In June 2008, as he entertained the crowd at his firm’s third annual charity golf tournament, Marc Dreier looked every inch the big-league New York lawyer. Attendees included film director Spike Lee and soul singer Alicia Keys.
The 58-year-old litigator spoke about the importance that charitable contributions played at his firm, Dreier LLP. As his guests mingled with his staff on the club veranda and strolled around the lush 18-hole course, nobody suspected that behind the scenes Dreier was engaged in an audacious multi-million dollar scam.
Six months later Dreier was indicted on charges of securities fraud. He is accused of cheating hedge funds out of $400 million over a four-year period. He allegedly conspired to sell fake promissory notes issued by a New York real estate developer and a Canadian pension plan. In addition, he is said to have misappropriated millions in client funds.
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Marc Stuart Dreier had always aimed high. The son of Polish refugees, he grew up on Long Island and studied hard, earning places at Yale and Harvard. He gained a reputation as a sharp and able litigator and rose through the ranks to head the litigation group at Fulbright & Jaworski when he was in his early 40s.
But Dreier’s ambition and enterprise made him ill suited to a large partnership. In 1996, he quit to establish his own firm with a friend, Neil Baritz. In 2003 the pair split and Dreier assumed sole control.
Dreier LLP expanded fast. It entered into tieups with law firms in Los Angeles, Albany and Connecticut, and developed into a solid multidisciplinary mid-size operation. Its client list included Fortune 500 companies, celebrities and sports stars.
Dreier insisted on an unusual business model: he was the firm’s sole equity partner. There was no executive committee. There were no partners’ meetings. Dreier handled all the firm’s administrative functions and made all the strategic decisions.
He managed all the financial accounts. Dreier persuaded new recruits that the model worked because it allowed them to focus on their first love – the law – while he tackled the day-today management. This corporate-style set-up attracted good lawyers because Dreier paid well.
Top partners earned more than $1 million, even if the ‘partner’ designation was in name only. “There was a kind of the beauty to the structure,” says an ex-Dreier partner. “People developed their practices without worrying about how their neighbours were performing.”
Dreier LLP took over eight floors of a plush Park Avenue high-rise. Marc Dreier’s office on the 23rd floor had a private elevator. Fresh flowers were delivered to each floor every morning. A Warhol silkscreen of Jacqueline Kennedy Onassis and paintings by Picasso hung on the walls. “He wanted it to look like he was touched by gold,” says a former property partner. “Everything had to be the best.”
Dreier LLP’s success made its sole equity partner wealthy. Last year he paid himself $4 million. He owned a waterfront home in the Hamptons, a Manhattan triplex, and a place on Ocean Avenue, Santa Monica. Over time, his art collection topped $40 million and he purchased a 120-foot yacht with a ten-man crew for trips to the West Indies.
But Dreier must have struggled to finance such a lavish lifestyle in addition to the aggressive expansion of his law firm.
In 2004, Dreier reportedly approached several hedge funds – including Concordia, Context Capital and Elliot International – offering promissory notes issued by a client, New York developer Solow Realty. He made his first sale in
November. Prosecutors allege that the buyers paid the money into an account at Dreier LLP expecting him to pass it on. But he didn’t. The notes were fakes.
Solow – which has never issued a promissory note – was blissfully unaware of the whole transaction.
To pull off the deal, signatures of Solow’s top brass were forged to create phony authentication documents. Those first sales, Dreier convinced himself, were mere technical violations.He ensured interest payments on the notes were met. No one got hurt.
In December 2005, Dreier allegedly sold a second fake note – valued at $10 million – to a different fund. Again, Dreier ensured the payments on the note were met. But Dreier was getting in over his head. The following December the fund extended the term of the note and increased its investment to $60 million. His fraudulent sideline was rapidly becoming a large-scale Ponzi scheme.
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Last June, as Dreier sipped champagne with guests at the charity golf tournament, he boasted that his firm was well placed to tackle the escalating
financial downturn. But inside he was sweating. The crisis, in truth, was gnawing into his business. The New York office’s year-on-year revenues
were down 10%. Dreier fell back on his scams. He reportedly began pushing fake notes purportedly issued by Canadian investor Ontario Teachers’
Pension Plan and guaranteed by telecommunications giant Bell Canada.
Accomplices were roped in to help. One of his friends, a 58-year-old former stockbroker named Kosta Kovachev, had fallen on hard times. Dreier allegedly paid him $100,000 per phone call to impersonate company executives.
Hedge funds in New York received calls from Toronto offering the Ontario Teachers’ notes. A subsequent sale netted $52 million. Dreier’s spacious and private 23rd-floor office provided the perfect hideaway to orchestrate his schemes. He set up various phone lines and owned numerous mobile phones. Dreier coordinated with buyers via a range of fake email addresses. But to maintain the act, in-person meetings were required.
On the afternoon of 15 October 2008, Solow Realty chief executive Steve Cherniak was strolling through the company’s mid-town Manhattan office when something caught his eye. In a glass-walled conference room on the
45th floor, sitting around a table with a bunch of suits, was Marc Dreier. Cherniak was surprised to see him there: Dreier hadn’t worked for Solow for two years.
