NY Lawyer Admits Helping Disgraced Marc Dreier in Fraud

By Mark Hamblett
New York Law Journal
New York Lawyer
November 10, 2009
 

A lawyer pleaded guilty Monday to impersonating representatives of both a hedge fund and a pension fund in order to assist disgraced ex-attorney Marc S. Dreier in selling a phony promissory note.

The surprise plea and the lawyer's agreement to cooperate with prosecutors raised the possibility there might be more arrests in the investigation of Dreier, the former sole equity partner of 250-lawyer Dreier LLP who is serving a 20-year sentence for peddling hundreds of millions of dollars in bogus notes to investors.

Robert L. Miller, a former enforcement lawyer with the U.S. Securities and Exchange Commission, said he helped Dreier pitch a $44.7 million note to two investment funds.

"In summary, I agreed with Marc Dreier that I would make misrepresentations to two hedge funds to induce them to buy notes," Miller on Monday told Southern District of New York Magistrate Judge Ronald L. Ellis. "I knew that what I was doing was wrong and I deeply regret what I did."

Miller, 52, said he was paid $100,000 for phone sessions in which he impersonated a representative of a Canadian pension fund and then a hedge fund based in Iceland. He said that on both occasions he was heavily coached by Dreier on what to say.

Miller pleaded guilty to conspiracy to commit securities fraud and securities fraud pursuant to a plea agreement and is cooperating with Assistant U.S. Attorney Jonathan R. Streeter in the hopes of getting a break when he is sentenced by Judge Kimba Wood.

In November 2008, when the authorities were closing in on Dreier, Miller offered to sell a New York-based hedge fund a $44.7 million note ostensibly issued by a Canadian company, guaranteed by the Ontario Teachers' Pension Fund and held by the Icelandic hedge fund.

During a phone call with an unnamed New York hedge fund in November 2008, Miller pretended to represent the pension plan, but only after Dreier had given him an outline of the mythical transaction, a copy of the deal's documents, a fictitious e-mail address, the annual report of the pension plan and what prosecutors say were "detailed notes" of what he was supposed to say during the call.

Dreier wired $100,000 into a Miller bank account shortly thereafter.

On Nov. 26, 2008, when Dreier was told by the target hedge fund it was unlikely it would buy the note during the next few days, Dreier turned to another unnamed hedge fund as a backup target.

A representative at the second hedge fund called Dreier and asked to speak with someone with the Icelandic hedge fund that was supposedly selling the note.

Dreier called on Miller to impersonate a second time. He prepared Miller by having one of his assistants look up the weather in Reykjavik, Iceland, and by giving Miller a European cell phone on which to make the call.

Miller impersonated the representative of the Icelandic fund on Nov. 29 and Dec. 1, 2008.

Once the calls were made, the second target fund agreed to do the deal, but only if a representative of the Ontario pension plan appeared in person to sign documents.

Dreier flew to Toronto on Dec. 2, 2008, where he impersonated a lawyer for the pension plan and forged his signature. The move led to his arrest in Canada on a charge of criminal impersonation and his quick return to New York to face charges in the Southern District.

Miller declined to speak Monday after leaving the magistrate judge's court with his attorney, Jacob Laufer.

"He's made a mistake," Laufer said. "He's confronting the consequences of it. He's a decent man."

THIRD PERSON TO PLEAD

Miller, a resident of Englewood, N.J., was with the SEC between 1983 and 1986. According to the criminal information released Monday, he and Dreier managed an investment fund together from 1999 to 2008.

Dreier admitted on May 11, 2009, to selling more than $700 million in bogus real estate and pension plan notes to investors.

He pleaded to one count of conspiracy to commit securities fraud and wire fraud, one count of money laundering, one count of securities fraud and five counts of wire fraud. In addition to his prison sentence, Dreier has been disbarred.

Miller became the third person to plead in the Dreier case.

Like Miller, Dreier ally Kosta Kovachev did some impersonation as part of Dreier's scheme to defraud hedge funds of hundreds of millions of dollars.

Kovachev pleaded guilty Nov. 2 to conspiracy to commit securities fraud for pretending to be chief executive officer of Solow Realty & Development Co., once Dreier's biggest client, and the company whose identity he hijacked to sell fictitious notes to gullible hedge funds. Kovachev also posed as an accountant for the company on another occasion.

Laufer said Miller is unemployed. His name does not appear on the roster of the now-defunct Dreier LLP, which declared bankruptcy on Dec. 16, 2008, just weeks after Dreier surrendered to authorities.

Laufer declined to comment on what, if any, role Miller may have played at the firm.

Miller is scheduled to appear before Judge Wood on Feb. 5, 2010. No date has been set for sentencing.

Assistant U.S. Attorney Anna Arreola is also handling the prosecution.

Famed Scam Artist NY Lawyer Loses His License

By Noeleen G. Walder
New York Law Journal
New York Lawyer
October 9, 2009

Marc S. Dreier, 59, the former sole equity partner of 250-lawyer Dreier LLP who in May pleaded guilty in federal court to selling more than $700 million in bogus real estate and pension plan notes, was disbarred yesterday. "As respondent's criminal offenses, if committed under New York law would constitute felonies, they are a proper predicate for automatic disbarment," the Appellate Division, First Department, wrote.

Mr. Dreier was suspended in December following his arrest. On July 13, Southern District Judge Jed S. Rakoff sentenced him to 20 years in prison (NYLJ, July 14). He is now at the Metropolitan Correctional Center in Chicago and will serve his sentence at a federal prison in Sandstone, Minn.

Presiding Justice Luis A. Gonzalez and Justices Peter Tom, John W. Sweeny Jr., John T. Buckley and James M. Catterson sat on the panel.

Lawyer Gets 20 Years in $700 Million Fraud

By Benjamin Weiser
The New York Times
July 14, 2009

Marc S. Dreier, once a high-flying New York lawyer who orchestrated an elaborate fraud scheme that bilked hedge funds and other investors of $700 million, was sentenced on Monday to 20 years in prison by a judge who rejected the government’s request for a much longer sentence.
Marc S. Dreier, a prominent lawyer,
center, arrived on Monday at a
Manhattan court where he was
sentenced in a scheme that cost
 investors more than $400 million.

Prosecutors had recommended a sentence of 145 years, just five years less than was successfully sought last month in the case of Bernard L. Madoff for his multibillion-dollar Ponzi scheme.

But the judge, Jed S. Rakoff of Federal District Court in Manhattan, distinguished Mr. Dreier’s case from Mr. Madoff’s, in which prosecutors have said there were thousands of victims and billions of dollars in losses.

By contrast, the judge said, Mr. Dreier’s victims included a small group of hedge funds and other investors, who lost about $400 million, as well as hundreds of employees who lost their jobs when his law firm collapsed.

"Mr. Dreier is not going to get much sympathy from this court," Judge Rakoff said, "but he is not Mr. Madoff from any analysis, and that’s why I can’t understand why the government is asking for 145 years."

Nonetheless, the judge said, when one looked at "the facts of the crimes that Mr. Dreier did commit, one must still be appalled." He also ordered that Mr. Dreier pay $388 million in restitution and forfeit $746 million in criminal proceeds.

In carrying out his scheme, Mr. Dreier sold fake promissory notes to the hedge funds and other investors beginning in 2002. He created phony financial statements and accounting documents, and paid people to impersonate others to trick prospective investors into believing the notes were genuine.

Mr. Dreier’s case exploded into public view in December, when he was arrested in Toronto after trying to impersonate an employee of the Ontario Teachers’ Pension Plan in an attempt to sell a fake note for millions of dollars.

Prosecutors have also said that Mr. Dreier, 59, a graduate of Yale University and Harvard Law School, stole more than $46 million from his clients.

Mr. Dreier pleaded guilty in May to all eight charges in the indictment against him, which included conspiracy, securities and wire fraud and money laundering. When Judge Rakoff asked on Monday whether the government’s request for 145 years was serious, a federal prosecutor, Jonathan R. Streeter, replied, "We’re serious about asking for a sentence of life imprisonment."

When the judge pressed him, Mr. Streeter said that a term of 30 years would accomplish that goal.

Mr. Streeter cited what he called "the unbelievable abuse of trust that occurred in this case."

He also cited the judge’s own comments when Mr. Dreier pleaded guilty, that Mr. Dreier had "shown that he is to be ranked with those who have committed some of the most egregious frauds in history," and that he had "disgraced the honorable profession of law."

Mr. Streeter also reiterated the government’s position that Mr. Dreier had used the proceeds of his scheme to finance a lavish lifestyle. He owned a luxury apartment on the Upper East Side, properties in the Hamptons, a valuable art collection, expensive cars and an $18 million yacht, documents show.

Mr. Dreier’s lawyer, Gerald L. Shargel, had recommended a sentence of 10 to 12 ½ years. Of the government’s proposed punishment, he told the judge that the idea that there has to be "shock and awe of such epic proportions is not necessary."

"It may be a fraud of epic proportions," Mr. Shargel said. "I don’t minimize it in any way." But he said that it was "not the worst" of human behavior.

Mr. Dreier, wearing a dark suit and showing no obvious emotion, rose at one point and offered an extensive apology to his family, his clients and the lawyers who worked for him. "I’m sorry, deeply sorry, for the harm and the sadness that I have caused to so many people," he said.

He also cited a letter that he wrote to Judge Rakoff last week, and said that he hoped that the victims of his crimes would read it or "hear me now," and feel his shame and get some satisfaction.

In the letter, he said that he began stealing in 2002, taking money from the settlement proceeds that were owed to a client.

He said that he had hoped to repay the money quickly. But instead, he wrote, he stepped into "a quicksand of spending," and found himself "running a massive Ponzi scheme with no apparent way out."

Prosecutors have said that Mr. Dreier earned about $400,000 a year before he began committing his crimes; Mr. Dreier, in his letter, said that colleagues and clients were doing "better financially and seemingly enjoying more status," and that he felt "crushed by a sense of underachievement."

In the classic form of a Ponzi scheme, Mr. Dreier used some of the proceeds of his sales of fake notes to pay earlier investors.

"I can’t remember or imagine why I didn’t stop myself," Mr. Dreier wrote. "It all seems so obviously deplorable now.

"I recall only that I was desperate for some measure of the success that I felt had eluded me," he wrote, adding: "I lost my perspective and my moral grounding, and really, in a sense, I just lost my mind."

Mr. Dreier was ordered to begin serving his sentence immediately.

Dreier Pleads Guilty to Fraud Scheme, Remains Free on Bail

By Mark Hamblett
New York Law Journal
May 12, 2009

Attorney Marc S. Dreier said "guilty" eight times but remained free on bail after admitting yesterday evening to selling fictitious promissory notes in a scheme that ripped off investors of hundreds of millions of dollars and ended with the implosion of his 250-member law firm.

Southern District Judge Jed S. Rakoff said that allowing Mr. Dreier to remain free pending his July 13 sentencing was a close call in a case where Mr. Dreier "has disgraced the honorable profession of law."

Jonathan Streeter, assistant U.S. attorney for the Southern District, argued that every day Mr. Dreier was allowed to remain in his 151 E. 58th St. penthouse interfered with the sale of the apartment and slowed the delivery of monies to victims.

The judge urged Mr. Streeter and defense attorney Gerald L. Shargel to compromise and agree that Mr. Dreier surrender one month prior to his sentencing.

However, after Messrs. Shargel and Streeter briefly conferred during a break, Mr. Shargel told the court the government had refused to consent.

In the end, Judge Rakoff found that Mr. Dreier was not a flight risk or a danger to the community and said he was bound to follow the statute despite his "repugnance for Mr. Dreier's crimes."

"As an abstract matter there are a hundred good reasons why Mr. Dreier should be remanded," the judge said. "By his own admissions here today, he has shown that he is to be ranked with those who have committed some of the most egregious frauds in history."

Mr. Dreier, who turns 59 today, pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud, one count of money laundering, one count of securities fraud and five counts of wire fraud.

The former head of Dreier LLP agreed that everything he had done was "illegal and wrong" when asked about the first seven counts of the indictment. But he hesitated when Judge Rakoff asked him about the eighth and final count - a money laundering charge based on Mr. Dreier's actions on Dec. 4, 2008.

On that date - with his world collapsing in New York while under arrest in Canada for yet another scheme to sell fake notes - Mr. Dreier arranged to have $10 million transferred from attorney trust accounts at Dreier LLP into his personal account.

Mr. Shargel had a quick word with his client, and Mr. Dreier said he understood that the money transfer was done in furtherance of his broader scheme to defraud. Nonetheless, he stubbornly added, "It was not my intent."

Judge Rakoff told Mr. Dreier that intent was not the issue on the charge, and the judge went on to settle an unfinished piece of business by accepting the argument of Mr. Streeter that the notes Mr. Dreier sold and attempted to sell were, indeed, securities. Mr. Shargel had asked the judge to dismiss the securities fraud charge.

All of the counts carry maximum penalties of 20 years in prison save the conspiracy count, which carries five years.

With the guilty plea concluded, the parties turned to the question of whether Mr. Dreier would be allowed to remain free pending sentencing or be remanded to the Metropolitan Correctional Center.

Mr. Shargel said his client, whose assets have been frozen, has neither the means nor the ability to flee.

While Judge Rakoff pointed out that "the virtual certainty of meaningful prison time" now "looms with a greater immediacy" than previously, Mr. Shargel responded that he had made clear from the beginning that the case would "end in a guilty plea."

"This day comes as no surprise," Mr. Shargel said, adding that a "very effective mechanism" is in place to ensure his client does not flee.

Mr. Dreier has been confined in his penthouse since his release on bail in February. His whereabouts have been monitored 24 hours a day by armed guards.

The government countered that Mr. Dreier no longer has a constitutional right to bail. However, Judge Rakoff said that if Mr. Dreier has a "statutory right to get bail, he should get bail," regardless of how it may appear to anyone in the world, including the media.

Sheila Gowan, the trustee for the Chapter 11 bankruptcy proceeding against Dreier LLP filed on Dec. 16, told the judge she expected to interview Mr. Dreier approximately two more times and suggested the meetings could more effectively occur in his apartment.

She also said Mr. Dreier did not believe he could be "clear and lucid" if a May 18 deposition scheduled in a fee dispute involving his former firm occurred in the correctional center's special housing unit.

Salvatore LaMonica, the trustee in Mr. Dreier's personal bankruptcy, also said he would prefer to continue to meet with Mr. Dreier in his apartment. But he conceded that the unit could be sold more easily if it were empty.

Authorities accused Mr. Dreier of receiving $670 million between 2004 and 2008 from the sale of the fictitious securities; they are seeking the restitution of the proceeds.
They say Mr. Dreier spent much of it on a lavish lifestyle, including $39 million in artwork, beachfront homes on both coasts and an $18.5 million yacht, "Lady Seascape."

During the hearing, Mr. Streeter said Mr. Dreier held parties in which he invited celebrities and attempted to pitch the notes. Mr. Dreier also approached lawyers he knew in New York and asked them to solicit their clients to buy the notes, Mr. Streeter said.

A court-appointed receiver has said $100 million in assets have been identified that can be pursued on behalf of victims who lost more than $400 million.

Mr. Dreier also is facing civil charges by the U.S. Securities and Exchange Commission, filed in December.

NY Lawyer Who Built 250-Lawyer Firm
to Plead Guilty to Stealing Hundreds of Millions Of Dollars

By Mark Hamblett
New York Law Journal
April 28, 2009

Marc S. Dreier intends to plead guilty on May 11 to every count in the indictment charging him with stealing hundreds of millions of dollars from hedge funds and individuals, his attorney said yesterday.

Defense attorney Gerald L. Shargel told Southern District Judge Jed S. Rakoff that his client will plead to one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, five counts of wire fraud and one count of money laundering. Each count carries a potential sentence of 20 years in prison except for the conspiracy count, which carries a five-year term.

Judge Rakoff denied without prejudice a motion by Mr. Shargel to dismiss the securities fraud count and a portion of the conspiracy count dealing with securities. Mr. Shargel said there was a legal argument to be made on whether the phony promissory notes sold by Mr. Dreier were, in fact, securities. Southern District Assistant U.S. Attorney Jonathan Streeter told the judge he had more than enough ammunition to show that they were in fact securities and that the list of people Mr. Dreier was trying to sell the notes to was far larger than indicated in the indictment and included unsophisticated investors.

"The defendant actually held parties at which he pitched the notes," Mr. Streeter said, adding that he spoke to one investor who gave Mr. Dreier $1 million "and he didn't even actually understand who the issuer was."

Mr. Dreier, the founder and sole equity partner of the now defunct 250-attorney Dreier LLP, had been widely expected to plead guilty to some or all of the charges he faces in connection with a scheme in which he peddled more than $700 million in phony real estate and pension fund notes. To keep his scheme going, he paid back approximately $300 million to people who bought the bogus notes. He is charged with selling notes to at least 13 different funds and three individuals between 2004 and 2008, with the purchase price wired to an attorney trust fund maintained by his firm.

Mr. Dreier was arrested on Dec. 7 upon his return from Toronto, where he had been taken into custody for pretending to be an executive with the Ontario Teachers Pension Fund who was pitching pension fund notes to a hedge fund. He has been free on bail but confined to his midtown apartment since Feb. 13.

Mr. Dreier, who was present at yesterday's hearing, is effectively asking for the mercy of the court in deciding to plead guilty. Asked after the hearing why Mr. Dreier wanted to plead guilty instead of going to trial, Mr. Shargel said, "He wants to end it because he accepts responsibility for what he did." Mr. Shargel also said Mr. Dreier has accomplished much in his life, but he "simply went off the tracks . . . I'm sure no one will ever know why he did what he did."

Lifestyles of the Rich and Indicted:
What Loot Did Dead NY Firm's Leader Leave?

By Noeleen G. Walder
New York Lawyer
March 26, 2009

By the time indicted attorney Marc S. Dreier was arrested in December, his days of living the high life already had come to an end, according to court papers made public yesterday.

The "facts suggest that as of September or October 2008, Dreier had largely run through the cash under his control and was relying on additional sales of fictitious notes to pay overdue bills, replenish stolen escrow funds, and maintain the extravagant lifestyle that his crimes had made possible," according to a report submitted by Mark F. Pomerantz, receiver for Mr. Dreier's assets in Securities and Exchange Commission v. Dreier, 08 Civ. 10617.

When finally caught in Toronto on Dec. 2 and charged with impersonating an employee of the Ontario Teachers' Pension Plan, Mr. Dreier was in arrears "on everything from payments to the crew" of his 37-meter Heesen Motor Yacht, "Lady Seascape," to "mundane firm expenses like car service and off-site storage," the report says.

"The absence of cash may explain Dreier's desperate attempts to sell additional notes in Canada," Mr. Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison, wrote in his 49-page report.

The document, submitted by Mr. Pomerantz on Feb. 17 and released this week by Southern District Judge Miriam Goldman Cedarbaum, provides a detailed glimpse into the four-year scheme carried out by Mr. Dreier and the lavish lifestyle the attorney led before his Dec. 7 arrest at La Guardia Airport.

Last week, a new indictment against Mr. Dreier was released, which adds a charge of money laundering to the array of charges faced by the sole equity partner of the now defunct 250-member Dreier LLP. It accuses Mr. Dreier, who is free on bail, of bilking investors out of some $400 million by selling more than $700 million in phony real estate development notes and fake pension plan notes. According to the superseding indictment, 13 different funds and three individuals fell prey to his scam.

The purpose of Mr. Pomerantz's report is two-fold - to describe the receiver's findings and to request termination of the receivership now that the "most immediate and most pressing tasks have been completed."

According to Mr. Pomerantz, his primary mission as receiver has been to "locate, recover and safeguard assets belonging to Marc Dreier and Dreier LLP." This undertaking, which involved culling through more than 27 "large boxes of documents reflecting Dreier's sales of fictitious notes" and working with the U.S. Attorney's Office and dozens of Dreier LLP lawyers and employees, resulted in "the safeguarding of more than $100 million in assets."
The recovered assets include:

• an attorney trust account and other bank accounts;

• more than 300 pieces of artwork worth nearly $39 million;

• real estate, including a Manhattan apartment purchased in 2007 for $10.4 million; two homes in Southampton whose sale could generate $12.5 million or more; a development property in Antigua; and a 2,200-square-foot beachfront residence in Santa Monica, Calif.;

• a yacht worth more than $18 million, which has five cabins and is "luxuriously equipped with flat screen televisions and a wine collection";

• an automobile collection consisting of three Mercedes, a BMW 650i coupe and an Aston Martin DB9;

• a majority interest in a defunct and largely worthless Asian fusion/sushi restaurant;

• investments and brokerage accounts that appear to consist of largely illiquid stocks;

• other tangible assets, including $1.2 million in home furnishings and two watches valued at around $11,000;

• and law firm accounts receivables and work-in-progress from Dreier LLP.

