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Jonathan Pollard is a commercial litigator in Fort Lauderdale, Florida. He focuses his practice on non-compete and trade secrets disputes.

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Feds Finally Charge Rosenfeldt in Connection with Rothstein Ponzi Scheme

If you’re in South Florida, and especially Fort Lauderdale, and you’ve picked up a newspaper lately, then you know that Scott Rothstein is back in the headlines.  Nearly four years after Rothstein himself was sentenced to fifty years in jail for running a massive Ponzi Scheme, the fallout from the fraud continues.

In early May, Rothstein associate Douglas L. Bates was sentenced to five years in jail.  His part in the scheme:  Fabricating settlement documents that allowed Rothstein to scam investors into investing money in confidential, big-dollar settlements.   In his defense, Bates claimed that he just thought he was doing some favors for Rothstein.  Let’s get real.  I don’t feel the least bit of sympathy for Bates.  The guy did favors for Scott Rothstein because Rothstein was a big shot, had tons of money and was well-connected.  Bates certainly wasn’t helping Rothstein out of the goodness of his heart.  He was doing it so that some day Rohtstein would do him a favor.

A few days ago, Christina Kitterman, a Rothstein associate and then partner, was sentenced to five years in jail.  Kitterman’s role:  Pretending to be a Florida Bar on a phone call with some Rothstein investors and giving those investors a bogus story about why their money was tied up.  Yes, clearly, that action alone amounts to fraud.   But I have somewhat more sympathy for Kitterman.  She met Rothstein when she was in law school and he was her adjunct law professor.  When she got mixed up in drugs, Rothstein helped her get into rehab.  Nobody is approving of her conduct, but we can understand that she may have been acting out of loyalty.

But now, we come to Stuart Rosenfeldt, the only other equity partner at RRA.  Just yesterday, Rosenfeldt was indicted by the feds for his wide-ranging role in the fraud, which involved everything from check kiting to campaign finance fraud to using the Broward Sheriff’s Office to harass escorts.  In spite of the fairly damning allegations against him, Rosenfeldt, of course, maintains his innocence and claims that he had no idea about the Ponzi scheme.   But I just can’t buy that.  When you’re a partner in a law firm, and especially an equity partner, you know what the firm is doing.  You know how much work the firm has, you know what the big matters are, you know what’s making the firm money.  And anybody who was one of two equity partners at RRA would have known that the firm didn’t have enough legitimate business to support Rothstein’s ridiculous lifestyle.

South Florida Booming Again – Perfect Market for Investment Fraud

Before starting my own practice, when I worked for Boies Schiller, we represented thousands of investors who lost money with the Fairfield Greenwich Group.  FGG ran Fairfield Sentry and several related funds.  These were the biggest feeder funds that fed into Bernie Madoff’s massive Ponzi Scheme.  Perhaps as a result of this experience, I developed a something of a soft spot for plaintiff-side investment fraud cases.  Today, most of my practice focuses on defending non-compete and trade secret cases.  But, every once in a while, I get a call on an investment fraud case and I just can’t turn it away.  Over the past few years, I have seen every variety of investment fraud imaginable.  I’ve written numerous blog posts covering all sorts of scams, ranging from the classic affinity fraud scam to the precious metals scam.   And now, I’m beating that same drum again.

Anybody who lives in South Florida knows that we are in the midst of another boom.  Real estate development and construction are roaring back.  Anybody who drives down Federal Highway in Fort Lauderdale sees new condos popping up everywhere.  Why is this significant?  Because a market like this is ripe for fraud.  There will be real estate development scams.  There will be bogus private placement securities tied to those real estate development scams.  I’ve seen it all before.  Now that’s not a reason to stay on the sidelines or forgo investment opportunities altogether— not in a market like this.  People should still invest, get involved, make deals, do business—- But they should proceed with caution.  Here is a checklist:

(1) Don’t invest in something you don’t understand:  If it doesn’t make sense to you, don’t invest.  A big part of Madoff’s fraud was built on the myth that Madoff was an investment guru who had developed an incredibly complicated, super lucrative investment strategy called the “split strike conversion.”  When Madoff (and the feeder funds) were pushing these investments, they told lots of people that the strategy was just so darn complicated that they wouldn’t understand.  Lots of people fell for it.  But other people weren’t convinced.  Bottom line:  If you’re a reasonably intelligent person and an investment does not make sense to you or the numbers don’t seem to add up, trust your gut.  Stay out of it.

(2) If it’s too good to be true, it’s not true:  You know the old saying, “Pigs get fat, hogs get slaughtered.”  Those are wise words.  Be cautious of anything promising huge returns that are simply outside of the normal range for the particular type of project or type of investment.