Dreier – accompanied by Kosta Kovachev – had sneaked into Solow’s offices unauthorised. He had visited his client’s offices on West 57th Street many times. But on this occasion, the US government alleges, Dreier had secretly arranged for a group of hedge fund representatives to visit. Kovachev played the role of a high-ranking Solow executive while Dreier discussed the developer’s new notes issue.
The duo pulled off the high-risk hoax. The fund paid Dreier $83.6 million. But the intricate web of lies was becoming hard to sustain.
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That same month, October 2008, Dreier pitched a Connecticut-based fund an apparent bargain. His client, Solow Realty, had to dump a load of promissory notes at a significant discount, he explained. The original buyers didn’t want them because of the downturn.
The deal promised double-digit returns so the fund snapped up $13.2 million. It then asked Dreier whether it could introduce the offer to Whippoorwill Associates, another local investment house hunting for yield.
When the documentation arrived at Whippoorwill’s Long Island office, the manager Shelley Greenhaus carefully read through the small print. The deal looked too good to be true.
He asked staff to conduct thorough checks. The Solow notes claimed to have been audited by Berdon LLP. But when Whippoorwill staff contacted the accounting firm it had no record of them. Dreier’s cover had been blown.
A few phone calls later, Solow Realty – after being informed that a scam was being conducted in its name – had alerted the federal authorities. Dreier was now under surveillance. The Connecticut-based fund, that had just paid $13.2 million, phoned Dreier to demand an explanation. Dreier admitted that the notes and the support documentation were forged. He said he was “ashamed” and agreed to reimburse the full amount. “It’s very serious what happened here,” he added. A federal wiretap recorded the whole conversation.
Dreier’s business now faced huge cash flow problems. He failed to make rent and insurance payments on his Park Avenue office that November. He must have known the authorities would be on his tail. Despite this, he pushed on with his schemes. In early December, according to a former partner,
Dreier took $38 million from a client’s trust account and transferred it into his own. Then he got onto an aeroplane and flew to Toronto to attempt his most daring hoax yet.
On December 2nd , at the Ontario Teachers’ Pension Plan’s offices in northern Toronto, the Teachers’ lawyer Michael Padfield introduced himself to Fortress Investment Group managing director Howard Steinberg with a firm handshake and handed over his card.
Steinberg had flown in from New York to discuss a $45 million deal. Ontario Teachers’ had offered to sell promissory notes to the asset management firm
at a large discount. But as the pair sat down to thrash out the details, Padfield’s manner made Steinberg feel uneasy. The lawyer seemed unfamiliar with Ontario Teachers’ business.
Steinberg grew so suspicious that he informed office security. Toronto police arrested the man and took him to a nearby detention centre. Earlier that day, Marc Dreier had arranged a meeting with the real Michael Padfield. He’d kept the Ontario Teachers’ in-house lawyer’s business card and hung around the premises till Howard Steinberg arrived. Then, prosecutors allege, Dreier had launched into his act. But under considerable stress, his performance was not convincing. It was one far-fetched impersonation too many.
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But Dreier continued to hustle. In prison he frantically worked the phones, desperately seeking to get firm funds transferred into his private account. Dreier LLP’s controller John Provenzano refused. But Dreier allegedly cajoled another staff member into transferring $10 million from a client’s trust account.
Dreier was released on $78,000 bail after three days in jail. He looked dishevelled and haggard as he left the courtroom without speaking to reporters. In possession of the client’s millions Dreier could have fled. But when news reached him that federal authorities had taken over Dreier LLP’s offices on Park Avenue he realised the game was up.
On December 7th, Dreier arrived back in the USA – accompanied by his lawyer Gerald Shargel – and was arrested by federal agents at LaGuardia Airport as he disembarked.
The response of the lawyers at Dreier LLP’s Park Avenue headquarters was one of total shock. “None of us had the faintest idea this stuff was going on,” explains ex-labour chief Vincent Pitta.
Dreier’s affiliate firms severed all ties and set up new operations. Many lawyers quit and took public steps to distance themselves from their disgraced ex-boss.
Former patent chair Seth Ostrow described his old firm’s predicament as “disgusting.” The firm’s creditors dived in and sued Dreier for millions in outstanding loans.
By mid-December Dreier LLP had filed for bankruptcy. Marc Dreier was ruined. Marc Dreier’s downfall follows a classic pattern, says Peter Henning, a law professor who specialises in white-collar crime at Wayne State University, Michigan. “It always starts with an individual left alone without checks and balances. In that environment, for whatever reason, they cannot resist cutting a few corners.”
Professor Henning says that early on Dreier probably convinced himself he wasn’t doing anything wrong – a mere technical violation – and that he was on top of it. “But, as often happens, the small first steps became bigger and bigger until one day he found himself staring into the abyss.”
Dreier is now under house arrest at his Manhattan apartment while he awaits trial. He was considered such a flight risk that it took a month to negotiate the terms of his $10 million bail. He is under 24-hour surveillance by armed guards. All computers, cell phones and other means of electronic communication – except for one telephone line – have been removed and all visitors have to be approved by the court. In early February, Dreier pleaded not guilty to all charges. If convicted, he faces 20 years in prison. “This crazy turn of events was a shock to everybody,” says a former partner.
“The old adage ‘absolute power corrupts absolutely’ is the way most of us have tried to understand it. In hindsight, it’s amazing no one suspected.”