Federal prosecutors filed a wire fraud conspiracy charge Monday against a Broward County man who they say fed more than $20 million from investors and lenders to Scott Rothstein's massive Ponzi scheme in the four months before it collapsed.
Frank Preve, 70, of Coral Springs, faces up to five years in federal prison and a $250,000 fine if he is convicted of the criminal charge.
Preve was an independent contractor who worked for what became known as the Banyon Group of hedge funds, which invested more than $157 million in Rothstein's $1.4 billion investment fraud scheme, according to court records.
Rothstein is serving 50 years in prison after admitting that he ripped off investors by claiming that they could make massive amounts of money by investing in confidential settlements obtained on behalf of people who claimed they were whistleblowers or victims of sexual harassment or discrimination.
Rothstein claimed that these plaintiffs were willing to accept discounted lump-sum payments up front rather than wait to be paid in installments over a longer period of time. Rothstein convinced investors that they could make huge profits on millions of dollars worth of settlements if they paid out the smaller lump-sum payments to the plaintiffs and then collected the full installment amounts over time.
But Rothstein has admitted that there were no confidential settlements and the whole thing was a Ponzi scheme – which means new investors' money was used to pay older investors until the fraud was exposed in late October 2009.
The Banyon Group, led by hedge fund manager George Levin, obtained funding to buy the confidential settlements by finding investors and obtaining loans, prosecutors wrote in their criminal complaint filed Monday in federal court in Fort Lauderdale.
Preve's role, according to prosecutors, was to help find investors and lenders, coordinate the funding and arrange the payouts to investors.
But prosecutors said he later participated in the fraud conspiracy by failing to tell investors and lenders about significant problems with the so-called investment and continuing to supply more than $20 million to Rothstein's fraud, according to the charge.
Requests for comment from Preve's lawyers, who are representing him in a related complaint filed against him by the U.S. Securities and Exchange Commission, were not returned Monday.
Preve helped prepare a memo that was intended to "inform investors of the potential risks and rewards of the investment," prosecutors wrote.
Some of the "essential steps" included in the memo were promises that an independent third party would verify the original settlement documents executed by the supposed plaintiffs and defendants in the underlying cases — which were, of course, fictional.
Prosecutors say that Preve was well aware from July to October 2009, when Rothstein's fraud was exposed, that Rothstein was not turning over any proof that settlement packages were being executed and that no independent third party was verifying any of the settlements.
Preve also knew that Rothstein had failed to make some of the payments that were due in April 2009 and that his trust accounts at a local bank had been frozen, prosecutors said.
Preve failed to disclose any of those potential problems to his investors and lenders for the last four months of the fraud, prosecutors charged.
Earlier this year, Preve reached a $471,000 settlement in a lawsuit filed by the Rothstein Rosenfeldt Adler law firm bankruptcy trustee.
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