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Tuesday, December 9, 2008

Dreier and NY's World of Fraudulent Legal Documents

Dreier Arraigned on Two Charges; Receiver Named to Guard Firm Assets
The New York Law Journal by Zach Lowe and Daniel Wise - 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 answered, "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 previously represented 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 (NYLJ, 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, more recently, a partner at Rosenman & Colin. 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. Mark Hamblett, Noeleen G. Walder and Nate Raymond contributed to this report.

New York Post Article:

The New York Post by BRUCE GOLDING - December 9, 2008

A hotshot Manhattan lawyer suspected in a massive scam in Canada was nabbed stepping off a plane at La Guardia Airport - and feds slapped a new $100-million-plus fraud rap against him yesterday. Litigator Marc Dreier - already charged in an alleged $45 million scheme in Canada - appeared in Manhattan federal court to face new charges that he duped two local hedge funds into buying tens of millions of dollars worth of bogus promissory notes. The Securities and Exchange Commission filed a parallel suit claiming Dreier raised at least $113 million marketing the phony notes. And Wachovia Bank sued Dreier, claiming his law firm defaulted on more than $12.6 million in loans. Dreier was charged last week in Toronto with impersonating a Canadian pension-fund lawyer in an apparently related piece of the con.

Sources said Dreier was trying to secure $45 million from Fortress Investment Group, a New York asset-management firm, by pretending to be a lawyer for Ontario Teachers' Pension Plan. Last Tuesday, Dreier arranged for a meeting in Toronto with the pension group - but stayed after it ended, coming across in-house pension lawyer Michael Padfield and getting his business card. Sources said he then waited for Howard Steinberg, a Fortress exec who thought he was meeting Padfield. Dreier took Steinberg to a conference room, allegedly handed him the Padfield business card and began talking about the proposed deal. Steinberg got suspicious and the ruse unraveled, the sources said. Dreier apparently was aware law enforcement would be waiting for him at La Guardia when he returned Sunday night. "I knew before he went back to the States, as did he," his Canadian lawyer, Edward Greenspan, told The Post. Dreier was ordered held without bail pending a hearing Thursday. According to the new federal complaint, Dreier smooth-talked his way into a real-estate developer's Manhattan offices in October and took over its conference room as part of his elaborate con. The alleged plot involved bogus notes supposedly issued by well-known New York real-estate developer Sheldon Solow, an ex-client. Dreier allegedly offered to sell the notes at a large discount to his hedge-fund victims, claiming current investors were liquidating to cover market losses. He reaped $100 million from a New York City hedge fund and $13.5 million from a fund in Connecticut, authorities said. In taped telephone calls, Dreier allegedly confessed to fabricating the notes, saying he was "ashamed" of himself, according to the feds. Dreier's legal mess left his Park Avenue firm in a tailspin, with partners deserting left and right. His New York lawyer, Gerald Shargel, said, "Given the reaction of the partners, I don't think there's going to be any firm to run."


Anonymous said...

Are his fellow rat partners going to escape without liability for their joint actions? Why is Cuomo hiding and not protecting the people? Cuomo can go after the whole partnership for the losses; who is he protecting?

Anonymous said...

Good point on Cuomo. While the financial system and the economy are imploding as a result of rampent fraud, which has been facilitated by lawyers, Cuomo has failed to respond to any complaints about the misconduct of lawyers and the legal system.
Does he think if he justs lays low, it will all go away?
Hasn't he learned from history? One of the results of the 1929 Depression, was the creation of effective regulation and laws to protect the public from financial fraud. These protections have been dismantled recently and it is clear regulation and accountability need to be returned. It seems obvious that the public does not trust present system and is looking to protect themselves.
It is Cuomo's job to hold these crooks accountable, and see to it that justice is served. This obviously can't be done with the current system because the crooks are running it.
Patterson better light a fire under his a** before another shoe drops.

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