The SEC is currently investigating George Levin and Frank Preve, Fort Lauderdale residents, for their part in one of South Florida’s largest-Ever Ponzi Schemes.

The two men raised more than $157 million from 173 investors by issuing promissory notes from Levin’s company, as well as interests in a private investment fund they operated. They then used investor funds to purchase discounted legal settlements from former Florida attorney Scott Rothstein.

The settlements Rothstein sold, however, were fake and involved non-existent plaintiffs and defendants. Rothstein used the funds, in classic Ponzi scheme fashion, to make payments due other investors and for personal expenses. Rothstein’s Ponzi scheme collapsed in October 2009, and he is currently serving a 50-year prison sentence.

The SEC alleges Levin and Preve told investors they had procedural safeguards in place to protect any funds. But, they often purchased settlements without seeing any legal documents or verifying that settlement proceeds were actually in Rothstein’s accounts.

Moreover, even as the Ponzi scheme was collapsing and Rothstein stopped making payments, the men continued to seek new investor money, and touted the continued success of their investments. With their fate tied to Rothstein, Levin and Preve’s settlement purchasing business collapsed along with the scheme.

“Levin and Preve fueled Rothstein’s Ponzi scheme with the false sense of security they gave their investors,” says Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

According to the SEC’s complaint filed in Miami, Levin and Preve began raising money to purchase Rothstein settlements in 2007. In 2009, while seeking additional funds from investors, they formed a private investment fund called Banyon Income Fund LP, which invested exclusively in Rothstein’s settlements.

Banyon 1030-32 served as the general partner of the fund, and its profit was generated from the amount by which the settlement discounts exceeded the promised rate of return.

The men told Banyon 1030-32 investors they would obtain documentation about the settlements to ensure the safety of their investments, but both were reckless and didn’t follow through.

Furthermore, the SEC alleges Banyon Income Fund’s private placement memorandum claimed the fund was a continuation of a successful business strategy. Rothstein had already ceased making payments on a majority of the men’s prior settlements, however, and Levin had no way to recover them from the attourney.

The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve.