SEC Charges George Levin and Frank Preve in $157 million Ponzi Scheme

SEC v. George G. Levin and Frank J. Preve, Case No. 1:12-cv-21917-UU (S.D. Fl.).  On May 22, 2012, the SEC charged Levin and Preve, who provided the biggest influx of funds into one of the largest-ever Ponzi schemes in South Florida.  From July 2008 to October 2009, Levin and Preve raised funds to purchase settlements from now-convicted Ponzi schemer Scott Rothstein.  Rothstein perpetrated a massive Ponzi scheme through the sale of fake discounted settlements using his law firm.  Levin and Preve sold promissory notes and created a feeder fund to channel investor money to Rothstein, ultimately becoming his largest source of capital.  Levin’s and Preve’s settlement purchasing business collapsed along with the Rothstein’s Ponzi scheme in October 2009.  In soliciting funds to invest in Rothstein’s settlements, Levin and Preve distributed the offering materials to investors.  The materials contained misrepresentations and omissions.  Levin and Preve drafted or participated in the drafting of the offering materials, and Levin had authority over the content.   The offering materials represented to investors that prior to any settlement purchase, there would be certain documentation regarding the settlements to ensure the safety of the investments.  Levin and Preve, however, knew that settlements were purchased from Rothstein without obtaining any documentation.  Also the fund’s private placement memorandum (“PPM”) misrepresented that the fund would be a continuation of a successful business strategy pursued during the prior 2½ years.  The PPM stated more than $1 billion in Rothstein settlements had been purchased, and that they had already collected half of that amount, and was due more than $550 million in receivables from previously purchased settlements.  However, Levin and Preve failed to disclose that by the time the fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the settlements that Levin and his entities had purchased.  They also failed to inform investors that Levin’s ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein.

Levin and Preve are charged with violating Sections 5(a), 5(c), and 17(a) of the Securities Act, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act.   The SEC seeks civil monetary penalties, disgorgement and injunctive relief.

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