Lawyer Seen as Bold Enough to Cheat the Best of Investors
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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, Bernard 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, Verition. A person close to Verition said the fund had declined to buy 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.
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