(3) There is no such thing as guaranteed money or no risk:  If an investment – be it securities or a real estate development project – promises no risk or a guaranteed return, walk away.  There is no such thing as an investment with no risk.  You know who promises guaranteed return or no risk to your capital?  Con artists.

(4) Be cautious of affinity fraud:  Affinity fraud involves an investment scam where the perpetrator becomes part of a specific, identifiable group of people then preys upon those people.  This is extremely common in religious groups— churches, mosques, synagogues.  I’ve also seen affinity frauds targeting specific ethnic communities and the gay and lesbian community.  So, for instance:  If someone has recently become a part of your church, is incredibly committed to being part of that community, has a background that’s a bit fuzzy and  just happens to be an investment manager—- That’s a textbook set-up for an affinity fraud.  Be cautious.

(5) Do business with people you know:  Although it’s a simple rule, it’s an important one:  If you’re going to invest, invest with someone you know well.  And by that, I mean you (1) know the person and (2) you know that they have an established track-record in their particular industry.

C0039

Jonathan Pollard is a trial lawyer and litigator based on Fort Lauderdale, Florida. He focuses his practice on defending non-compete and trade secret claims. Jonathan routinely represents doctors, corporate executives and other high level employees who are switching companies, or, who have started their own ventures. Beyond litigation, Jonathan advises employees, companies and business owners regarding restrictive covenant issues in connection with employment contracts, separation agreements, hiring decisions, the purchase or sale of business interests and the execution of commercial leases. Jonathan has been interviewed about non-compete issues by reporters from INC Magazine, the BBC and The Tampa Bay Times.  He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville.  His office can be reached at 954-332-2380.  For more information, please visit For more information, visit http://www.pollardllc.com.

 

Employee Handbook Can Expose Employer to Liability Under Promissory Estoppel

Let’s keep this one simple:   The Family & Medical Leave Act (“FMLA”) is a federal law that mandates certain employers provide leave to employees to address certain life events (e.g. pregnancy, illness, etc.).  Again, the FMLA is only applicable to certain companies.  For instance, a company that only has 25 employees is not large enough to be covered by the FMLA.   So, what happens if a company is not large enough to be covered by the FMLA?   Obviously, the company does not have to provide leave under the FMLA if it is not covered by the FMLA.  But if the company has an employee handbook that provides for a certain amount of unpaid leave, then the company may be held to that promise. 

This case will put that theory to the test.  Thomas Complaint

Florida Inernational University Sues Florida National University for Trademark Infringement, Unfair Competition

Earlier this month, Florida International University, known around these parts as FIU, filed a lawsuit against upstart Florida National University, or FNU, in the Southern District of Florida.  The predicate for the lawsuit is pretty simple:  FIU claims that the school’s use of the names Florida National University and FNU amount to trademark infringement and unfair competition.   In my view, the case is not particularly compelling.

First, let’s look at the legal standard at play.  In trademark disputes, and in unfair competition cases, a court is going to look at the likelihood of confusion.   Generally, the likelihood of confusion is evaluated according to an eight factor test.  Rather than go through each one of those factors individually, let’s make the reasonable assumption that certain of the factors are satisfied:  the schools are both in the same industry and in the same geographic location.  The names have a similar overall look and feel.  In the end, the dispute probably comes down to the following: (1) How strong is FIU’s mark (2) What is the risk of consumer confusion.

Strength of the mark is all about brand recognition and distinctiveness.   For example:  Lexus.  Abercrombie & Fitch.  Rolex.  Starbucks.  These are very distinct names with very high brand recognition.  But Florida International University and the acronym FIU?  The full name contains two words – Florida and University – that are extremely common.   We have the University of Florida, clearly the state’s flagship institution, along with Florida State University, the other major player.   These are arguably the two most well-known schools that contain the word Florida in their names.  Once we get past the two big names, we have a litany of other schools that contain the words Florida and University.  For instance, we have the University of South Florida, the University of Central Florida, the University of West Florida, the University of North Florida, Florida Gulf Coast University, Florida Atlantic University, and Florida A&M University, among others.   Given that many institutions tend to have similar types of names, the name Florida International University lacks the sort of distinctiveness and brand recognition of, say, a Lexus or a Starbucks.  The name does not stand alone.  Rather, it is part of a crowded field occupied by other, relatively similar university names.

