US charges Fla. lawyer with $1B investment fraud

A once high-flying attorney who courted politicians and celebrities was arrested Tuesday on federal racketeering and fraud charges alleging he operated a $1 billion investment scheme that used phony legal settlements.

Lawyer Scott Rothstein was led into the Miami FBI office in handcuffs following his early-morning arrest on five charges, including a violation of the Racketeer Influenced and Corrupt Organizations or RICO law often used against the Mafia and other criminal organizations.

Alicia Valle, spokeswoman for the Miami U.S. attorney's office, said Rothstein was also charged with mail fraud, wire fraud, money laundering and conspiracy. The combined maximum prison term for convictions on all counts is 100 years, according to court documents.

Rothstein was scheduled to appear in federal court later Tuesday. A news conference by prosecutors, the FBI and Internal Revenue Service was also planned.

The type of charging document filed by prosecutors, known as an "information," is typically used when a defendant has already agreed to plead guilty. Rothstein's attorney Marc Nurick declined comment Tuesday.

The document cites unnamed "other conspirators" who also played key roles in the fraud, suggesting that more people could face charges. In addition, the document says that Rothstein paid "gratuities" to unidentified police officials "to deflect law enforcement scrutiny" of his activities.

The criminal case was seen as inevitable after Rothstein returned from Morocco early last month amid mounting questions from investors and the FBI about missing money. The FBI has estimated the Ponzi scheme could top $1 billion and asked investors to come forward with information.

Federal agents have seized Rothstein's boats, including an 87-foot yacht, as well as 20 luxury cars and numerous other assets, including his share of the Miami Beach mansion formerly owned by fashion designer Gianni Versace. Prosecutors are also going after 21 homes and other properties linked to Rothstein in Florida, New York and along Rhode Island's Narragansett Bay.

Meanwhile, the once fast-growing law firm Rothstein Rosenfeldt Adler is defunct and Rothstein has been disbarred by the Florida Supreme Court. Several investors have already filed lawsuits seeking their money back, including one case demanding more than $100 million in damages.

Rothstein promised huge returns on investments in legal settlements he said would pay out over time. Prosecutors say most of the settlements never existed and that Rothstein operated a Ponzi scheme, using money from new investors to pay older ones.

Shortly after the scandal broke, the Florida Democratic Party returned $200,000 in contributions from Rothstein and his law firm. The state Republican Party gave back $150,000, and Gov. Charlie Crist returned $9,600 that Rothstein and his wife, Kim, had donated to Crist's campaign for the U.S. Senate.

Rothstein's office is filled with photos of him with politicians from around the country, including former President George W. Bush, former Alaska Gov. Sarah Palin, Arizona Sen. John McCain and California Gov. Arnold Schwarzenegger. He was also close to Miami Dolphins great Dan Marino and many South Florida business and community leaders.

GM board meets on Saab

Saab Automobile faced the threat of closure as the board of U.S. parent General Motors GM.UL met on Tuesday to hammer out plans after a deal collapsed to sell the Swedish brand.

Time is running out for Saab after Swedish luxury car maker Koenigsegg pulled out of bid talks last week, putting in doubt the future of the loss-making GM unit. Analysts have said the most likely outcome is a closure.

"The reality is that to try to get someone in at this stage just looks not feasible," said an auto analyst who sked not to be named. "There is no further quality offer likely to pop up."

Saab and the Swedish government say other investors have approached GM regarding Saab, but in light of the U.S. car maker's vow to drop the brand by early 2010, there is precious little time in which to forge a new deal.

"It is clear that they (GM) have to find a solution as quickly as possible, without high costs and without creating a situation of new competition," said Professor Christer Karlsson at Copenhagen Business School.

"For instance you can't sell it to anybody who wants to sell Saab on the Chinese market because then it will compete with GM's own products, since the new Buick is more or less the same car as the new Saab."

STILL HOPE

Swedish government officials met with GM this week ahead of the board meeting, which is likely to last all Tuesday, to underline that it is ready to provide loan guarantees to a new owner though it has ruled out taking a stake in Saab.

State secretary Joran Hagglund told Swedish news agency TT after the meeting with GM in Detroit that he remained hopeful that a closure of the 60-year-old brand might be avoided.

Beijing Automotive Industry Holding Corp (BAIC), which tied up with Koeningsegg in October, could still be among the possible contenders to take over Saab, which has not made a profit since 2001.

