WASHINGTON — A federal judge has ordered Lewis Allen Rivlin, a former Justice Department attorney who was married to ex-Federal Reserve Vice Chairman Alice Rivlin, to pay some $6.5 million for defrauding investors, including an Ecuadorian charity for underprivileged girls.
In a civil case brought by the Securities and Exchange Commission, U.S. District Judge Royce Lamberth ruled last Thursday that Rivlin violated federal securities laws in 1997-98 by selling $6.2 million worth of phony securities to four groups of investors, the SEC announced Tuesday.
Lamberth ordered Rivlin to pay nearly $5.2 million in compensation to investors and nearly $1.4 million in interest. So far, the SEC has recovered $873,000 from other defendants in the scheme, of which $650,000 was returned to the Ecuadorian charity, the Fundacion Perez Pallarez. The charity, which runs a school for girls in Quito, Ecuador's capital, invested its $1 million endowment in the scheme.
Rivlin, who practiced law in Washington for more than 40 years, said he plans to file motions challenging the judge's ruling and to appeal it if necessary to a higher court. In a telephone interview, he denied any wrongdoing and maintained the Ecuadorian charity's money was stolen by a Greek financier sued by the SEC for allegedly receiving $1.7 million in investors' money from the scheme.
Rivlin and his associates were said to have portrayed their investment program as a pooling of investors' money to buy so-called "prime bank" notes and resell them at a profit to big Wall Street firms such as Merrill Lynch. In his order, Lamberth said the investment program was "a complete scam" and none of the investors' money was ever used in it.
Rivlin said Tuesday he can prove that transactions did occur under the program.
Such "prime bank" schemes are a growing area of fraud in which ordinary investors — especially seniors — have lost millions of dollars, according to securities regulators. The schemes promise high, risk-free returns on debt notes said to be guaranteed by the world's biggest banks. Promoters often claim that only big corporations, foreign banks and wealthy individuals know about "prime bank" notes.
The SEC has urged investors to contact the agency immediately if they are asked to invest in a prime bank offering.
Lamberth also enjoined Rivlin from future violations of securities laws and from acting as an unregistered securities broker or dealer.
In June 1999, when the SEC first filed its lawsuit, Alfred Huascar Velarde, a former law partner of Rivlin, agreed to settle the agency's allegations that he aided the fraudulent investment scheme. Velarde, who neither admitted to nor denied the allegations, paid a $20,000 civil fine and promised to refrain from future violations of federal securities laws.
The SEC also had sued consultant Edwin Earl Huling III, who worked at Rivlin's firm, in connection with the scheme. In an August 2000 settlement, Huling agreed to pay a $15,000 civil fine and to refrain from future violations of securities laws. He neither admitted nor denied wrongdoing.
Rivlin, a Harvard Law School graduate, worked at the Justice Department before starting his own law firm in the 1970s. His clients included Citicorp, Motorola and Westinghouse. He and Alice Rivlin, who left the Federal Reserve in 1999 and now heads the District of Columbia's financial control board, divorced in 1977 after 22 years of marriage.
According to Lamberth's findings, Lewis Rivlin was having financial difficulties by 1997 and his firm had trouble paying rent and once had to borrow money from the mother of one of its partners.
Rivlin is currently in administrative proceedings on unrelated matters that could lead to his disbarment as an attorney.
Rivlin, who is in his 70s, spent several days in jail in the spring of 2000 for contempt of court after the judges in two separate cases said he failed to turn over records. He told The Washington Post that jail officials treated him well but that he needed time to recover from "a humongous toothache," loud music, bad food and early wake-up calls.