Obviously, FIU would argue that the foregoing analysis is too superficial, and that it fails to consider the similarity between “international” and “national”, and the similar structure of the marks.  After all, “Florida International University” sounds nothing like “Florida Gulf Coast University”, but it does sound sort of like “Florida National University.”  It’s a fair point, but one that misses the broader considerations at issue.  When someone says Florida International University, even in South Florida, the reaction is not, “Yes, exactly, FIU!  Florida International University!  Home of Roary the Panther!  Remember when they beat the University of Toledo in the 2010 Little Ceaser’s Pizza bowl game!  That was awesome!”  There are many people in South Florida who are not particularly familiar with Florida International University.  There are many people who, upon hearing the name, would simply conclude that it is one of many Florida colleges or universities that (shockingly) has given itself an appropriate sounding name.

Turning to the issue of confusion, I remain a bit skeptical.  FIU has a very large student body— more than 50,000.  There are tens of thousands of FIU alumni in South Florida.  The people who know FIU know FIU and are unlikely to confuse it with Florida National University.   But let’s look at consumers.  Consumers, in this context, would be college students or potential college students.  I find it hard to believe that a high school senior who is considering college options would confuse Florida International University, a reputable, well-regarded academic institution, with Florida National University.  Just look at their respective websites for crying out loud.  FIU is obviously a real university.  FNU’s website makes it look… well…. pretty suspect.

Then again, maybe I am focused on the wrong demographic.  Maybe there really are people out there who know about FIU, and signed up for online classes at FNU thinking that they were really attending the former.  I could imagine some poor kid down in Hialeah signing up for online classes at FNU and telling his mom, “Yeah, FNU.  They have lots of alumni down here.  It’s a good school.”

It’s a bit of a stretch, but I think the case is at least plausible.  That means it’s not getting dismissed.  Once it clears that hurdle, there’s summary judgment.  But all of these issues appear to present disputed questions of fact.  It’s tough to guess where this one goes.

The case is Florida International University Board of Trustees v. Florida National University, Inc., 13 CV 21604 (S.D. Fla. May 3, 2013).

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.  He focuses his practice on cases involving non-compete disputes, antitrust and business torts.  He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.

Avoiding Affinity Fraud Scams

On Wednesday, May 15, representatives of the Securities and Exchange Commission and the United States Attorney’s Office, along with other financial regulators and law enforcement personnel, spoke at a fraud summit in Orlando.  The event was organized by Florida A&M University College of Law and took place at the law school’s Orlando campus.

It should come as no surprise that Florida is a hotbed of fraud.  Recent reports from the Department of Justice have listed Florida, and particularly South Florida, as having among the highest rates of financial fraud in the United States.  A number of factors make the state a breeding ground for Ponzi schemes and investment scams.  First, the state has a large senior population.  Evidence suggests that senior citizens are particularly susceptible to financial fraud.  Second, there is no shortage of wealth in Florida, particularly in places like Palm Beach County (which was hard hit by Madoff’s Ponzi scheme).  Add to that a population of transients and plenty of folks with international ties, and you have a fertile environment for financial fraud.   At Wednesday’s event, Glenn Stuart Gordon, Associate Regional Director of the SEC’s southeast region noted that in Florida, the Commission tends to see Ponzi schemes and an abundance of affinity fraud.  Let’s talk about the later:  Affinity fraud.

Often, con artists and fraudsters will become heavily involved in a specific, somewhat insular community, build relationships in those communities and then exploit those relationships.  This happens most often in religious communities.  For many of us, we have a tendency to trust the people we meet at our churches, synagogues or mosques.  When we go to services, we tend to let our guard down.  We view church or temple as a safe place, a place of brotherhood and fellowship.  We feel a certain kinship with the other members of our congregation.  And when new members show up at services, we welcome them with open arms.  The fraudster knows this and uses all of this to his advantage.   Usually, it works like this:

John Smith shows up at church.  He’s new.  He tells people his story.  For the past few years, he has been entirely preoccupied with running his business.  He feels very fortunate, because business is good.  But John recently has started to feel that there is something missing from his life.  Deep in his heart, he felt a longing to go back to church.  He had always gone to church when he was younger, but then he strayed.  Now that his business is established and doing well, he has had some time to reflect.  He knew he wanted to reconnect with his faith.  He wanted to go back to church but he really didn’t know how.  It had been so long.  He asked around and heard great things about First Baptist.  He decided to stop in for services one morning.  He hopes people there will accept him back into the flock.