Mr. Pomerantz noted that "there are several indicators that large amounts" of accounts receivable and work-in-progress for Dreier LLP might not be collectible. This includes funds "previously written off by Dreier partners and time accrued on contingency or other cases in which fees may never be recovered or may be recovered only in part," the report says.

And since Mr. Dreier's arrest, the receiver has been deluged by inquiries regarding millions of dollars in missing escrow funds and stolen settlement funds. These requests "are only illustrative of the extent to which Dreier's conduct has created a 'Gordian knot' involving employees, clients, victims, vendors, law enforcement officials, and ultimately the courts."

Mr. Pomerantz expects that the "need to provide information" to Mr. Dreier's victims, clients and regulators will continue. However, he said he believes his role as receiver has come to an end.

In asking Judge Cederbaum to terminate the receivership, Mr. Pomerantz explained that the "immediate shock and disruption caused by Dreier's crime and arrest have been absorbed."

Moreover, in addition to legal and professional obligations, Mr. Pomerantz said it would be "unseemly" for him and his team to continue to bill at "expensive hourly rates in circumstances involving so much pain." He also noted that trustees have been appointed for Dreier LLP and Mr. Dreier personally.
The report does not specify the amount Mr. Pomerantz has charged for his services.

Mr. Pomerantz said that a fee application would become public in the near future. Given the quasi-public nature of the services performed and the circumstances surrounding the case, including the "financial distress" suffered by many as a result of Mr. Dreier's alleged fraud, Paul Weiss has offered to substantially discount its regular rates.

Southern District Judge Jed S. Rakoff has set a June 15 date for Mr. Dreier's criminal trial.

EVERYTHING MUST BE SOLD!: Time for Bargainhunters
 to Pick at Dead NY Firm's Treasures?

By Noeleen G. Walder
New York Law Journal
New York Lawyer
March 23, 2009

"Prestigious Manhattan Law Firm 499 Park Avenue, New York - EVERYTHING MUST BE SOLD" reads a notice on the Web site of the auctioneer for the court-ordered liquidation of Dreier LLP scheduled for Thursday.

But a new criminal indictment released last week against disgraced attorney Marc S. Dreier has created a tug of war between prosecutors and the bankruptcy trustee that casts a cloud over the value of the items up for auction.

According to the superseding indictment, which adds a count of money laundering to the host of charges against Mr. Dreier, the 58-year-old attorney not only must forfeit hundreds of millions of dollars and a vast array of luxury vehicles, homes and artwork, but "all assets of Dreier LLP."

"Tremendous uncertainty . . . now hovers over this case" as a result of the government's "complete turnaround," attorney Howard D. Ressler told Southern District Chief Bankruptcy Judge Stuart M. Bernstein at an emergency hearing Friday in the Chapter 11 proceeding of Dreier LLP. Mr. Ressler, a partner at Diamond McCarthy, is counsel to Sheila Gowan, the bankruptcy trustee in this case.

The government's uncertainty about whether it will proceed with the criminal forfeiture of the firm's assets could decimate the value of those assets and leave unsecured creditors "wiped out," Mr. Ressler said.

This represents "one of the first collisions of the bankruptcy statute and the criminal forfeiture law . . . that we know of," Tracy L. Klestadt of Klestadt & Winters, who serves as counsel to the creditors' committee, explained in an interview.

Mr. Dreier, the former sole equity partner of now-defunct 250-lawyer Dreier LLP, was arrested on Dec. 7 in New York on wire and securities fraud charges after returning from Toronto where he was caught impersonating an Ontario Teachers' Pension Plan executive trying to sell pension plan notes to a hedge fund.

On Jan. 29, a month after Dreier LLP filed for Chapter 11 bankruptcy protection, prosecutors accused Mr. Dreier of bilking hedge funds and investors of approximately $400 million during a four-year scheme involving the sale of bogus promissory notes.

According to the superseding indictment released last week, Mr. Dreier, who has been free on bail since Feb. 13, sold as much as $700 million in phony notes between 2004 and 2008 to at least 13 different funds and three individuals. (NYLJ, March 18)

But whereas the initial indictment contained an allegation that Mr. Dreier "shall forfeit" all of his real and personal property, including at least $400 million, a yacht, several luxury cars, and an impressive collection of contemporary artwork, the forfeiture notice in the superseding indictment ups the dollar amount Mr. Dreier must turn over to approximately $700 million and extends to all of the Dreier firm's assets.

As far as Ms. Gowan is concerned, this amounts to a "complete turnaround by the government" and "creates a huge problem" for the imminent asset sale, Mr. Ressler told Judge Bernstein.

Before proceeding with a liquidation, the trustee would have to disclose that Dreier LLP's assets could be subject to forfeiture, a move Mr. Ressler suggested would obliterate their value.

Cautious Reassurance

But while Judge Bernstein seemed sympathetic to Mr. Ressler's arguments, Assistant U.S. Attorney Matthew Schwartz assured the judge that the trustee had nothing to worry about.

"I don't think there's any fight to be had," he told the judge.

Calling the forfeiture allegation in the superseding indictment a "notice provision," Mr. Schwartz went so far as to announce on the record that the government had no present intent of forfeiting Chapter 11 assets.

"Our current intention, I believe, is not to forfeit property that is currently part of the estate" or brought into the estate by the trustee, he announced from a bystander bench in the courtroom.

Judge Bernstein suggested the parties hammer out an agreement to address the trustee's concerns. Or Mr. Ressler could make a motion to dismiss the Chapter 11 proceeding, the judge said.

In the absence of a written agreement, Mr. Klestadt said in an interview, nothing stops the government from going back on their word.

"From what I understand," the forfeiture statute apparently is "all powerful" and supersedes the bankruptcy law, he added.

In a phone interview following the hearing, Mr. Ressler said, "We expect to work cooperatively with the U.S. attorney's office going forward."

A spokeswoman for the U.S. Attorney's Office declined to comment on the matter.

As of press time Friday, no agreement had been disclosed.

Among the items up for bid Thursday - on eight "fully furnished floors consisting of top of the line office & designer's furniture" - are plush leather couches, BlackBerries and Cisco switches.

Potential buyers can inspect the lot on Wednesday between 10 a.m. and 5 p.m. at 499 Park Ave.

Meanwhile, Southern District Judge Jed S. Rakoff has set a June 15 trial date for the criminal case against Mr. Dreier.

Judge Sets Dreier Bail Conditions
He Says Will Minimize "Houdini" Like Flight Risk

By Mark Hamblett
New York Law Journal
New York Lawyer
February 6, 2009

Walls Do Not a Prison Make (But They Help):
 Jailed NY Partner Bids to Create "Private Prison"

By Noeleen G. Walder
New York Law Journal
New York Lawyer
February 5, 2009

For two months, attorney Marc S. Dreier has been jailed without bail at the Metropolitan Correctional Center. But if he gets his way, he soon will be released to less spartan accommodations - his own midtown luxury apartment.

First, however, Mr. Dreier has to convince Southern District Judge Jed S. Rakoff it would be fair to allow the lawyer to create his own "private prison" with financial resources available to him.

According to his attorney, Gerald Shargel, Mr. Dreier's sister and brother-in-law have offered to pay $70,000 a month for round-the-clock security guards to ensure that Mr. Dreier does not flee before charges that he bilked investors of $400 million are adjudicated.

Judge Rakoff is expected to rule today or tomorrow on the bid of Mr. Dreier, the founder and sole equity partner of Dreier LLC, to be released on bail.

At a bail hearing before Judge Rakoff on Monday, Mr. Shargel argued that his client was "penniless" after being stripped of all his assets in the wake of his Dec. 2 arrest in Toronto and his Dec. 7 arrest in New York City and does not pose a flight risk.

At the Metropolitan Correctional Center, Mr. Dreier lives in a small cell with a bunk mate, and has limited contact with the outside world. He is permitted to meet once a week with his ex-wife and teenaged daughter and his 19-year-old son, Spencer Dreier. He receives an allotment of 320 minutes per month for phone calls, which includes calls to his lawyer. He can see Mr. Shargel every day.

Mr. Shargel contends the 1984 federal Bail Reform Act, 18 U.S.C. §3142(c)(1)(B), requires the court to release Mr. Dreier, provided a set of conditions exist that will "reasonably assure" his appearance and the safety of the community.

House arrest with armed guards stationed inside Mr. Dreier's apartment would meet those requirements, Mr. Shargel said Monday night at the bail hearing.

Indeed, that arrangement would go further than the house arrest reportedly imposed on Bernard L. Madoff, the alleged mastermind of a massive Ponzi scheme, who has armed guards sitting in a car outside his Park Avenue penthouse.

Magistrate Judge Douglas Eaton previously had ruled that Mr. Dreier, 58, could be released if he posted a $20 million bond, $10 million of which would be secured by a minimum of four financially responsible persons.

Mr. Shargel said his client could not meet those conditions but suggested an uncollateralized bond signed by Mr. Dreier's 85-year-old mother, Mildred, and his son.

Further, he proposed temporary preventive detention at Mr. Dreier's apartment monitored by security guards, who could use "reasonable force" to thwart a potential breakout.

While Judge Rakoff, who is not bound by Magistrate Judge Eaton's ruling, seemed responsive to Mr. Shargel's arguments at the Monday hearing, he said the relatively "rare" issue of using armed guards to secure a defendant's appearance raised two fundamental questions: Is it appropriate to permit "people with means or access to means" to effectively create their own "private prison?" And do armed private guards have the same ability to prevent a defendant's flight as a U.S. marshall or a prison guard?

The tab for private security would dwarf the cost of jailing Mr. Dreier. The average cost of housing a defendant in a federal correctional institution is $68 a day, a spokesperson for the federal prison agency said; a separate breakdown is not available for the MCC.