Merbanco Merchant Banking Co, based in Wyoming, has also said it remains interested in Saab.

U.S. financier Ira Rennert and his Renco Group had also expressed interest in pursuing a deal for Saab before GM struck a preliminary deal with Koenigsegg earlier this year.

Pfizer deal moves Gaucher drug stocks

The NYSE Arca Pharmaceutical Index (INDEX:DRG) rose 1.3% to 310.22 and the NYSE Arca Biotechnology Index (INDEX:BTK) inched up 0.3% to 890.31.

Shares of Pfizer (NYSE:PFE) were up over 2% at $18.59.

Pfizer said early Tuesday that it will co-develop Protalix's (AMEX:PLX) Gaucher treatment GCD. Protalix is in the process of applying for U.S. regulatory approval for the product.

Under the deal, Pfizer will pay Protalix $60 million upfront, plus up to $55 million in milestone payments. Pfizer and Protalix will share in the product's future revenue and costs on a 60/40% basis.

Shares of Protalix were down 14% at $8.47 on word of the deal. Shares of the biotech group had been bid up substantially in recent weeks in part on speculation that it would be bought outright by Pfizer.

Shares of Shire plc (NASDAQ:SHPG.Y) were also up 1% at $59.60. Shire has a treatment for Gaucher disease awaiting regulatory approval.

Protalix's drug is currently available to the public on an emergency basis as the leading medication to treat the disease, Genzyme Corp.'s (NASDAQ:GENZ) Cerezyme, is in short supply. The Cerezyme shortage was triggered by a temporarily shut-down earlier this year of a key Genzyme manufacturing plant due to contamination concerns. See story on Gaucher drug market.

Early Tuesday, Genzyme announced that it has resumed shipping of Cerezyme from the plant, along with the medication Fabrazyme. Both products are major revenue drivers for Genzyme.

Shares of Genzyme were up 1% at $51.14.

Shares of Human Genome Sciences, HGS (NASDAQ:HGSI) , were down 3% at $26.91.

Late Monday, HGS said announced it has commenced a public offering of 12.5 million of its common shares. The company said it plans to use part of the proceeds to fund commercialization of its eagerly-anticipated lupus drug Benlysta.

Fed reduces AIG's debt by $25 billion

AIG announced Tuesday that it completed a deal wiping out $25 billion of its debt to taxpayers by selling stakes in two subsidiaries to the Federal Reserve Bank of New York.

The troubled insurer gave the New York Fed preferred shares of two of its international life insurance companies, including $16 billion of American International Assurance Co. and $9 billion of American Life Insurance Co. The deal was originally announced in March.

The deal brings the New York-based insurer's debt to the New York Fed down to $17 billion. AIG also still owes the U.S. Treasury $44.8 billion from a separate Troubled Asset Relief Program (TARP) loan, so the insurer still owes taxpayers just under $62 billion.

AIG Chief Executive Bob Benmosche said, in a press release, that the debt reduction "sends a clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back."

AIG's (AIG, Fortune 500) stock rose more than 4% on the news in morning trading.

"The agreements further the goals of enabling AIG to fully repay the assistance that it has received from U.S. taxpayers and advancing the company's global restructuring process," the New York Fed said in a statement when the deal was first announced in March.

The Federal Bank of New York initially provided $85 billion worth of support to AIG in September 2008, when the company was on the brink of collapse. AIG's government rescue plan has since been restructured three times, and its total bailout is now worth up to $182 billion.

But much of that bailout has come in the form of government asset purchases that AIG does not need to repay. In addition to the $25 billion announced on Tuesday, the government in March bought up nearly $40 billion of insurance agreements and mortgage-backed securities held by AIG and its business partners.

To pay back the remaining $62 billion it owes the government, AIG will continue to sell off its assets. Despite recording two straight profitable quarters, AIG has said it will not generate enough earnings to repay taxpayers with profits alone.

AIG said Tuesday's transaction will force the company to take a hefty $5.7 billion restructuring charge in the current quarter, which will likely wipe out any profits AIG would have registered in the last three months of 2009.

Despite the government support, the company still faces a steep uphill battle to return to health. Shares of the insurer tumbled 15% Monday, after Bernstein Research analyst Todd Bault told investors that he cut the 12-month price target to $12 a share from $20 because the insurer's "loss reserves are significantly deficient again, much sooner than we would have forecast two years ago."

