Dreier Continues to Sit in Jail, Madoff in Lap of Luxury

Dreier Remains Jailed as Court Imposes Bail Beyond His Reach
The New York Law Jourmal by Mark Hamblett - January 23, 2009

Marc S. Dreier will remain behind bars until he can get another judge to take a look at possible bail conditions as he awaits trial for alleged frauds totaling more than $380 million. Magistrate Judge Douglas Eaton yesterday declined to order Mr. Dreier, 58, detained outright, but he set such tough conditions for his pretrial release that defense attorney Gerald Shargel said his client was "effectively" denied bail. Mr. Shargel said after the hearing he would appeal the ruling to a Southern District judge. Mr. Shargel did not hesitate to play the Madoff card yesterday, contrasting his client's continued confinement with the pretrial release of Bernard Madoff, who is accused of orchestrating a $50 billion Ponzi scheme. Mr. Madoff has been confined to his Upper East Side penthouse. Mr. Shargel, his voice rising as he referred to Mr. Madoff, said, "$50 billion and counting!" Referring to the government's emphasis on Mr. Dreier's traveling and foreign connections, he said of Mr. Madoff, "Hotels over $7,000 a night! Money all over the place! [Visiting] Countries we've never heard of."

But Magistrate Judge Eaton said there were critical differences between Mr. Dreier and Mr. Madoff, including how Mr. Dreier was apprehended and his inability to find the money or backers who can secure his appearance in court. Magistrate Judge Eaton set bail at $20 million, with $10 million to be secured by at least four financially responsible persons, in addition to conditions agreed to by Mr. Shargel - 24-hour armed guards in Mr. Dreier's apartment on East 58th Street and electronic monitoring.  The magistrate judge also cited Mr. Dreier's erratic and impulsive behavior as contributing to the risk that he could flee, and added the condition that he see a psychiatrist twice a week, who may prescribe medication as needed.

Mr. Dreier, wearing the prison blues of the Metropolitan Correctional Center, looked far more composed yesterday than he did at his initial court appearance on Dec. 8, when he appeared haggard and exhausted. He was animated yesterday, speaking several times to Mr. Shargel during the 90-minute hearing. At a bail argument on Dec. 11, Assistant U.S. Attorney Jonathan Streeter called Mr. Dreier a "Houdini of impersonation," and said he suspected that the former head of the 250-lawyer Dreier LLP had a pile of cash stashed somewhere overseas. Magistrate Judge Eaton on Dec. 11 agreed on the risk of flight but invited Mr. Shargel to come back once he could obtain evidence that Mr. Dreier did not have assets hidden abroad. That evidence, he said, would come in the form of full disclosure to Mark Pomerantz of Paul, Weiss, Rifkind, Wharton & Garrison, the receiver appointed to discover and hold Mr. Dreier's assets in a related case brought by the Securities and Exchange Commission.

Mr. Shargel thought he had the evidence he needed - a favorable report from Mr. Pomerantz with a laundry list of now-frozen assets and no foreign bank accounts or property Mr. Dreier could use to lead a life of leisure if he jumped bail and fled the United States. Magistrate Judge Eaton was not convinced by Mr. Shargel's argument that his client voluntarily returned to the United States on more than one occasion in October and November despite "clear storm warnings" that he would face criminal charges. Mr. Dreier is accused of pretending to represent Solow Realty and peddling more than $100 million in bogus promissory notes in the company's name to three hedge funds in New York and Connecticut. Mr. Streeter also said that Mr. Dreier looted his law firm's client escrow accounts and spent the money on bad investments, expensive artworks, high-priced vehicles, real estate and other items.

Clear Distinctions

Magistrate Judge Eaton said there were "extraordinary facts" that distinguished the Madoff and Dreier cases. For one, it did not impress him that Mr. Dreier returned to the United States in the fall despite "clear storm warnings," because he went to Canada, where he was arrested on Dec. 2 trying to peddle millions more in phony notes. The judge called that behavior "reckless and clever." "Frankly, it suggests a mental disorder," Magistrate Judge Eaton said. "He did something extremely reckless, and that behavior was after he knew he was facing the prospect of a criminal charge. That makes this case very different from the Madoff case."

Another factor was that Magistrate Judge Eaton was presiding in magistrate's court on the evening of Dec. 11, when Mr. Madoff was brought before him for an initial appearance. Mr. Madoff was released with the consent of the prosecution. Although the prosecution would later reverse course when it discovered Mr. Madoff had mailed more than $1 million in jewelry to family and friends in direct violation of a court order in a related SEC case, Magistrate Judge Ronald Ellis and then Judge Lawrence McKenna ruled that Mr. Madoff could remain under house arrest. In Mr. Madoff's case, Magistrate Judge Eaton said yesterday, "You had no complaint from any investors. The government just opened up a file" based on information offered by Mr. Madoff's two sons.

"Whatever you have to say about him, he told his sons and he expected to be arrested and he took no extraordinary measures," Magistrate Judge Eaton said. "He just sat there waiting to be arrested. The government came in here with a bare bones complaint" and they consented to bail.  "I think the risk of flight is greater in Mr. Dreier's case than in Mr. Madoff's case," he said. In contrast to Mr. Madoff, the prosecution has sought to have Mr. Dreier detained from the outset. In a letter brief filed Wednesday, Mr. Streeter pointed to connections Mr. Dreier had in Turkey and the attempts of his 19-year-old son, Spencer, to try and have cell phones in Mr. Dreier's offices destroyed; keep Mr. Dreier's yacht in St. Martin rather than have it returned to the United States; and have Mr. Dreier's caretaker sign documents that would purport to transfer real property from the father to the son. Magistrate Judge Eaton said he was willing to accept some of Mr. Shargel's conditions, but would not approve a bail package without some cash or property as security.

But although he made reference to Mr. Dreier's various connections in the legal and financial world, where presumably people with means could be found to pledge security for the disgraced attorney, Mr. Shargel indicated such people were unlikely to come forward, saying some of those relationships have been "squandered" based on "the allegations in the complaint."  He called the bail package "excessive." Unless the defense consents to an extension, Mr. Streeter must obtain an indictment by Feb. 7. An indictment would result in the random assignment of the case to a judge and the chance for Mr. Shargel to make a fresh bail argument. But Mr. Shargel said he plans to appeal the decision to the Part I judge in the Southern District next week. Absent a recusal or some other scheduling conflict, that judge would be Alvin Hellerstein. Mr. Shargel, speaking to reporters after the hearing, said without further comment that he expected the case to be "resolved" within the year, but declined further comment.

Toronto Case

Also yesterday, Mr. Dreier received another hearing date in Toronto. Mr. Dreier was not present in a Toronto courtroom yesterday morning, the first scheduled hearing date since he was arrested there in December for allegedly impersonating a lawyer from the Ontario Teachers' Pension Plan. Another hearing date has been scheduled for March 5 in Toronto. Todd White, one of Mr. Dreier's lawyers in Toronto, said he has not yet received the disclosure document from the government, which lays out the allegations and the evidence in the case. "Once we have that information, we'll deal with it then," said Mr. White, a partner in Toronto's Greenspan, White.  Mr. White said he has not been in touch with Mr. Dreier, only his other lawyers. The charge in Canada is being handled separately from his charges in the United States, he said. Mark.Hamblett@incisivemedia.com