In court, Mr. Shargel responded that while defendants who have money have "an unquestionable advantage" and can "finance a better defense," they should not be penalized for that fact if conditions can be crafted to assure their appearance in court.

In an interview, Mr. Shargel said that "the size of a person's pocket" should not be a factor when a court is considering bail. Rather, the bail determination is a matter of "customizing conditions" to make sure a defendant shows up when required.

Firearms 'Unnecessary'

But Assistant U.S. Attorney Jonathan Streeter urged at Monday's hearing that it would be "unseemly" and "bad public policy" to allow a "very small class of people" to buy their way out of jail.

Moreover, Mr. Streeter, said he was concerned about whether private guards would have the authority to detain Mr. Dreier if he tried to escape.

"There is a difference between being in an apartment in Manhattan and the [Metropolitan Correction Center]," Mr. Streeter said, raising the question of whether private guards could use deadly force.

In papers submitted to Judge Rakoff Tuesday, Mr. Streeter concluded that under state law, "absent an imminent threat of deadly force by the defendant, private security guards would have no authority to use firearms or other deadly force against the defendant, either to prevent flight or otherwise."
Mr. Shargel, in his own submission to the court, backed away from earlier suggestions the guards would be armed.

He wrote that Mr. Dreier, "has no history of violence." Further, his client "is not a physically large or imposing individual," and would be guarded by "physically fit" retired law enforcement agents stationed in front of his apartment's single exit.

Read the submisions by Mr. Streeter and Mr. Shargel.

"It seems unnecessary to require that the agents carry firearms in order to enforce Dreier's home confinement," he said.

Mr. Shargel compared the conditions he was proposing for Mr. Dreier to those in United States v. Sabhnani, 493 F. 3d 63 (2nd Cir. 2007), in which a Long Island couple accused of enslaving two Indonesian housekeepers was released on bail with an elaborate set of conditions, including "24-hour a day visual surveillance of their Long Island home by on-site private security guards answerable to the court."

"Armed or unarmed, the use of bail enforcement agents employed by the defendant should, in this case, reasonably assure the appearance" of Mr. Dreier, as required by the bail act, Mr. Shargel wrote in his brief.

'Nagging Concern'

Susan C. Wolfe of Hoffman & Pollok in Manhattan, who represents the wife in the Sabhnani case, said that in most cases using private security to monitor defendants on bail is "overkill," and that the same ends usually can be accomplished by electronic monitoring.

Ms. Wolfe said it would be inequitable to prevent individuals of means from hiring private security to permit their release.

"People who have more financial resources are more likely to be considered risks of flight" because they have the money to escape, she explained.

"If those resources can be diverted in order to ameliorate any risk of flight, it's only fair," Ms. Wolfe said.

According to Daniel C. Richman of Columbia Law School, who specializes in federal criminal law, the Bail Reform Act always has presented the "nagging concern" that white-collar defendants facing detention could buy themselves out of jail.

"On the one hand the statute is so capacious in its invitation to come up with conditions to ensure a party's appearance and the security of a community, yet at the same time makes no provision for indigent defendants or poor defendants to be funded in their establishment of such conditions," Mr. Richman said. "The risk is that the statute's language can be used for the creation of private prisons for the rich, leaving indigents stuck in the MCC."

Charles Stillman of Stillman, Friedman & Shechtman, a white-collar defense attorney, agreed that the act gives federal judges considerable discretion to decide what conditions to impose on Mr. Dreier's release.

If Judge Rakoff finds it appropriate to release Mr. Dreier on bail with private guards, "then he should do it," he said.

Landlord Demands Dying NY Firm to Cough Up
More Than $2 Million in Back Rent

By Noeleen G. Walder
New York Law Journal
New York Lawyer
February 4, 2009

The owner of the Park Avenue tower that houses Dreier LLP says the now-defunct law firm owes more than $2 million in past rent.

According to papers filed yesterday in the Chapter 11 proceeding against the firm, Dreier & Baritz, predecessor-in-interest to Dreier LLP, leased over 100,000 square feet at 499 Park Ave., including 8 1/2 floors, parts of the basement and ground floor, and a flagpole.

In moving to compel the bankruptcy trustee to pay $2.1 million of "post-petition rent and other additional obligations under the Lease," the building's landlord, Hines 499 Park LLC, noted that the firm continues to occupy the premises.

While many of Dreier's 250-attorneys fled in early December following news of the arrest of its founder and sole equity partner, Marc S. Dreier, a skeleton staff remained immediately following the bankruptcy proceeding.

Meanwhile, Mr. Dreier, 58, who has been jailed since Dec. 7 and stands accused of defrauding investors of $400 million, argued Monday that he does not pose a flight risk and should be released on bail. Southern District Judge Jed S. Rakoff, who is presiding over Mr. Dreier's criminal case, said he expects to issue a decision on whether to release Mr. Dreier no later than Friday.

Dreier Seeks to Unfreeze Assets To Pay Defense Costs

By Mark Hamblett
New York Law Journal
New York Lawyer
January 9, 2009

Jailed attorney Marc S. Dreier is seeking an exception to a freeze on his assets that will leave him enough money to pay the costs of his defense in what the government says is a $380 million fraud case.

Defense lawyer Gerald Shargel has requested a hearing to argue for an exception to the freeze that Southern District Judge Miriam Goldman Cedarbaum granted in December to the Securities and Exchange Commission in a related civil case, SEC v. Marc Dreier, 08 civ 10617.

Mr. Dreier has been held without bail since Dec. 7, when he was arrested at John F. Kennedy International Airport after returning from Toronto, where he had been arrested the previous week for impersonation.

Charged with securities and wire fraud, the only equity partner of the now-shattered 250-member Dreier LLP is accused of hijacking the identity of New York City development company Solow Realty to sell fictitious promissory notes to hedge funds in New York City and Connecticut.

As part of Mr. Dreier's scheme, prosecutors say, he enlisted former broker Kosta Kovachev to impersonate Solow's comptroller. Mr. Kovachev has been charged with a single count of conspiracy to commit wire fraud.

Mr. Shargel's efforts have focused on gathering the evidence to convince Magistrate Judge Douglas Eaton that his client does not pose a flight risk and should be released from the Metropolitan Correctional Center until his trial.

Mr. Shargel said in an interview yesterday he expects to make a renewed bail application in United States v. Marc Dreier, 08 Mag 2676, within the week.

The defense lawyer said his client is cooperating with the receiver appointed by Judge Cedarbaum in the SEC case, Mark Pomerantz of Paul Weiss Rifkind Wharton & Garrison.

"We have spent hours with Mr. Pomerantz or his colleagues aiding them in their effort to identify assets and we have been cooperative with the SEC as well," Mr. Shargel said.

"One of the principal problems the government identified at the initial bail hearing, and Magistrate Judge Eaton identified, was the suggestion that Mr. Dreier had access to millions of dollars and millions were somehow offshore," Mr. Shargel said. "That's not true. I believe that what we've been able to do is demonstrate there is no reservoir of money and no money off-shore and that will be an important part of our bail argument."

Prosecutors have 30 days following a defendant's initial appearance to bring an indictment, but Mr. Shargel has already consented to a one-month extension until the first week in February.

Mr. Shargel wrote to Judge Cedarbaum Wednesday responding to an SEC order to show cause. He stated that "there are significant issues as to whether Mr. Dreier will be able to pay his attorney's fees and other expenses related to his defense in his related criminal case."

Mr. Shargel said in the interview he has been retained by Mr. Dreier, although he declined to discuss the specifics of the arrangement. He also said his application to Judge Cedarbaum was not to seek additional attorney's fees right away, but was more forward-looking.

"In every criminal case, apart from legal fees, there are costs attendant to defending the case - the ability to investigate all facts and circumstances surrounding the allegations," Mr. Shargel said. "It's our duty to see what evidence can be mounted or gathered in connection with defending Mr. Dreier or presenting mitigating circumstances and it may be necessary to apply to the court because every dollar he has is frozen."

He added, "It may be necessary for me to engage professionals who will aid me in my effort," but he declined to comment on whether he would try to present a defense of insanity or diminished capacity.

Mr. Shargel's request for a hearing before Judge Cedarbaum was made pursuant to United States v. Monsanto, 491 U.S. 600 (1989), which requires an "adversary, post-restraint, pretrial hearing as to probable cause that (1) the defendant committed crimes that provide the basis for forfeiture, and (2) the properties specified as forfeitable . . . are properly forfeitable."

He cited Southern District Judge Kimba Wood in SEC v. Coates, No. 94 Civ. 55361, 1994 WL 455558 (S.D.N.Y.).

"In Coates, Judge Wood held that where an order may affect a defendant's right to counsel of his choice in a related criminal case, Monsanto requires that such an order 'may not be continued through trial in the absence of an adversary hearing as to whether (1) the SEC has established a prima facia case of securities law violations, and (2) the SEC has made a showing that the frozen assets are traceable to fraud."

Mr. Shargel's only other objection to the order to show cause in the SEC case was the agency's demand for a "verified written accounting" of assets.

He said that demand is impossible to fulfill because the imprisoned Mr. Dreier does not have access to the documents he would need to provide an accounting. In any event, he said all the documents are either in the possession of the SEC, the U.S. Attorney's Office or both, and are in the possession of Mr. Pomerantz as well.

A spokesman for the SEC said it would have no comment on Mr. Dreier's requests.

On Dec. 12, Assistant U.S. Attorney Jonathan Streeter told Magistrate Judge Eaton that Mr. Dreier was an "enormous" flight risk. The prosecutor cited multiple deceptions to show that Mr. Dreier was likely to flee the jurisdiction if released, including his attempt to commit an additional fraud in Canada and the fact that Mr. Dreier kept "a box of cell phones" in his Park Avenue offices.

Nonetheless, Magistrate Judge Eaton invited Mr. Shargel to return to court if he could present evidence that Mr. Dreier had not secreted funds abroad and had been cooperative with the receiver in identifying assets.

The Madoff Analogy

As Mr. Shargel marshals his bail arguments, there is an elephant in the room who may be of assistance - Bernard Madoff.

