This is an update of a Street Sweeper article originally published on July 5, 2011.
Today's column presents a somewhat unusual matter involving an individual who, frankly, shouldn't be involved in this type of a mess - but for the fact that nothing really seems to surprise any of us anymore. For starters, let me introduce 32-year old Michael L. Rothenberg, an Atlanta, Georgia resident and an attorney admitted to practice law in New York and Georgia.
That's nice. Young man with a career ahead of him. Admitted in two states - impressive.
Of course, you know how this goes, we suddenly veer off the road and over the side of the cliff.
From August 2007 and August 2008, Rothenberg was a Judge Pro Hac Vice on the DeKalb County Recorders Court. Quite an accomplishment for one so young.
In December 2009, Rothenberg created Four Five, LLC., claiming to be that entity's Chairman and sole member.
A lawyer. A judge. An entrepreneur. Looks like this ambitious young man has a lot of plans. Sadly, in November 2010, Rothenberg lost his bid for a seat as a judge on the DeKalb County Superior Court.
According to allegations in a Complaint filed in the Securities And Exchange Commission, Plaintiff, v. Michael L. Rothenberg and Four Five, LLC. Defendants (11-CIV-1803, United States District Court For The Northern District Of Georgia, June 2, 2011), between at least February 2010 and March 2010, Rothenberg, acting individually or through Four Five, used misrepresentations and omissions of material fact to induce two investors to invest $1.7 million in a "Prime Bank" scheme.
The Complaint alleged that Rothenberg told investors he could provide them access to short-term, high yield investment opportunities with international banks - and Rothenberg characterized this opportunity as utilizing a "trading platform" or "trading facility."
SIDE BAR: I gotta tell ya, this ain't exactly the first time that I heard someone pushing one of these so-called platform/facility deals. In the past few years I've counseled a number of would-be investors (or, as I saw it, wannabe victims) from investing in this nonsense (which I've also described more colorfully as garbage, crap, and in other less savory terms).
As best I can tell, a lot of pigeons seem quite taken with any investment scam that masquerades as having access to a very secretive, billion-dollar trading platform or trading facility. Of course, when I ask my clients just exactly what those terms mean, they typically tell me that they're not at liberty to discuss it. They've been sworn to secrecy. Told that it's too big a deal for anyone to explain. That I'm just another idiot lawyer who isn't a businessman.
Alas, my thirty years on Wall Street, my role as an active private investor, my experience prosecuting the industry's bad guys and defending investors - that's all so much fluff. Apparently, I'm just not in the loop when it comes to these sophisticated, off-shore, platform deals that offer unbelievable returns and involve players that no one ever heard of.
Yeah, right - and I'm the idiot?
According to the Complaint, it appears that Rothenberg launched into what must have been an impressive presentation to wannabe investors that described the investment opportunities as involving notes and "tranching" trades among banks. Uh oh! Among the key words that many Wall Street scamsters use is tranche - it combines the wordsmith's artistry of sounding quite arcane and important with the cachet of French. Some folks wilt under the influence of tranche.
Following up on the power of his tranching jab, Rothenberg went for the overhand right of a knockout punch when he reminded investors that he was both a lawyer and a judge. Hey, good enough for me! I'm sold. Lot's of honest, rich lawyers and judges out there. Those folks would never, ever lie. Trust me. And, ummm, don't forget - I'm a lawyer. However, I'm not a judge but I would gladly play one on television for the right dollars.
Anyway, Rothenberg, the financial wizard, lawyer, and former judge allegedly assured investors that that the investment was risk-free because any money invested would remain in Rothenberg's attorney trust account. Once he had possession of the funds, the trades could be completed; of course, no one else in the entire world could apparently access this platform/facility thing. No, the investors would have to work through Rothenberg because the overseas traders demanded anonymity.
SIDE BAR: I read what I've just written. I re-read it. It sounds moronic to me. However, okay, I wasn't there at the time and maybe Rothenberg the wizard, lawyer, and judge - and barely out of his twenties - was quite the spinner of words and dreams. Still, you know, it really seems quite a yarn, no?
In late February 2010, the Complaint alleges that Rothenberg pitched two investors about a trading program that was purportedly related to Haitian relief efforts and required an investment of$180,000, which would generate returns in excess of 300% in a short timeframe. Wow, talk about being shameless. Still, two investors each wired in the $180,000 to the Four Five account.