John becomes a regular at services.  The members of the congregation embrace him as one of their own.  They’re proud of him for coming back into the fold.  John attends services every week.  He goes to the weekly church business breakfast on Wednesday mornings.  He attends the church picnic.  People ask John what he does for work.  He casually mentions that he runs an investment fund.  As the weeks and months go by, John grows closer with the members of the church community.  He’s in the proverbial circle of trust.  One week at the business breakfast, a fellow churchgoer, Barry, who now considers John a friend, asks John about his investment fund.   Barry is in his late fifties.  He runs a successful computer repair business.  He’s not exactly rich, but he’s been saving money his whole life.  He invests in stocks, but does this on his own.  He’s just curious about what John does.  John tells Barry that he runs a fund that specializes in trading commodities, principally metals.  Not just precious metals like gold and silver, but also metals like copper and nickel.  Barry says that’s interesting.  John says that the fund has done very well and that he thanks God for his good fortune.  Barry says amen to that.

A short while later, Barry and John are at another church function.  Barry says he’s looking at other investment options and is thinking about investing in precious metals.  He asks John what type of returns he’s making in the fund.  John says he’s averaging 12% a year over the past five years.  Barry is impressed.  That’s a great return.  John says it’s part knowledge and experience, but a big part of it is the fund’s specialized software that helps predict the market and helps him make good trades.  Barry is intrigued.  A few weeks later, Barry asks John about investing with the fund.  And here’s where John uses one of the oldest tricks in the book:  “I’m really sorry, Barry, but I’m not really taking any new investors on right now.  I set a limit on the size of the fund and right now we’re at capacity.”  Barry is a bit disappointed but also impressed.  This just confirms to him that John’s services are in demand and the fund must be a good bet.  A few weeks later, Barry follows up with John again regarding investing.  John says he’ll make an exception and let Barry in the fund, because they are such good friends and Barry played such a big part in welcoming him into the church.  John let’s Barry invest $100,000.

A few months down the road, and Barry’s money has done well with John.  He’s on pace to make a healthy 12% return that year.  Meanwhile, others in the church have learned about John and his very successful metals investment fund.  John has made some space in the fund for new investors.  He did this just so he could let other people from the church invest with him.  A few months later, and Barry’s money has done so well that he puts in another $200,000.  He knows John.  He trusts John.  He has seen the returns.  He has seen his money grow.  He might be able to retire soon if things keep going this well.

And then, everything falls apart.  Sally from church, who also invested with John, needs to redeem $100,000 worth of her investment because of a family emergency.  Sally faxes the redemption request over to John’s company.  She needs the money urgently.  She knows John personally, so she calls him on the phone and tells him about her situation.  He says it will be handled immediately.  A week goes by.  John sends a check.  Sally tries to deposit the check and the check bounces.  She calls John.  John says it must be a bank error.  John says he’ll call the bank and clear it up.  Three days later, the check is cleared.  But Sally tells another investor about the ordeal.  That investor tries to redeem his investment.  The same thing happens again— delays, excuses, bounced checks, more excuses.  It spreads like wild fire.  Within two weeks, everybody who has invested with John, including dozens of folks from First Baptist are trying to redeem their investments.  Nobody knows where John is.  He has stopped coming to church.  He has stopped answering his phone.  He does not return calls or emails.  Somebody calls the FBI.

Two weeks later, John is arrested by the feds.  He was running a massive Ponzi scheme.  He took in more than $10 million in investor money, much of which came from other members of the church and connections he made through the church.  He spent nearly all of that money on himself, his lifestyle, gambling, strip clubs, art collections.   He was a complete fraud.  His scheme never would have been possible but for his ties to First Baptist.  Had people taken the time to check, they would have learned that John had no real infrastructure.  His investment fund was a two or three person operation.  The auditor was a small outfit in a strip-mall and the principal had a checkered past.

You can avoid this type of affinity fraud by looking for the red flags that are often present in many investment fraud scams.  Investors should always be wary of things like:

  • Lone wolf investment managers with no real operation
  • Guaranteed returns or incredible returns
  • Lack of a credible auditor
  • An investment strategy that doesn’t make sense
  • Principals with a checkered or criminal history
  • The “at capacity” scam

Remember, just because somebody is a member of your church or temple does not mean that you should give them a free pass and implicitly trust them with your money.

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.  He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.

Recapping the Latest Fort Lauderdale Ponzi Scheme

Last month, George Elia, a Fort Lauderdale real estate broker, pleaded guilty to stealing nearly $3 million of investor money in South Florida’s latest Ponzi Scheme. According to court documents, Elia preyed upon members of the Wilton Manors community. He used a personal approach to recruiting his investors (and victims). He’d invite them over to his house, entertain them, and share meals with them. He’d become their friend first, then reel them into his scheme.