Mr. Madoff, accused of fleecing investors of tens of billions of dollars in what has been described as the largest Ponzi scheme in history, remains free on bail, although prosecutors are now trying to have Magistrate Judge Ronald Ellis revoke bail because Mr. Madoff and his wife mailed packages of jewelry valued at over $1 million to relatives and friends in late December - a violation of an order not to dissipate assets in a related SEC case.

Magistrate Judge Ellis is expected to decide the issue today or Monday. Legal observers have argued that the risk of flight in the two cases must be evaluated against their particular facts, but if Mr. Madoff is allowed to stay at liberty, the example could at least help Mr. Shargel make his case for Mr. Dreier.

Meanwhile, proceedings are continuing in a Chapter 11 bankruptcy case filed by Mr. Pomerantz in the Southern District for the firm, In re Dreier, LLC, 08-bk-15051.

Yesterday, at a meeting held by the U.S. Trustee's Office, a seven-member committee of unsecured creditors was appointed and Klestadt & Winter was selected as counsel, said Tracey L. Klestadt. The committee includes the firm's landlord, Hines 499 Park LLC, and the legal staffing agency, Mestel & Company.

Feds Bust Ex-Broker for Role in
Disgraced NY Partner's $380 Million Scams

By Mark Hamblett
New York Law Journal
New York Lawyer
December 24, 2008

A broker who allegedly helped disgraced attorney Marc Dreier market millions of dollars in bogus promissory notes to hedge funds was arrested Monday night.

According to a criminal complaint unsealed yesterday in the Southern District, Kosta Kovachev posed as the comptroller of the real estate developer Solow Realty when Mr. Dreier attempted to sell a New York City hedge fund $115 million in notes that purportedly were issued by Solow.

Mr. Kovachev, 57, was charged with a single count of conspiracy to commit wire fraud in violation of 18 U.S.C. §371. He was ordered held at his initial appearance before Magistrate Judge Frank Maas late yesterday.

Meanwhile yesterday, a panel of the Appellate Division, First Department, suspended Mr. Dreier from the practice of law, effective immediately, "on the basis of uncontroverted evidence of serious professional misconduct."

There may be more charges to come in the Dreier case, as the criminal complaint states that Mr. Kovachev joined the conspiracy with Mr. Dreier and "others known and unknown."

In 2006 and 2007, Mr. Dreier allegedly sold to a New York City hedge fund promissory notes with a face value of $115 million purportedly issued by Solow Realty.

But in 2008, when the notes were not repaid in time, a hedge fund employee sought reassurance from Mr. Dreier and asked to meet with representatives of the developer at Solow's offices.

Mr. Dreier agreed and arranged a meeting at Solow for Oct. 15, 2008, without the knowledge of the real estate firm. At that meeting, the criminal complaint alleges, Mr. Kovachev pretended to be Solow's comptroller and answered questions about the company's finances.

Later that month, Mr. Kovachev, this time as himself, contacted the founder of another hedge fund for whom he had worked as a broker. Mr. Kovachev allegedly told the founder about the Solow notes and put him in touch with Mr. Dreier, who then sold the fund a $25 million note for the bargain price of $13 million.

Finally, when an employee of a third hedge fund wanted to speak with Solow's chief executive officer in connection with the purchase of $100 million in notes, Mr. Kovachev got on the phone and impersonated the executive.
Federal officials said Solow was uninvolved in any of the transactions.

Mr. Dreier had access to the offices of Solow Realty because he had done extensive legal work for the company.

"The company never authorized Mr. Dreier to negotiate any financing or issue any promissory notes on its behalf," a spokesman for Solow Realty said in a statement yesterday.

The spokesman added that "as soon as the company learned that fraudulent and forged instruments purporting to be obligations of Solow Realty were circulating, the company reported the facts to the U.S. Attorney's Office and we have been cooperating fully with the investigation."

In the criminal complaint against Mr. Kovachev signed on Dec. 18 by Southern District Magistrate Judge Theodore Katz, Criminal Investigator Jordan Goodman of the Southern District U.S Attorney's Office said he interviewed Solow's chief executive, who assured him, "The developer did not issue any of the notes described above and has no note program."

It was that same executive who told Mr. Goodman that the signatures appearing on the notes were forgeries. Financial statements provided by Mr. Dreier to the hedge fund, Mr. Goodman said in the complaint, "were entirely fabricated."

Mr. Kovachev, the investigator said, had an electronic pass that gave him access to Dreier LLP and also had access to computers and offices at the law firm.

At yesterday's hearing before Magistrate Judge Mass, Southern District Assistant U.S. Attorney Jonathan Streeter convinced the court that Mr. Kovachev was a risk of flight and should be held until he can post a $300,000 personal recognizance bond guaranteed by three financially responsible parties and put up $100,000 in cash or property.

Magistrate Judge Maas said it was "a close call" but he was persuaded by two factors. The first was that Mr. Kovachev had traveled extensively to countries from where it would be more difficult to extradite him should he choose to flee. The second was Mr. Streeter's statement that " . . . we know from our investigation that Mr. Dreier paid people up to $100,000 to engage in impersonation in a single phone call."

But Andrew Rendeiro of Flamhaft Levy Hirsch & Rendeiro in Brooklyn, who represents Mr. Kovachev, said he was confident his client could meet the bail conditions within a few days.

Mr. Rendeiro said, "Eventually, when the money trail is chased you will see hundreds of millions [went to] Mr. Dreier, 99.9 percent of it" and only a small percentage to his client.

Mr. Rendeiro said his client, the father of five, had already been linked to Mr. Dreier and, had he been prone to flee, would have done so in the immediate aftermath of Mr. Dreier's arrest.
Mr. Kovachev lost his broker's license in 2006 when he was implicated in a $28 million Ponzi scheme in which he and 11 others defrauded some 600 investors through the sale of unregistered securities structured as hotel timeshare rental interests. He was not criminally charged in the matter and denied any wrongdoing in a settlement with the Securities and Exchange Commission in which he paid $358,148 in disgorgement and penalties.

The New York Times reported in July 2004 that Mr. Dreier said Mr. Kovachev, then head of a dissolved Florida company called Evergence Capital Partners, was a client of his law firm. In a dispute between Solow Realty and developer Peter Kalikow, Mr. Solow and Mr. Dreier hired Evergence to place newspaper ads listing ex-creditors of Mr. Kalikow, the Times reported.

Dreier Suspended

Mr. Dreier was arrested on Dec. 2 in Toronto on an impersonation charge and on Dec. 7 in Manhattan on securities and wire fraud charges for what prosecutors now say is a $380 million fraud.

He has remained in custody without bail as his 250-member firm, Dreier LLP, has imploded and gone into bankruptcy. What is left of the firm's assets and client escrow funds is in the custody of receiver Mark Pomerantz of Paul, Weiss, Rifkind, Wharton & Garrison, appointed by Judge Miriam Goldman Cedarbaum in a civil suit against Mr. Dreier by the Securities and Exchange Commission.

According to defense attorney Gerald Shargel, Mr. Dreier is cooperating with Mr. Pomerantz in identifying and locating assets, an effort Mr. Shargel said he hopes will reassure a judge that Mr. Dreier has not stashed assets abroad and can be trusted to be released pending trial or a plea.

According to an unsigned opinion yesterday by the First Department panel that suspended Mr. Dreier, he had asserted his Fifth Amendment privilege against self-incrimination, declining to contest the suspension due to the ongoing federal criminal case.

The panel noted that Mr. Dreier had been accused of defrauding multiple investors, making a profit of at least $100 million at their expense.

"The sheer magnitude of the alleged conversion in this case, and the fact that some of the acts in furtherance thereof allegedly took place while respondent was in a Canadian prison are cause for public concern," the panel observed.

In addition to Mr. Streeter, the government was represented by assistant U.S. attorneys Raymond J. Lohier and Anne E. Arreola.

Lawyer Seen as Bold Enough to Cheat the Best of Investors

By Alison Leigh Cowan, Charles V. Bagli and William K. Rashbaum
The New York Times
December 14, 2008

Marc S. Dreier knew the 45th-floor conference room of Solow Realty well. He had been in it many times as a trusted lawyer for the company’s founder.

So nothing seemed amiss when he showed up one afternoon in October and told a receptionist he had a meeting with her boss, people associated with Solow say.

Mr. Dreier was elegantly dressed, as always, the people said. He had three people with him. The receptionist ushered the group past her desk. They were sitting there, visible inside the glass-walled room, a few minutes later when the boss, Steven M. Cherniak, happened to walk by.

Mr. Cherniak would later tell people at the company how surprised he had been to see Mr. Dreier. He had not scheduled any meeting with him, and he had no idea what Mr. Dreier was up to.

But people there gave little thought to Mr. Dreier’s odd visit until November, when the company’s founder, Sheldon H. Solow, received a disturbing call. The caller wanted to let Mr. Solow know that Mr. Dreier had offered him the chance to buy promissory notes that had been issued by the company, people associated with the firm said.

They were fake notes, and shortly thereafter, lawyers for Solow Realty — different lawyers — were in touch with federal authorities, reporting their suspicions that Mr. Dreier might be engaged in financial fraud.

Since that opening tip, federal authorities have been tracking what they describe as a brazen swindle of some of New York’s savviest investors by one of New York’s more accomplished lawyers. Mr. Dreier has been charged with multiple frauds in the United States and a related crime in Canada, and is being held without bail in Manhattan.

In court last week, prosecutors said their count so far put the money missing at $380 million, most of it lost by hedge funds and other investors who had bought promissory notes that were flat-out fictions.

In recent days, Dreier L.L.P., the Park Avenue law firm that Mr. Dreier founded, has been plunged into chaos. At least $35 million in escrow that was to have been held by the firm seems to be missing, the authorities say, and nearly all of its 250 lawyers are now looking for work.

The amounts pale next to the $50 billion fraud that another high-profile New York figure, http://www.nytimes.com/2008/12/12/business/12scheme.html?emBernard L. Madoff, was accused last week of orchestrating, but they have unnerved lawyers and their clients in the broader legal community.

As the Dreier firm’s lawyers rummage through the law firm’s books, which had been until recently Mr. Dreier’s exclusive preserve, they are finding that bills have not been paid in months. Their health insurance is in default and the firm will not be able to make its $2.6 million payroll on Monday, lawyers there say.

