Dreier Used Law License, Rather Than Ski Mask and Gun, To Steal

Dreier Describes Downfall; Seeks 'Rational' Term for Fraud, Theft
The New York Law Journal by Mark Hamblett - July 9, 2009

Marc S. Dreier yesterday sent a confessional letter to the federal judge who will sentence him on Monday, describing in remarkable detail how he funded the once-admired expansion of Dreier LLP by committing frauds totaling more than $400 million. Facing a recommendation from the government that he serve the rest of his life in prison but pleading for a measured sentence, Mr. Dreier, 59, said his seven-year downward spiral began with a simple theft from a client settlement fund and ended at the point where, "I found myself running a massive Ponzi scheme with no apparent way out." Mr. Dreier's letter was submitted as defense attorney Gerald L. Shargel and Assistant U.S. Attorney Jonathan R. Streeter sent competing memos to Southern District Judge Jed S. Rakoff taking a dramatically different view of the U.S. Sentencing Guidelines. Mr. Dreier claimed that selling bogus promissory notes to investors was part of an attempt to salvage the 250-plus lawyer firm he founded, but he also acknowledged a taste for the good life that led him to dig a deeper hole with each fraudulent scheme. "At the beginning, I spent most of the money growing the law firm," he said, "But as time went on, I was more and more self-indulgent. I bought extravagant things—a beach house, an apartment, a boat, expensive art."

Mr. Dreier said that he always believed he would get the money needed to compensate his victims, but he could not. "It all seems so obviously deplorable now," he said. "I recall only that I was desperate for some measure of success that I felt had eluded me. I felt that my law firm was my last chance to make a mark for myself and I was fearful of seeing it fail." Later, Mr. Dreier said, "I will always be remembered as a thief." Mr. Shargel wrote to the judge that his client expected to serve a "significant" sentence. But he appealed to Judge Rakoff for a prison term that is "both rational and proportionate"—a non-guidelines sentence somewhere between 10 years and one month and 12 years and seven months behind bars. Mr. Streeter, describing the depth of Mr. Dreier's selfishness and the damage he has done, asked for 145 years in prison, the maximum under the sentencing guidelines, or in the alternative, "a term of years that would both assure that Dreier will remain in prison for life and emphatically promote general deterrence." Mr. Dreier pleaded guilty on May 11 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 (NYLJ May 12). He has remained under house arrest in his 3,000-square-foot Manhattan penthouse since Judge Rakoff accepted his plea and said Mr. Dreier "has disgraced the honorable profession of law."

'A Life of Fraud'

Mr. Streeter, in his memo, put the total amount of Mr. Dreier's frauds at $740 million—the amount of money that was stolen from hedge funds and other investors, the money that cycled through Mr. Dreier's own accounts and the money he stripped from attorney escrow funds at now-defunct Dreier LLP. "With all of the advantages conferred by a comfortable upbringing, Harvard and Yale educations, and a solid start in the legal profession, Dreier could have pursued a rewarding and productive life as a lawyer, serving clients and the law, with compensation in the top few percent of the general population," Mr. Streeter wrote. "Instead, Dreier decided to seek vast personal riches and prestige through a life of fraud and through dishonor to his profession."  Mr. Shargel, in his memo, said that he was seeking leniency based not on "sympathy" but "reason." The defense lawyer said Mr. Dreier's punishment "has already begun" with his public disgrace and vilification, the loss of his law firm and all of his possessions and "the shame and suffering that his actions have brought upon his family." Mr. Shargel argued that his client had admitted his guilt, expressed remorse and cooperated fully with authorities in trying to recover assets he had stolen. Now, he said, his client is only asking "for the opportunity to still have some meaningful life beyond incarceration." Mr. Dreier's sentencing will come two weeks after Judge Denny Chin imposed a 150-year sentence on Bernard L. Madoff, who admitted running a Ponzi scheme in which investors lost more than $13 billion. "As colossal frauds capture national headlines, sentences for white collar offenders must not be disproportionately long," Mr. Shargel wrote. "In many ways, the goals of sentencing embodied in 18 U.S.C. §3553(a) have suffered collateral damage in the war on white collar crime." That section lays out some of the factors judges are to consider in sentencing.  Mr. Dreier, the sole equity partner in Dreier LLP, was arrested in December for crimes that date back to at least January 2002, when he began selling phony promissory notes to investors that included firm clients.

