-rothstein-s-parents-ponzi-scheme

Grimm, F. (2012, January 7). How Scott Rothstein became the toast of Fort Lauderdale. The Miami Herald. Retrieved From

Kestin, S. (2009, November 4). TD Bank questioned in Rothstein scandal. The Sun-Sentinel. Retrieved From,0,5652055.story

Weise, K. & Nesmith, S. (2012, January 26). Convicted Con Man Scott Rothstein Tells All!. Bloomberg Businessweek. Retrieved from

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