"No one is in charge," Vincent F. Pitta, a lawyer at the firm, complained last week in an affidavit in support of a government request to freeze assets. "The news of Mr. Dreier’s arrest has had a neutron-bomb-like effect on Dreier L.L.P."

Few have fallen as quickly as Mr. Dreier, a Yale graduate and Harvard-educated lawyer who had been a partner at some of New York’s better known firms before opening up a high-profile practice of his own in 1996 that now has offices in five cities.

"He promised lavish salaries and lavish compensation and he was attracting the best and the brightest," said Gerald L. Shargel, Mr. Dreier’s lawyer. Mr. Shargel said Mr. Dreier is cooperating with the receiver now running the firm.

The expense of running such an operation does not provide a ready explanation for thefts of such magnitude. Even the cost of sustaining Mr. Dreier’s appetite for luxury does not provide an easy answer for what instilled the desperation that seems to have prompted schemes involved here, schemes that prosecutors said involved Mr. Dreier pretending to be other people.

Mr. Dreier’s lifestyle includes a waterfront home in the Hamptons, a Manhattan triplex and a place on Ocean Avenue in Santa Monica, Calif. He kept a Mercedes 500 in New York, an Aston Martin in California, and a 121-foot blue and white Heesen motor yacht with a Jacuzzi and a crew of 10 docked in Manhattan or St. Maarten. Associates said the boat, the Seascape, was the site of late-night parties at which Mr. Dreier, who is divorced, was often joined by an attractive young crowd.

The law offices themselves at 499 Park Avenue were like modern art galleries. In court papers filed this week, the comptroller for the law firm reported that $30 million to $40 million of the firm’s assets had been spent on art. Among Mr. Dreier’s holdings were works by Picasso and a Warhol depiction of Jacqueline Kennedy Onassis.

In recent days, someone not affiliated with the firm removed several pieces of artwork from the walls and carted them away, a person at the firm said. It was not clear what became of the art.

Today, lawyers at the firm cannot remove even client papers without the permission of authorities who are struggling to track the apparent financial chicanery.

Mr. Dreier, 58, controlled the finances of his law firm to an unusual degree, according to lawyers there, because of the unusual way it was set up.

Mr. Dreier was the only equity partner in the firm, and deals were structured so that only he knew all the specifics and had access to all accounts, people with the firm said in court papers. Mr. Dreier convinced lawyers that such an arrangement was best by emphasizing that it would allow them to concentrate on their first love, the law, while he worried about running the firm.

There would be no executive committee. No partners meetings. Mr. Dreier would handle all administrative chores.

For lawyers there now, the delegation of responsibility means that they are just now figuring out that Mr. Dreier had let their malpractice insurance lapse, exposing them to enormous risk if they are sued by Mr. Dreier’s growing list of potential victims, lawyers said.

Mr. Dreier, who grew up on Long Island, the son of a refugee from Poland who owned movie theaters, evolved into a bon vivant who belonged to the Harmonie Club and was a staple of high-wattage charity events.

As a lawyer, Mr. Dreier could be aggressive, as was evident when he was reprimanded in 2004 by a bankruptcy court judge. The judge found that Mr. Dreier had, on Mr. Solow’s behalf, played a role in placing false legal ads that highlighted the financial debts of a Solow Realty rival, Peter S. Kalikow.

The judge called the ads "an affront to the court" and "somewhat sleazy."

Two years later, though, Mr. Dreier still did some work for the Solow firm and relied on that connection to convince Wall Street veterans that he was legitimately selling promissory notes issued by the company.

In 2007, one investment house, Perella Weinberg Partners, bought a company that had purchased and was holding the supposed Solow paper through Mr. Dreier, someone familiar with the situation said.

The investment firm has told its investors it had no reason to be overly suspicious about the notes because someone, ostensibly Mr. Dreier, had been paying interest on them in a timely manner. Now worthless, those and other notes purchased through Mr. Dreier were valued by the firm at $45 million, roughly 4 percent of the portfolio holding them.

A subpoena shows the government is seeking information about a dozen more hedge funds that may have been defrauded.

One investor on the list was Nick Maounis, the Connecticut trader who made headlines two years ago when a $6 billion fund he started called Amaranth blew up. He is now operating a new hedge fund known as Verition. A person close to Verition said the fund had declined to purchase the notes.

Making it harder to reconstruct the sale of the notes is the possibility that investors sold them among themselves. Prosecutors say the evidence against Mr. Dreier is strong and includes recordings in which he admits that some of the notes he was selling were fabricated.

Days before Mr. Dreier’s arrest in New York, court documents showed, a lawyer with his firm asked Mr. Dreier to release $38 million from an escrow account for a client, only to discover that much of the money had vanished.

The next day, Dec. 2, Mr. Dreier flew to Canada and tried to hold a meeting there very much like the unauthorized gathering he is said to have held in Solow’s Midtown Manhattan offices, the authorities say.

In the offices of the Ontario Teachers’ Pension Plan, the authorities say, he tried to pass himself off as a lawyer for the plan and close the sale of an additional $33 million in fraudulent promissory notes supposedly backed by the plan.

A receptionist there caught on, the authorities said, and called the police, who arrested him.

Being jailed in Toronto did not curb Mr. Dreier’s interest in moving money, and he feverishly worked the phones, according to court papers.

At this point, the law firm’s comptroller refused his requests to move millions of dollars. He did agree, though, to Mr. Dreier’s request to be connected to the bank that handled the law firm’s accounts, an assistant United States attorney, Jonathan R. Streeter, said in a bail hearing on Thursday. "He successfully got $10 million transferred out of an escrow account into a personal account that he controlled," Mr. Streeter said.

That money, like all the rest, remains unaccounted for.

Jason Grant and Andrew Ross Sorkin contributed reporting.

Rushing for the Exits, NY Lawyers Say Firm's
 Coffers Are Missing Many Millions

By Mark Hamblett
New York Law Journal
New York Lawyer
December 11, 2008

As Marc S. Dreier was being arrested for attempting to defraud hedge funds of more than $100 million, some of the 10 affiliates of Dreier LLP were peeling off and others were trying to hold the firm together even as money for insurance and some operating expenses is frozen.

Declarations filed Monday by the Securities and Exchange Commission in connection with a civil case it brought against Mr. Dreier also indicated that some firm attorneys were concerned that escrow accounts, which Mr. Dreier controlled, had been depleted.

One named partner of an affiliated firm, Vincent Pitta of Pitta & Dreier, stated in a declaration that the firm could not meet its expenses. The reason, Mr. Pitta said, was that he and Mr. Dreier were the sole signatories to the firm's operating account, and Mr. Pitta had only limited authority to approve spending.

Premiums on health insurance and malpractice policies for the 13-member firm were not being paid and that coverage would soon lapse, Mr. Pitta reported.

"The news of Mr. Dreier's arrest has had a neutron bomb-like effect on Dreier LLP, although P&D firm operations are continuing unabated and we are vigorously representing our client's interests," Mr. Pitta said.

Pitta & Dreier, formed in 2005, concentrates on labor, employment and employee benefits issues. The firm is one of 10 affiliated entities over which Mr. Dreier shared control.

The affiliates paid their revenues into the accounts and Mr. Dreier, the sole equity partner, paid the affiliate's expenses, including fixed salaries and incentive compensation for "partners" or "principals."

The declarations were filed in support of the SEC's application to Southern District Judge Miriam Goldman Cedarbaum for a temporary restraining order, a preliminary injunction, an asset freeze and other relief.

In another declaration, Joel A. Chernov, a partner in Dreier LLP and its predecessor Dreier & Baritz, said the firm's December rent was overdue on its offices at 499 Park Ave., and that AT&T was set to terminate BlackBerry service.

Mr. Chernov said no one at the firm had the authority to pay unpaid invoices and "many" Dreier LLP attorneys and staff have left the firm.
"It is my understanding that they have taken certain files with them," Mr. Chernov said.

Mr. Pitta said he recommended to other partners that an inventory of all the firm's property be taken to "prevent unauthorized removal" but no one had done so because "in Mr. Dreier's absence no one is in charge of Dreier LLP or empowered to authorize the expenditure needed for an inventory to be taken."

The job of conducting an inventory and preserving the firm's assets will now fall to Mark Pomerantz, a partner at Paul Weiss Rifkind Wharton & Garrison who Judge Cedarbaum said she would appoint as a receiver in the SEC case.

Mr. Pitta said in his declaration that, since the firm was founded, he had written few checks on the operating account. Mr. Pitta can withdraw funds only to meet ordinary reimbursable client expenses, draw on a "marketing allowance" and take his firm's members base or bonus compensation that is past due.

Accounts Depleted

The SEC also on Monday filed declarations from firm controller John Provenzano and Dreier lawyer Norman N. Kinel.

Mr. Provenzano detailed how millions of dollars were missing from client accounts. He stated that he was aware since he took his position in August 2005 of the disbursement of between $30 million and $40 million in Dreier accounts to pay for works of art.

Dreier LLP maintained eight escrow accounts where client funds were commingled and eight other accounts for individual clients.

Mr. Provenzano stated, and Mr. Kinel confirmed, that Mr. Kinel e-mailed Mr. Dreier on Dec. 1 requesting disbursal of $38.5 million out of an escrow account on behalf of 360networks (USA) Inc., a client that had emerged from bankruptcy in 2002.

Dreier remains counsel for the official committee of unsecured creditors in connection with 360's Chapter 11 bankruptcy and Mr. Kinel asked for the money for distribution to unsecured creditors.

But Mr. Provenzano said in the document Monday that only $19 million remained in the accounts. He recounted that in phone conversations with other firm partners on Dec. 3 and Dec. 4 Mr. Dreier said that, had he not been in custody, he would have been able to return to New York and sell some of his art so the money could be returned.

On both days, Mr. Provenzano was asked by Mr. Dreier to transfer $8 million and then $10 million from the escrow accounts into Mr. Dreier's own accounts, but Mr. Provenzano refused to transfer the money.

Mr. Dreier made those calls from behind bars the day after he was arrested in Canada on a chargeof impersonation, related to his dealings with the hedge funds (NYLawyer, Dec. 8).

Mr. Chernov and another Dreier lawyer, Steven R. Gursky, also received a call from Mr. Dreier on Dec. 4 from Canada.