By 2004, he had begun marketing to hedge funds promissory notes purportedly issued by one of his biggest clients, Solow Realty & Development Co. He backed up the notes with forged documents and, on more than one occasion, he reassured jittery investors by having accomplice Kosta Kovachev impersonate company executives either in person (using a hijacked conference room at Solow) or on the phone. Mr. Dreier also performed phone impersonations of his own and forged documents to appear as if they came from an accounting firm. It all fell apart on Dec. 2, 2008, when, under increasing scrutiny by U.S. investigators, he was arrested in Toronto while trying to commit another fraud. The formal charge was criminal impersonation—pretending to be a lawyer with the Ontario Teachers' Pension Fund. Even while under arrest, Mr. Dreier instructed that $10 million be transferred to a separate non-law firm account. Mr. Streeter made a point in his memorandum of noting that Mr. Dreier used the proceeds from his various schemes to support a life of luxury, a $16 million yacht, two beachfront homes in the Hamptons and "countless art works." Mr. Streeter also told the judge that Mr. Dreier's victims included people who put their life savings into escrow at Dreier LLP as well as the people who lost their jobs when his law firm collapsed. In a letter to the judge, one victim stated that Mr. Dreier used his "law license, rather than a ski mask and a gun," to commit his crimes.

Mr. Dreier's letter spoke of his shame and disgrace, as well as his cooperation with a receiver and trustee appointed by the court to identify and recover assets. "I have lost everything a man can lose, and now I will lose my freedom as well, and rightly so," Mr. Dreier writes. He described how he formed his law firm but had "planned poorly" for the expenses and could not get bank loans, "so I was funding the firm partially with advances from some clients but primarily through 'factors' who charged exorbitant fees and interest and were highly intrusive in monitoring the firm's accounts." By 2001, Mr. Dreier said he was deeply in debt. In January 2002, his wife of 15 years filed for divorce and Mr. Dreier said he took on obligations for child support and maintenance "far more than I could afford," and that his law firm was in jeopardy. "All of this left me feeling overwhelmed—by my debt, by my disappointing career, by a failed marriage," he said. "And so, incomprehensibly, in 2002, I started stealing." First he stole proceeds of a client's settlement, he said, and then he arranged "a few bogus investments with some individuals." "And soon I stumbled on the brazen idea of arranging fictitious loans from hedge funds, ostensibly to my principal client…and diverting the loan proceeds to myself," he said. Most of the money, he said, went to growing the law firm and servicing debt, but Mr. Dreier also acknowledged that he eventually "stepped into a quicksand of spending." "I don't know what gives some men the strength of character to lead virtuous lives for all of their lives, and what causes others, such as myself, to lose their way," he writes. "There is no excuse whatever for what I've done. I have explained it the best I can. I will try to learn from this, and hopefully others will as well."

'Fundamental Flaw'

Mr. Shargel pointed to what he said was "a fundamental flaw' in the sentencing guidelines.  Normally, he said, Mr. Dreier's offense level would be 14 and his advisory guidelines range would be 15 to 21 months. But the amount of losses here, he said, creates a single 30-level enhancement, which he called "both unreasonable and counterproductive," and allows Mr. Streeter to ask for sentence that would be completed only after Mr. Dreier reached the age of 204. Mr. Shargel was happy to quote Judge Rakoff in the sentencing of former Impath President Richard Adelson. Prosecutors had suggested that Mr. Adelson be given 85 years for a $260 million fraud, but Judge Rakoff gave him 3 1/2 years. In United States v. Adelson, 441 F.Supp. 2d 506 (S.D.N.Y. 2006), Judge Rakoff described "the utter travesty of justice that sometimes results from the guidelines' fetish with abstract arithmetic, as well as the harm that guideline calculations can visit on human beings if not cabined by common sense." Mr. Shargel argued that a 30-level enhancement for fraud loss would be "enormously disproportionate when considering the guidelines as a whole," and he compared it to lesser enhancement for, example, trafficking "a portable rocket or missile," or for committing a "felony involving or intending to promote terrorism." There is no indication, Mr. Shargel said, "that this enhancement is based on real-world policy, rather than reactionary politics."The sentencing of Mr. Dreier is scheduled to start Monday at 5 p.m.   Mark.Hamblett@incisivemedia.com