A deal between Russell Adler, a former law partner of Ponzi-scheme operator Scott Rothstein, and the bankruptcy trustee was approved this week.  The law firm Rothstein Rosenfeldt Adler was forced into involuntary bankruptcy after Rothstein was arrested on federal criminal charges related to his Ponzi scheme.

Judge Raymond B. Ray of the U.S. Bankruptcy Court in Fort Lauderdale, Fla., on Friday approved a settlement that frees former partner Russell Adler from litigation in exchange for up to $500,000, court papers show.

Now, bankruptcy trustee Herbert Stettin has been leading an effort to round up assets that can be divvied up among the defunct firm’s creditors, a task that’s involved filing numerous lawsuits to recover payments the firm made while it was insolvent or with fraudulent intent. That’s where the suit against Adler and his wife Katie comes in-Stettin sued the couple in February 2010 seeking to recover nearly $580,000 that he alleged Adler was overpaid by over a nearly two-year span.

“The trustee challenges the reasonableness of these compensation payments for each of these years, based upon various factors relevant to the operation and profitability of law firms and payment of attorney compensation,” Stettin said in the suit. “The amounts challenged as being overpayments of compensation for the four-year period subject to this lawsuit were unreasonable and improper.”

If it is true that Adler was paid an excessive amount of compensation for the purpose of shielding money from the creditors/investors, the bankruptcy court would view this is an illegal transfer of assets. In this case the bankruptcy trustee is demanding that the money be returned so that it can be redistributed to the creditors even though Adler has not faced criminal charges.  Under the terms of the agreement, Adler would not face numerous lawsuits from investors but the bankruptcy settlement would not protect him from a criminal prosecution or an eventual conviction. Finally, Adler would not be able to file personal bankruptcy to get out of paying the settlement agreement. However, he may still be able to file personal bankruptcy and discharge other debts which are not related to the Ponzi scheme settlement.

(source: http://blogs.wsj.com/bankruptcy/2011/02/28/judge-oks-bankruptcy-settlement-with-former-rothstein-partner/?mod=google_news_blog