"I understood from this conversation that Mr. Dreier was implicitly admitting that he had improperly used client escrow funds," Mr. Chernov declared in the SEC filings. "Mr. Gursky and I so informed the other partners in the firm later that day."

In addition to the SEC civil case, Mr. Dreier was arrested in the Southern District for allegedly committing single counts of securities fraud and wire fraud, but the investigation is continuing and more charges may follow (NYLawyer, Dec. 9). The fraud counts were the only ones listed in what was a bare-bones complaint by a Southern District criminal investigator seeking probable cause to arrest Mr. Dreier.

He made his initial appearance with defense attorney Gerald L. Shargel on Monday before Southern District Magistrate Judge Douglas Eaton.

Mr. Dreier is expected back in court this morning for a bail hearing on the criminal charges.

Raymond J. Lohier, deputy chief of the Southern District U.S. Attorney's securities and commodities fraud unit, and Assistant U.S. Attorney Jonathan R. Streeter are asking that Mr. Dreier be detained.

NY Name Partner Charged With
$113 Million Fraud; Lawyers Bolt Firm

By Zach Lowe and Daniel Wise
New York Law Journal
New York Lawyer
December 9, 2008

Marc S. Dreier, the founder of Dreier LLP, which grew from a handful of lawyers in 1996 to 238, was arraigned yesterday before a magistrate judge in the Southern District of New York on federal charges of pawning off $113 million in bogus securities to two hedge funds.

Separately, the Securities and Exchange Commission filed suit to recover the $113 million. Southern District Judge Miriam Goldman Cedarbaum, who will oversee the SEC's action, said she will appoint Mark Pomerantz of Paul Weiss Rifkind Wharton & Garrison as receiver to protect Dreier's assets.

In another civil suit filed yesterday in the Southern District, Wachovia Bank alleged the Dreier firm and Mr. Dreier had defaulted on a $9 million revolving credit note made in connection with a $14.5 million credit agreement and a term note in the amount of $5.5 million.

In addition to seeking judgment on the loan documents, Wachovia is asking the court to enjoin the firm or any of its current, former or departing attorneys from disposing of any collateral belonging to the bank.

Meanwhile, in the wake of Mr. Dreier's arrest last week on an impersonation charge in Toronto, many lawyers were jumping ship.

In his initial appearance yesterday before Magistrate Judge Douglas Eaton, Mr. Dreier looked haggard and wore a collarless long sleeve shirt and blue jeans. His brow was furrowed and he blinked often.

When Magistrate Judge Eaton asked if him if he understood his rights, Mr. Dreier quietly lineanswered, "Yes."

His lawyer, Gerald L. Shargel, asked for a continuance until Thursday morning to discuss bail conditions. Mr. Shargel asked that his client, who pleaded not guilty, be held at Metropolitan Detention Center in Brooklyn rather than the Metropolitan Correctional Center in Manhattan.

"He has had a very difficult couple of days," Mr. Shargel said.

Outside the courtroom, Mr. Shargel said, "This is a very complicated matter, and facts are beyond the reach of a simple sound bite."

Mr. Dreier "voluntarily surrendered in Canada, came back from Canada voluntarily and he is here to resolve these charges," Mr. Shargel said.
In reference to lawyers leaving the firm, Mr. Shargel said, "Given the reactions of the partners, I don't think there is any firm to run."

The complaint unsealed in the Southern District yesterday charged Mr. Dreier with one count each of securities and wire fraud. He faces a maximum sentence of 20 years in prison if convicted on either count. He also could be forced to pay a fine equal to twice the value of any illegal gains.

The securities fraud count was based on Mr. Dreier's "sale of fictitious notes that purported to have been issued by a real estate company" to a New York City-based hedge fund for $100 million.

In a second bogus transaction, Mr. Dreier was accused of fraudulently selling fake securities to a Connecticut-based hedge fund for $13.5 million.

The New York Times has reported that Solow Realty, a major developer, had complained to federal authorities that Mr. Dreier may have been selling bogus financial instruments, purportedly from Solow, to unsuspecting investors at hedge funds. The Dreier firm previouslyrepresented Solow Realty.

The complaint also charges Mr. Dreier with attempting to sell $44.7 million in bogus instruments to the Fortress Investment Group, a transaction at the heart of his arrest last week in Toronto (NYLaerwy, Dec. 8).

The complaint accused Mr. Dreier of falsifying financial statements and other documents, including signed audit letters from an accounting firm, in connection with the two sales that were consummated.

Bogus Deals

In the complaint, federal investigator James J. Otten reported that Mr. Dreier had admitted in a surreptitiously recorded conversation that an audited financial statement from an accounting firm was fake.

In the conversation, Mr. Dreier was recorded as saying that he was "ashamed" that both the underlying financial documents and the auditor's letter were false. He also stated it was "very serious what happened here."

According to Mr. Otten, Mr. Dreier sold the bogus notes by telling various hedge funds that he represented both the initial investors and the real estate developer who was selling the promissory notes.

He told the hedge funds that the financial meltdown was forcing the investors to sell the notes, telling a Connecticut hedge fund it could purchase them at a significant discount, according to the complaint.
In the alleged $100 million sale, Mr. Dreier also is accused of arranging a conference call during the negotiations with the fund's portfolio manager in which the developer's chief executive officer supposedly participated, when in fact the developer's real CEO told Mr. Otten that he did not issue any of the notes described and that his signatures on some of the notes were forged.

Jumping Ship

Meanwhile, several attorneys from Dreier's intellectual property practice have left the firm and launched their own practice. In an interview, Seth Ostrow, former chair of the firm's patent department, confirmed that he has teamed up with former Dreier partners Matthew L. Kaufman and Arianna Frankl to form Ostrow Kaufman & Frankl.

In addition to Timothy J. Bechen, a former intellectual property associate at Dreier, who will join the new firm as a partner, Mr. Ostrow said he has outstanding offers to three other Dreier associates and counsel, whom he declined to identify. While Mr. Ostrow referred to Dreier's current predicament as "disgusting," he wished his former partners well and said he hopes "everyone lands on their feet."

"This presents a very exciting opportunity for us and we're looking forward to the future," he said of his new endeavor.

Meanwhile, matrimonial, employment and bankruptcy lawyers also have fled the firm, one lawyer said.

Mr. Dreier was arrested Sunday evening by federal agents at LaGuardia Airport as he disembarked from a plane from Toronto.

He was accompanied by Mr. Shargel, who had spent the weekend with him in Canada. Mr. Shargel has represented numerous white-collar and organized crime defendants, including deceased Gambino family don, John Gotti.

A source reported yesterday that the New York City office of Dreier had been "locked down by federal agents for the past 24-hours."

A lawyer at the firm reported that Mr. Dreier, the firm's sole equity partner, had spent "a fortune" on the firm's New York and Santa Monica offices.

The New York office, which is located at 499 Park Ave. at 60th Street, has its entrance on 60th Street with a private elevator to its offices, which are on at least seven floors, the lawyer said, adding "everything is top notch."

Canada Arrest

Dreier's troubles first surfaced last Tuesday when Mr. Dreier was arrested in Toronto for impersonating a lawyer with the Ontario Teacher's Pension Fund, Michael Padfield.

The Toronto episode was one of three where Mr. Dreier was accused of selling bogus instruments.

His arrest foiled the alleged attempt to make a deal with Fortress Investment Group, a New York asset management fund. According to The Wall Street Journal, Mr. Dreier represented that the teacher's funds was involved in the deal when it was not.

On Friday, Mr. Dreier pleaded not guilty to the impersonation charge and was released on $100,000 Canadian bail ($78,700 in U.S. dollars).

Mr. Dreier, 58, a Yale College and Harvard Law graduate, was the former head of litigation in the New York office of Fulbright & Jaworski and, before that, a partner at Rosenman & Colin, now Katten Muchin.

Founded in 1996, the New York-based firm that carries his name operates more like a corporation than a partnership, with Mr. Dreier, the sole equity partner, controlling expenses and liabilities. All other partners get guaranteed base compensation for two- or three-year periods and a bonus based on fees generated.

Dreier LLP was one of several firms that hired refugees from Milberg Weiss after that firm was indicted.

Going South Out West: Will LA Lawyers
Light Out From Scandal-Rocked Firm?

By Amanda Royal and Amanda Bronstad
The Recorder
New York Lawyer
December 9, 2008

The fate of 74 lawyers in Los Angeles is unclear after news that New York lawyer Marc Dreier was charged with $113 million in securities fraud on Monday.

Dreier, the founder and managing partner of New York firm Dreier LLP, was charged with one count of securities fraud and one count of wire fraud, both of which involve a maximum sentence of 20 years in prison.

Over the past two years, Dreier wooed prominent Los Angeles attorneys to form a California partnership known as Dreier Stein Kahan Browne Woods George LLP. None of the L.A. attorneys have been named in the investigation.

The firm, an affiliate of Dreier LLP that operates under separate management, issued a statement on Monday on behalf of its other name partners: "We are continuing to operate our Los Angeles law firm for the benefit of all our clients, while immediately discontinuing our relationship with Marc Dreier."

The Santa Monica firm did not return The Recorder's calls for comment, but now answers its phones with a shorter greeting: Stein Kahan Browne Woods George LLP.

The Recorder reported in 2007 on the unique partnership model Dreier had formed with these Los Angeles attorneys, in which Dreier was reportedly the founder and sole equity partner, and the others were paid employees who negotiated their salaries every few years.

Launched in 2007, the firm features some of the most prominent lawyers in Los Angeles, including entertainment lawyer Larry Stein, corporate attorney Robert Kahan and business litigator Eric George, the son of California's chief justice.

One Los Angeles attorney, who declined to be named, said he had explored going to work at the L.A. firm, but walked away after getting a feeling that something "wasn't right" and that it wasn't a sound business model.

"It wasn't so much the ownership structure, it was how much money he was throwing at these guys. It was too much," the source said, speculating that partners were offered between $2 million and $2.5 million a year.

Then there was a short exchange with Dreier himself that solidified this attorney's impression:

"Dreier said something that immediately set off a warning bell in my mind: He said expenditures don't matter, it's the revenue side that matters."

The recent events could create complications for anyone affiliated with Dreier, said Lawrence Mullman, managing director and co-leader of the partner practice group at Major, Lindsey & Africa.

"If you hold out to the world that you are a partner, you can create liability," he said.