On Nov. 25, AIG announced that it had resolved its legal dispute with former chairman Maurice "Hank" Greenberg.

DUBAI INVESTORS PANIC

Dubai's leader tried to calm panicky investors Tuesday as regional markets tumbled for a second day on news that the city-state's chief conglomerate needs to delay payments on its $60 billion debt for six months.

Government-owned investment company Dubai World — the United Arab Emirates' main engine of growth — gave anxious investors the first bit of clarity they were hoping for on how it might meet its debt obligations. It said it had begun discussions with creditors on $26 billion of its debt that would include restructuring about $6 billion.

The conglomerate is involved in international projects from Gulf banks and ports in 50 countries to luxury retailer Barney's New York and a grandiose six-tower hotel-entertainment complex in Las Vegas. Its potential for a debt default sent jitters through world markets on concerns of new setbacks for Dubai World's large international bank creditors just as they are recovering from the global financial crisis.

Dubai is one of seven highly autonomous statelets that make up the United Arab Emirates and the crisis has sent the UAE's two biggest markets into a tailspin. The Dubai Financial Market sank another 5.61 percent on Tuesday after plunging 7.3 percent on Monday and Abu Dhabi's bourse closed down 3.57 percent following an 8 percent slide a day earlier.

Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, tried to reassure investors in his first public statement about Dubai World's debt crisis.

"Our economy is strong and solid and consistent," he told Al-Arabiya satellite television, adding markets were overreacting because of "a lack of understanding about what is happening in Dubai." He did not elaborate.

UAE President Sheik Khalifa bin Zayed Al Nahyan also maintained his country's economy was healthy.

However, analysts say Dubai World's debt crisis is a symptom of a broader malaise in the city-state. Dubai has no oil resources. But for the past decade, it has been the freewheeling boomtown, racking up debt as it built extravagant artificial residential islands, malls complete with indoor ski slopes and the world's tallest tower.

The troubles raised concerns in international markets that the large international banks that extended credit to the conglomerate could now face a new setback if it defaults just as those big banks are starting to emerge from the global financial crisis. The big fear is that Dubai's problems could be indicative that the global recovery is not on as solid a footing as many had hoped and there could be other toxic debt problems still to come in developing countries.

World stock markets rose sharply Tuesday on the announcement that Dubai World was in talks to restructure a large chunk of its business. Investors were eagerly awaiting clarity on how it would deal with its debts, specifically reassurances that the company was sitting down with creditors to refinance its debt.

Saurabh Dhall, an independent broker in Dubai, said there is a lot of uncertainty about how the debt crisis will play out. He said it was raising credibility concerns both about Dubai's ability to stand behind its debt obligations and the possibility, however, remote, that the crisis could impact broader government debt in the UAE.

"The major concern is not so much the dollar amount ... of the payments, it's the concern about how this will affect credibility," he said.

Investors were not reassured on Monday when Dubai officials indicated they had washed their hands of Dubai World's debts, arguing that it was an independent company that happened to be owned by the emirate.

The news rattled investors and raised more questions about whether neighboring Abu Dhabi, the oil-rich seat of the UAE's federal government, would step in with a bailout of sort and what such a step would mean for Dubai.

Dubai World said Tuesday in a statement the restructuring would include about $6 billion in Islamic bonds issued by its real estate arm, Nakheel PJSC, the company behind Dubai's iconic, palm-shaped artificial islands. About $3.5 billion of the bonds come due on Dec. 14, and Nakheel was viewed as the litmus test for how Dubai World will deal with its debt woes.

It did not deal with the broader issue of how it would meet its entire crushing debt burden.

Dubai World's statement Tuesday said the restructuring would include Dubai World and certain subsidiaries, including Nakheel World and Limitless World. Excluded from the talks are debts from Infinity World Holding, Istithmar World and Ports & Free Zone World, which includes ports and terminal operator DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone.

The conglomerate said all those subsidiaries are on "stable financial footing," and in a statement posted on the Nasdaq Dubai Web site, Jebel Ali Free Zone said it paid a roughly $2 billion Islamic bond, or sukuk, on time Tuesday.

Other UAE markets also felt the weight of Dubai's problems. Qatar's bourse fell 8.27 percent while Kuwait's was off 2.71 percent on Tuesday.

Markets in the Emirates will be closed Wednesday and Thursday for a national holiday and will reopen Sunday after the weekend.