On Friday, February 26, 2010, Rothenberg told the investors that the Haitian program had closed before he could complete the necessary paperwork. Not to worry, though, Rothenberg said that on Monday he would be handling a new trading program.
Some may view this as a very clever bait-and-switch tactic - a way to gain a potential investor's trust. Others may say that these Haitian investment deals that are related to the relief effort are always falling apart at the last minute or are way oversold. That latter group of believers also collects gold-clad coins that are simulated originals and has fractionated interests in the Norwegian partnership that purchased the Brooklyn Bridge during a secret ceremony in 1842 (yes, before the bridge was even built!) and is related to an effort to impose an international monarchy upon 37 nations who have entered into a Memorandum of Understanding that is held in the Library of Congress's secret vault room.
In fact, on Monday, March 1,2010, Rothenberg touted the most amazing of all trading programs, now with a price tag of $1.35 million, and with returns of 300% in fourteen days with the opportunity to participate up to six times in a row in this limited, hush-hush, incredible opportunity. Why, you could earn hundreds of millions of dollars within a few weeks, Rothenberg may well have said, breathlessly.
Of course, the catch, ah yes, the catch - the trade was only open to those investors who would use the funds for humanitarian purposes, and only Rothenberg had access to the trade. Like what, that "humanitarian" prerequisite was going to stop one of the hooked fish from biting down further and pulling even harder?
As to the $1.35 million to be raised, the Complaint alleged that Rothenberg guaranteed that $1 million of the investment would never leave his attorney trust account, and the remaining $350,000 (which would be returned to the investor at the end of the trade) would be transferred to the trader's account for the duration of the trade. And Rothenberg's cut? He and Four Five would be paid a total commission of approximately 10% of the earnings from the trade, or approximately $400,000 from each investment.
The Complaint states that "[o]nly one investor chose to proceed with the program, and on March 3,2010,that investor wired $1 million to an account that Rothenberg represented was his attorney trust account, and separately wired $350,000 to another account that was controlled by Rothenberg."
After receiving the funds, Rothenberg informed the investor that the funds were now on a protective administrative hold to ensure that they were positioned for the investing banks use. You know, that whole top secret tranching stuff.
Of course, as you likely guessed, over the next seven months, the investor requested return of a portion of his investment in order to fund his company's operations. Seems there was always some hitch. In response to inquiries about the status of his trades, the Complaint asserts that Rothenberg told the investor a number of fantabulous excuses: the investor had lost his place in line to trade, European banking holidays delayed trading, and there was interference from the Obama administration.
In the end, it's pretty much as these things always end - it was all a bunch of crap and garbage. Not only was there no such investing platform/facility but the attorney trust account had been raided almost immediately - the Complaint alleged that $169,000 was transferred, of which $60,000 was used to fund Rothenberg's campaign to become a judge. By October 20, 2010, Rothenberg had transferred an additional $150,000 into his campaign. Add to that some $190,000 in transfers for personal expenses.
In its Complaint, the SEC alleges three counts of fraud that Rothenberg and Four Five Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The SEC is seeking a permanent injunction from further violation of federal securities laws; disgorgement; civil penalties; and other appropriate relief.
The SEC announced on July 1, 2011, that the Court entered an order permanently enjoining Rothenberg and Four Five, LLC from violating of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 ("Exchange Act"). Defendants were also ordered to pay disgorgement, pre-judgment interest and a civil penalty in amounts to be determined. Defendants consented to the entry of the order without admitting or denying the allegations of the Complaint.
The SEC alleges that although Rothenberg ultimately returned approximately $910,000 to investors, Defendants have misappropriated at least $800,000 of investor funds.
In anticipation of the institution of administrative proceedings by the SEC but and without admitting or denying the findings, Rothenberg submitted an Offer of Settlement (the "Offer"), which the SEC accepted. In the Matter of Michael L. Rothenberg, Respondent (Order Instituting Administrative Proceedings Pursuant To Rule 102(E) Of The Commission's Rules Of Practice, Making Findings, And Imposing Remedial Sanctions / Securities Exchange Act Of 1934 Release No. 65416 / Administrative Proceeding File No. 3-14570, September 28, 2011).
Rule 102(e)(3)(i) provides, in relevant part, that:
The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . attorney . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.
Accordingly, the SEC suspended Rothenberg from appearing or practicing before it as an attorney. Alas, the final indignity - he can't practice before the SEC. Wow, that'll show him!