Elia ran the investment scam through a company called International Consultants & Investment Group Limited Corp. If you gave a fifth grader a copy of the Wall Street Journal and said, “Now, come up with a name for an investment company and make it sound really important”, he would probably come up with something like International Consultants & Investment Group Limited Corp. Even the name sounds suspect. As a matter of fact, it sounds like the name of a fake investment company— which it was.

Elia’s pitch was a simple one: He could generate returns of more than 20% a year through buying and selling stocks. That’s right. While lots of hedge funds and mutual funds don’t even break 10%, George Elia’s Super Amazing International Consultant Investment Group Limited Corp. Inc. Etc. was supposedly making 20% a year or better. Once again: If it sounds too good to be true, it probably is.

Elia’s Ponzi Scheme is one of the most blatant examples of investment fraud: Elia had no clever pitch. He had no unique investment strategy. He had no particular market or industry focus. He wasn’t investing in distressed assets, or solar power or precious metals or Brazil. Instead, Elia’s strategy was, “Hey, I’m your friend. I’m a nice guy. Everyone knows me. I’ll invest that money for you. I know how to make lots of money trading stocks.” And apparently, in South Florida, that is good enough to get you millions of dollars’ worth of investments.

As usual, the red flags were obvious: A lone wolf investment manager, with no real organization or infrastructure, promising top-of- the-market returns. If it sounds like a scam, it probably is.

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.  He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.

Former FAU Student Pleads Guilty to Running $10 Million Ponzi Scheme

Donald French, a former student at Florida Atlantic University, has plead guilty to running a $10 million Ponzi Scheme.  In 2008, at age 21, French launched D3 Capital Management LLC.  Based in Boca Raton, D3 Capital was supposedly a hedge fund that invested in foreign currencies, emeralds an even a solar project in Italy.  With offices in Boca’s prestigious Mizner Park, Rome and Hong Kong, D3 Capital billed itself as a major player in the world of investment and asset management.  In reality, D3 Capital was nothing more than Donald French, 21 year old FAU student, running a Ponzi Scheme.  Let’s be brutally honest:   You can spot a con artist like French from a mile away, if you really try.  The red flags are everywhere.

First, there’s the guy himself.  When he started his scam, he was 21 years old and a student at FAU.  French had no experience in investing or investment management.  He had no track record.  Instead, all he had was D3 Capital.  Anybody can go online and form an LLC.  That means absolutely nothing.  Anybody who spent a few hours digging into French’s background would have concluded that he lacked the requite experience.  Even if it wasn’t clear from the outset that French was a con artist, it should have been crystal clear that he was running a fly-by-night operation.  Remember, when you invest private placement (i.e. off-exchange, in funds not traded on the stock market), you need to be extremely careful about who you trust.  In this situation, it should have been obvious that French was not an experienced money manager (and probably was a fraud).

Second, there is the mix of investments.  D3 supposedly invested in foreign currency, emeralds and a solar project in Italy.  This was (pretty obviously) a small fund.  It strains credulity to suggest that a small fund (basically a one man show) is capable of running successful investments across such a spectrum.   Most hedge fund managers specialize.  They stay within their area of expertise.  They trade tech stocks.  They buy a certain type of commodities.  They buy distressed assets.  They have some type of focus.  Knowledge of that specialty gives the manager a competitive edge.  In contrast, French supposedly traded whatever:  mostly currency and emeralds.  Oh, and by the way, he was also investing in a solar project in Italy.    That, right there, should have been a dead giveaway.  Where was D3’s operation?  Ostensibly, if D3 was engaged investing in such a variety of market segments, it would have had a team dedicated to its foreign currency trading, a team for its emerald operation and another team for its solar investments.  Instead, all that D3 had was Donald French.   And apparently, that was enough to bilk Florida investors out of millions, including one investor who supposedly gave French $2 million back in 2008.

Finally, there was the promise of incredible returns.  That’s right:  French was promising investors returns of up to 50 per year%.   File this under the too good to be true rule.   Let’s use a point of comparison:  Blackrock is a very well-known name in the investment world.  In 2012, Blackrock Alternative Investors, U.S, earned a return just north of 12%.  That means Donald French, this lone-wolf 21-year old investor, was absolutely crushing Blackrock.  Once again, if it sounds too good to be true, it probably is.

In short, we have a guy in his early 20’s with no investment experience and no real operation claiming to run a global hedge fund that invests across multiple market segments and earns a return of 50% a year, among the highest returns in the industry.  That, of course, is ridiculous.  But as long as people in South Florida are willing to ignore the risks and give their money to any fast-talking con artist who promises them incredible profits, there will always be another Ponzi Schemer like Donald French waiting in the wings.

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.   He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.

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