Lawyers and money laundering – some case studies

By Christine Duhaime | October 11th, 2010

Case Studies on Lawyers & Money Laundering

Scott Rothstein
The 50-year prison sentence imposed on Scott Rothstein in July of this year for running a US$1.2 billion Ponzi scheme from his Florida law firm, money laundering and stealing client trust funds, is the latest in a series of high-profile money laundering cases involving lawyers in the U.S., Canada and Europe that have raised renewed questions about the role of lawyers and the effectiveness of anti-money laundering laws.

At the time of his arrest, Rothstein owned more than a dozen luxury homes, 21 exotic cars, a 87-foot yacht, and a handful of restaurants. Seven years ago, he was worth less than US$200,000. The incredible fortune amassed by Rothstein in such a short period of time was derived illicitly, and much of it from firm clients.

Rothstein had two types of novel schemes. He solicited clients and investors to purchase hundreds of millions of dollars of structured settlements at discount prices that would be repaid at face value over time. He also fabricated court orders, forging the signatures of federal court judges, that showed that his clients had been awarded large sums of money in lawsuits. Clients were told that defendants had transferred funds to the Cayman Islands and in order to recover, they had to post bonds worth millions of dollars with his firm.

Rothstein is now in jail but what U.S. District Judge James Cohn called the “tsunami” left in his wake is far from over – Rothstein’s 70 lawyer firm is bankrupt and 35 of its former lawyers are being investigated, the TD Bank, N.A.is being sued by an investor for allegedly facilitating Rothstein’s laundering activities, former associates and employees of the firm are being asked to repay lavish bonuses and gifts (that sometimes included houses and cars) from their boss by the firm’s receiver, and the firm’s COO Debra Villegas was recently received a 10-year term in prison after pleading guilty to conspiracy to launder money at the firm.

Marc Dreier

Rothstein’s case is not unique. Earlier this year, 59-year-old Marc Dreier, a Harvard and Yale educated New York lawyer, was sentenced to 20 years in prison after pleading guilty to money laundering and securities fraud. U.S. prosecutors called Dreier’s conduct one of “colossal criminality”. He sold more than US$700 million worth of fictitious securities purportedly issued by his clients to hedge funds, and misappropriated client trust funds held by his firm, Dreier LLP.

He was arrested in Toronto for impersonating an employee of the Ontario Teachers’ Pension Plan during an attempt to sell bogus notes to an investor. One of the first phone calls he made from prison in Toronto was to his firm to direct the transfer of US$10 million from the firm’s escrow account to a personal account offshore. At sentencing, one victim said that Dreier used his “law licence rather than a ski mask and a gun” to steal from victims.

Before embarking on his colossal criminality, Dreier was legitimately earning US$400,000 a year as a lawyer – a sum he said was “not enough.”

Dreier used funds he acquired illicitly to maintain an extraordinarily lavish lifestyle that included a US$40 million art collection, a US$18 million yacht, two beachfront Hamptons homes, a luxury apartment in Manhattan, a property in Anguilla, a beachfront apartment in Santa Monica and several exotic cars. Like Rothstein, Dreier’s wealth accumulated quickly and no one asked questions. And like Rothstein, Dreier ran his scheme from his posh law firm office.

Stephen Rondos

Also earlier this year, Steven Rondos, a Canadian-born New Jersey lawyer, was indicted for money laundering, grand larceny and fraud. Rondos was a court-appointed legal guardian in charge of supervising the guardianship accounts of clients who were incapacitated. He stole over US$4 million from 23 clients, including US$1 million from a quadriplegic with cerebral palsy. Rondos used guardianship funds to buy a US$1.4 million home and a US$31,000 plasma screen TV. He pleaded guilty to grand larceny and money laundering and began serving a 15 year sentence in May.

Stanko Grmovsek

Another Canadian lawyer, Stanko Grmovsek, was sentenced to 39 months in prison in January of this year after pleading guilty to fraud, money laundering and insider trading in Ontario. Grmovsek’s law school friend, Gil Cornblum tipped undisclosed material information about pending transactions involving firm clients to Grmovsek that Grmovsek used to trade, generating $10 million in illegal profits. Cornblum committed suicide the day before he was scheduled to plead guilty in Toronto.

Fernando Del Valle

In Spain, a Chilean-born lawyer named Fernando Del Valle, is on trial for allegedly laundering €12 million of illicit proceeds from prostitution and drug trafficking through his law firm on behalf of clients, and facilitating money laundering through the establishment of trust and corporate vehicles that were used to conceal the origin and ownership of illicit funds. If convicted, Del Valle faces a 15-year term of imprisonment and a fine of €37 million. Like Rothstein, Del Valle’s wealth accumulated quickly. In a few short years, his little known real estate law firm became one of the best known in Marbella.

Hans Bodmer

Swiss lawyer Hans Bodmer, indicted in the US in 2003 on charges of conspiracy to violate the Foreign Corrupt Practices Act and money laundering, was one of Switzerland’s top corporate lawyers. According to the indictment, Bodmer is alleged to have washed US$150 million for clients, and is alleged to have chartered private jets for the delivery of over US$40 million cash to Azerbijan that was ultimately paid to bribe officials. Bodmer pleaded guilty to conspiracy to launder money and is expected to be sentenced in the U.S..

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