Timothy Treanor, a partner in the New York office of Sidley Austin, who specializes in white-collar criminal defense, securities enforcement matters and civil litigation, confirmed that he represents "some of the lawyers" at Dreier Stein Kahan Browne Woods George. He declined to comment further.

Federal prosecutors in New York claim Dreier was the mastermind behind a more than $100 million investment fraud involving at least three hedge funds. The revelations sent shockwaves through at least four entities, many of them in the entertainment business, in Los Angeles.

"It's pretty safe to say that anybody who was involved in any way with this guy, either as a passive investor or any other way, was pretty shocked and outraged by the events that are unfolding," said David White, managing principal of Entertainment Strategies Group, an entertainment consulting firm in Beverly Hills that Dreier invested in earlier this year.

Beginning in October, Dreier told two hedge funds, one in Connecticut and one in New York, that an unnamed real estate developer was selling promissory notes at a discount amid the recent economic downturn, prosecutors claim in Monday's complaint. The funds were wired to an account that Dreier controlled.

But prosecutors claim that the notes were never issued, according to the chief executive of the real estate developer, who was a former Dreier client, and that his signatures were forgeries.

On Dec. 2, Dreier was arrested in Canada for impersonating an employee of a Canadian business in connection with a sale of millions of dollars in notes to another hedge fund.

Dreier's lawyer, Gerald Shargel, of the Law Offices of Gerald L. Shargel, in New York, did not return a call for comment.

In a related announcement on Monday, the U.S. Securities & Exchange Commission charged Dreier with attempting to raise more than $113 million as part of a "stunning, brazen fraud that targeted some very sophisticated investors."

Dreier, who was arrested on Sunday, has confessed that the notes were bogus and that the real estate developer knew nothing about his actions, the SEC claims. He also confessed that he made up audit opinions and that at least one investor paid him for "millions of worthless securities."

"The conduct alleged here is particularly troubling because it was allegedly committed by an attorney and is contrary to the high standards of character and integrity we expect, and have a right to expect, from members of the bar," said James Clarkson, acting regional director of the SEC's New York regional office, in a statement.

The SEC, which alleges that the wire payments sent to Dreier ended up in "what appeared to be his law firm's escrow account," is seeking an emergency court order to freeze Dreier's assets. About $100 million in proceeds from the note sales is unaccounted for.

Dreier has another California entity under his umbrella. Dreier Sports Opportunities, a sports consulting firm based in Santa Monica, was launched earlier this year, headed by Don Gibson, former general counsel and senior vice president and acting president of Major League Baseball Properties Inc.

Gibson, who is a partner at Dreier Stein Kahan Browne Woods George, did not return a call for comment.

A third firm, Mason Miller, an entertainment transactional boutique formed earlier this year, based in Century City, has ties to Dreier.

Calls to John Mason and Darrell Miller, the name partners, were not returned.

But in an earlier interview with The National Law Journal, Mason said he had planned to join Dreier Stein Kahan Browne Woods & George last year when Stein, a longtime colleague, suggested he contact Dreier to start his own firm. As a transactional attorney, Mason's entertainment clients would pose conflicts with Stein's litigation work at Dreier's Los Angeles affiliate, he said.

He said Dreier is a partner at his firm, which has four lawyers and operates independently by having its own budget, cash flows and staff. Dreier supplies the administrative costs, equipment and files, he said.

"Marc's goal is that where an affiliate needs legal work, they should be able to and ought to send it to an affiliate that does that kind of work. For example, Dreier Sports does refer to Mason Miller sponsorships and endorsement agreements of the athletes they represent," Mason said at the time. "When I have union questions for one of my clients, I just call David White," he said, "and find out where I should go."

White, former general counsel of the Screen Actors Guild, said he has met with Dreier, whom he considers a "passive investor" in his firm, about four times in the past 11 months. "When we make profits, he gets a percentage out," he said. "But he's not involved in the operations at all."

His firm, which has 10 employees, consults producers and other entertainment professionals on union agreements. He said that Entertainment Strategies has hired an attorney to investigate to what extent the criminal charges against Dreier could affect the firm's financial situation.

Lawyer Is Accused in Massive Hedge Fund Fraud

By William K. Rashbaum and Alison Leigh Cowan
The New York Times
December 9, 2008

His legal lineage was impeccable. A Yale man with a law degree from Harvard, he was a litigation powerhouse, a leader at some of the more prominent firms at the New York bar who then started a top-shelf practice of his own.

But when the lawyer, Marc S. Dreier, stepped off a flight from Canada on Sunday night, federal authorities in New York arrested him in a $100 million fraud scheme, portraying his recent undertakings as more high-stakes grifting than high-end lawyering.

In brazen and carefully choreographed scams here and in Canada, Mr. Dreier, who in 1996 founded a 250-lawyer firm that bears his name, is said to have tried to take advantage of the current financial crisis by selling phony debt to hungry hedge funds looking for deals.

But in an era when high-tech frauds and inside information seem to dominate the world of white-collar crime, the square-jawed lawyer, known for his forceful personality and his penchant for high living, apparently did it the old-fashioned way.

Using little more than his position, poise and a kind of reckless bravado, he cajoled his way into accounting, real estate and pension fund offices where he had no real business, according to a criminal complaint unsealed on Monday.

Once there, seated in conference rooms that lent credibility to his charade, he peddled forged promissory notes — utterly worthless paper — linked in some way to his unwitting hosts, the complaint said. He backed up his claims with phony financial statements and bogus audit opinions from a reputable accounting firm, correspondence on the stationery of the New York real estate developer who supposedly issued the debt, and the help of a few confederates, the government said in court papers.

With these tools and little more, he allegedly took hedge fund executives for $100 million in one instance alone, money that the authorities say remains unaccounted for.

Mr. Dreier, 58, is charged with stealing $113 million since October, according to the complaint, although the case is continuing and a spokesman for the acting United States attorney in Manhattan, Lev. L. Dassin, whose office investigated the matter, would not say whether other alleged frauds are under scrutiny.

Indeed, Mr. Dreier was working on getting an additional $33 million last Tuesday, according to the complaint, when that scheme unraveled in a bizarre tableau played out in the offices of a Toronto pension fund, court records and officials said.

He was arrested in Canada and held by local authorities for several days on relatively minor charges. But the disclosure of that arrest eventually sent the law firm, Dreier L.L.P., reeling, and as details of the strange doings there began dribbling out, it became apparent he was also under investigation by federal authorities in Manhattan.

Suddenly, the law firm could not make its payroll, people there said; the Christmas party at the Waldorf-Astoria was canceled; the firm lacked the ability to pay the rent at its Park Avenue offices (once occupied by Bloomberg L.P.); lawyers started packing up; and what had once been a lucrative law practice — a conglomeration of several separate firms — began to collapse.

On Monday afternoon, a United States magistrate judge, Douglas F. Eaton, ordered Mr. Dreier detained until a bail hearing on Thursday. However, because the Securities and Exchange Commission has sought to freeze his assets and those of Dreier L.L.P. in a parallel civil action, it is unclear how he might post bond.

Mr. Dreier’s efforts to enrich himself apparently did not end with his arrest, according to authorities. In a hearing on the S.E.C. action, which immediately followed the arraignment, a lawyer for the commission told Judge Miriam G. Cedarbaum of Federal District Court that Mr. Dreier "did attempt and may have transferred assets" while he was jailed in Canada last week. But the lawyer, Nancy Brown, would not elaborate.

Raymond J. Lohier and Jonathan R. Streeter, the assistant United States attorneys who are prosecuting the criminal case, and Mr. Dreier’s lawyer, Gerald L. Shargel, said little during the arraignment that preceded Judge Cedarbaum’s hearing.

Afterward, Mr. Shargel noted, "This is a very complicated matter — the facts are beyond reach of a sound bite."

Outside the courtroom, when reporters asked whether Mark F. Pomerantz, the receiver expected to be appointed to oversee Dreier L.L.P.’s finances, would also run the law firm, Mr. Shargel alluded to the swift departure of some members of the firm.

"The lawyers have apparently manned the lifeboats," he said. "Given the reaction of the partners, I don’t think there is any law firm to run," he said.

Questions in the case abound. Why — and perhaps more important, when — did Mr. Dreier begin the multimillion-dollar con game detailed in the criminal complaint? How did sophisticated investors, and his highly educated colleagues, get duped?

"Look, it’s a tragic story," said a lawyer who worked with Mr. Dreier years ago, who spoke on the condition of anonymity because of the inquiry focused on the firm.

"I don’t know what happened to him," added the lawyer. "I don’t know if he was always this way or not but it’s just an amazing story."

Mr. Dreier’s résumé included high-level stints at Rosenman & Colin and at Fulbright & Jaworski, where he was head of the litigation department. His credentials and his no-nonsense demeanor helped him attract talent to his legal firm.

He has a triplex apartment on the East Side of Manhattan, along with a house near the beach in Southampton, N.Y., and a 120-foot yacht. The walls of his Park Avenue office drip with expensive modern art, and he kept three personal assistants busy.

The criminal complaint, sworn out by James J. Otten, an investigator with the U.S. attorney’s office, tells a remarkable story of hubris.

The seven-page document, which was filed under seal on Thursday and made public on Monday, details three schemes and charges Mr. Dreier with one count each of wire fraud and securities fraud.

In one scheme, it says, Mr. Dreier sought to sell a total of $146 million worth of bogus promissory notes that he created using the name of a real estate firm, unnamed in the complaint. He convinced a receptionist at the Manhattan offices of the firm (which people involved in the matter said was Solow Realty, a firm that had in the past retained Mr. Dreier) that the firm’s chief executive had authorized him and three other people to use a conference room for a meeting with the executive.

In fact, the chief executive had not scheduled such a meeting. But he later saw Mr. Dreier conducting a meeting in Solow’s conference room, where he was negotiating to sell the notes.

At some point in the investigation, according to the complaint, a cooperating witness secretly recorded Mr. Dreier admitting that he had "participated in the fabrication" of certain financial statements that he was to give to a hedge fund. On the tapes, the government contends, Mr. Dreier "further stated that he was ‘ashamed’ of his role in fabricating the documents and that it was "very serious what’s happened here.’ "

Jason Grant and Charles V. Bagli contributed reporting.

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