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Banking and Finance

Rothstein "Independent Asset Verifier" Gets 30-Month Sentence

 A south Florida investment advisor who once served as a financial advisor to convicted Ponzi schemer Scott Rothstein has been sentenced to a 30-month term for his role in the scheme. Michael Szafranski, 37, received the sentence from U.S. District Judge Dimitrouleas after previously pleading guilty to a single wire fraud conspiracy charge. Szafranski had originally faced a dozen fraud charges when he was indicted earlier this year, but later decided to cooperate with prosecutors and was expected to testify at the trial of former TD Bank vice president Frank Spinosa. Spinosa ultimately decided to plead guilty on the eve of trial and faces sentencing later this year.

Rothstein touted hefty returns from purported investments in confidential pre-suit settlements, using his position as chairman of one of the fastest growing law firms in south Florida to bolster his credibility while simultaneously flaunting his newfound wealth. Rothstein fled to Morocco in late October 2009 when the scheme was on the verge of collapse - a country lacking an extradition treaty with the U.S. - only to later return to face the music. His extensive cooperation with authorities ultimately led to his placement in the Witness Protection program, and his subsequent assistance has resulted in over two dozen additional arrests.

Szafranski, who once worked for the now-defunct brokerage Bear, Stearns & Co., Inc., was hired in or around 2008 by several New York hedge funds to act as an "independent asset verifier" to verify the authenticity of the deals Rothstein was peddling. However, Szafranski soon allegedly switched from his position of impartiality to become close friends with Rothstein and actively began soliciting investors for the scheme. Rothstein himself testified during 2011 depositions that he paid Szafranski handsomely, including several million dollars in post-dated checks, and extensively wined and dined him. According to Rothstein,

"There was a point in time when he [Szafranski] had a pretty good idea. There was a point in time when he absolutely knew, and then there was a point in time when he was bringing in investors into something he knew didn't exist."

As an example, Rothstein recounted a time during 2008 when Szafranski questioned him about similarities between signatures in legal documents. In another instance, Szafranski is said to have accompanied Rothstein and another familiar cohort, Stephen Caputi, to a TD Bank branch where Caputi masqueraded as a bank official. The indictment alleges that Szafranski ultimately was responsible for bringing more than $200 million of new investments into Rothstein's scheme.

Szafranski's prosecution was notable because he was the first defendant charged after the expiration of the five-year statute of limitations applicable to many of the offenses previous defendants had faced. Prosecutors had indicated their intent to rely on 18 U.S.C. 3293, which provides for an extended 10-year statute of limitations for certain offenses, including wire fraud and mail fraud, that "affect a financial institution."  This reasoning was bolstered by broad authority interpreting whether an individual's conduct "affects a financial institution," with a federal appeals court observing in 2003 that the operative test was whether the conduct caused an "increased risk of loss": 

‘‘[j]ust as society punishes someone who recklessly fires a gun, whether or not he hits anyone, protection for financial institutions is much more effective if there’s a cost to putting those institutions at risk, whether or not there is actual harm.’’

United States v. Serpico, 320 F.3d 691, 694-95 (7th Cir. 2003) [subscribers can access an enhanced version of this opinion: | Lexis Advance].

Rothstein's scheme was unique in that a national banking institution, T.D. Bank, played a key role in the scheme. Rothstein testified that his relationship with TD Bank VP Frank Spinosa was essential to perpetuating and legitimizing the scheme. 

Following completion of his sentence, Szafranski will also be required to serve three years of probation - during which period he will be forbidden from working in the financial industry.

Previous Ponzitracker coverage of the Rothstein scheme is here.

 For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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