Dreier Founder Charged in ‘Brazen’ Alleged $100M Investment Fraud Attempt
Posted Dec 8, 2008 3:09 PM CDT
By Martha Neil
The founder of the not quite 250-attorney Dreier law firm was charged today by federal prosecutors in Manhattan with securities and wire fraud, in connection with what an Securities and Exchange Commission official describes as an alleged "brazen" attempt to cheat three unnamed hedge funds out of $100 million.
Marc Dreier, 58, was also sued today by Wachovia Corp., which contends he defaulted on $12.6 million in loans, reports Bloomberg.
Meanwhile, "the U.S. Securities and Exchange Commission also filed civil fraud charges against Dreier, a Harvard Law School and Yale College graduate who founded Dreier LLP in 1996," reports Reuters. Linda Chatman Thomsen, who directs the SEC's Division of Enforcement, says the agency's complaint "alleges a stunning, brazen fraud that targeted some very sophisticated institutional investors," the article continues.
The claimed fraud, according to federal prosecutors, involved notes purportedly from a New York real estate developer that Dreier allegedly tried to sell to three unnamed hedge funds, Bloomberg reports. "One fund allegedly wired about $100 million to Dreier’s account in October after receiving phony financial documents written by the attorney, prosecutors said. Another fund allegedly wired about $13.5 million."
However, the developer neither issued the notes nor authorized Dreier to sell them, according to the federal criminal complaint.
A subsequent ABAJournal.com post provides additional details about how Dreier allegedly pulled off the claimed swindle, netting $113 million which was reportedly paid into an account in the law firm's name, according to federal prosecutors and securities regulators.
“This is a very complex matter, and the facts are beyond the reach of a sound bite,” Gerald Shargel, Dreier's defense attorney, told Bloomberg after the hearing.
Even before these latest developments, observers were predicting the possible demise of Dreier after news of Marc Dreier's arrest last week in Canada. “The lawyers in the firm have apparently manned the lifeboats,” Shargel told Bloomberg. “Given the reaction of the partners, I don’t think there’s going to be any firm to run.”
Dreier was released on $100,000 bail Dec. 5 after being arrested in Toronto and jailed for three days for allegedly criminally impersonating someone else at the Ontario Teachers Pension Plan concerning claimed “fraudulent behavior," the Bloomberg article notes. When he arrived in New York from Toronto on Sunday evening, he was arrested by U.S. authorities, according to Reuters.
Newly released documents provide additional details and show that authorities have been investigating Dreier since October, reports Crain's New York Business. Its article states that hedge funds actually invested $100 million between Oct. 24 and Nov. 7 in a purported $500 million "note program" concerning the New York real estate developer.
Last week "in Toronto, Mr. Dreier was arrested for impersonating a lawyer for the Ontario Teacher’s Pension Plan and trying to close a $45 million deal with Fortress Global, a New York hedge fund," the article continues.
To perpetrate the claimed fraud, Dreier allegedly "fabricated the promissory notes themselves; had someone else at his firm impersonate the CEO of the real estate company on a conference call with one hedge fund manager; and forged documents from an accounting firm showing the firm had audited the real estate developer," sums up the Am Law Daily.
As discussed in an earlier ABAJournal.com post, the 12-year-old firm billed itself as an economical and "more responsive and innovative alternative to conventional 'large-firm' lawyering."
Updated at 2:30 p.m. to include information from Crain's New York Business; at 2:40 p.m. to include information from the Am Law Daily; and at 6:07 p.m. to include Schargel's comments. Updated at 2:30 p.m. on Dec. 9, 2008 to provide link to subsequent ABAJournal.com post.