We have tried to sum up for readers the labyrinthine facts and developments in the shocking and fascinating case of Marc Dreier, drawing upon excellent and thorough articles on the subject by Roger Parloff in Fortune Magazine and by Robert Kolker in New York Magazine.
I. The Rise
Marc Stuart Dreier grew up on the South Shore of Long Island, the son of a Polish refugee who built a chain of movie theaters. He graduated from Lawrence High School in the Five Towns.
Dreier attended Yale and then Harvard Law School. On graduation, he became an associate with Rosenman & Colin in New York, and later became a partner.
In 1987, Dreier married Elisa Peters, an associate at Rosenman & Colin. The couple had a son, Spencer, in 1989, and a daughter, Jackie, in 1992. He moved to Houston-based Fulbright & Jaworski’s New York litigation office in 1989. In 1995, Dreier left Fulbright & Jaworski and briefly worked at Duker & Barrett.
In 1996, Dreier started his own firm, Dreier & Baritz, with securities lawyer Neil Baritz. He developed a business practice whereby he entered into agreements with other lawyers and law firms, promising to handle the collection of their gross revenue and payment of their office expenses in exchange for paying guaranteed salaries and incentive bonuses.
II. Sheldon Solow and Kosta Kovachev
It is rumored that Dreier received money to start the firm from New York real estate developer Sheldon Solow, owner of Solow Realty, a billionaire son of a bricklayer turned developer.
Dreier represented Solow in several matters. One such matter was a dispute over a mansion in East Hampton with Peter Morton, founder of the Hard Rock Cafe, with each man staking a claim to the same multimillion-dollar East Hampton beach house. Another case involved a dispute between Solow and Peter Kalikow, another real estate developer and former owner of the New York Post, over $7 million loaned by Solow to Kalikow while Kalikow’s company was in bankruptcy. Dreier, at the request of Solow, took out full page ads in the Post and the New York Times which looked like legal notices, inviting creditors of Kalikow to call a company called Evergence Capital Advisors.
Evergence Capital Advisors was actually the name of a dissolved Florida corporation formerly owned by a friend of Dreier’s, Kosta Kovachev. Kovachev was a Serbian who attended Columbia University and Harvard Business School and became a banker and securities broker. He was sued by the Securities and Exchange Commission for his involvement in a Ponzi scheme selling time-shares in Florida which defrauded approximately 600 investors in 30 states out of $28 million. Dreier represented Kovachev in the proceeding.
The telephone numbers in the newspaper ads led to Dreier’s offices. More than 50 creditors called the numbers, but never received a response. The U.S. bankruptcy judge sanctioned Solow and Dreier $335,000 over the ads. Solow and Dreier are still appealing the sanctions.
Acquaintances describe Dreier as incredibly charming, but a ruthless litigator. In 2002, Dreier’s wife sued him for divorce. That same year, Baritz severed his ties with Dreier, and in 2003 the firm became Dreier LLP, with about 60 attorneys.
III. The Scheme
Beginning in November 2004, Dreier began to sell promissory notes to hedge funds. Dreier claimed that the notes were issued by Solow Realty, and represented to the funds that he was marketing agent for Solow. In reality, Solow and Solow Realty had no knowledge of the notes, and the notes were forged by Dreier along with fraudulent audit reports on the letterhead of one of Solow Realty’s accounting and firms, Berdon LLP. Dreier would tell fund representatives that Solow was trying to raise $500 million to purchase properties, and that Solow did not want to borrow money from banks for reasons of secrecy and because Solow did not want to be accountable to anyone. He claimed that the notes would return 11% interest a year.
Dreier and his co-conspirators, including Kovachev and a man named Armando Ruiz, would host meetings and conference calls with fund representatives. They would give fund representatives telephone numbers purportedly for Solow Realty’s CEO or Controller, but which actually went to Dreier and his accomplices. Dreier created fake e-mail addresses and obtained no-contract cell phones for the scheme.
The phony notes were purchased by nearly 40 investment funds, including Fortress Investment Group, GSO Capital Partners LP, Elliott Associates, Eton Park, Westford Global Asset Management, Perella Weinberg Partners, Verition and Blackstone Group.
In order to come up with the funds to make quarterly interest payments on the phony notes, Dreier expanded Dreier LLP. The firm eventually employed approximately 260 attorneys and approximately 300 staff and had offices in New York City, Los Angeles, Pittsburgh, Santa Monica, Stamford and Albany, New York. The firm’s New York City office leased 11 floors in a building designed by architect I.M. Pei at 499 Park Avenue.
Dreier lured new attorneys to the firm by guaranteeing them $1 million in salary before bonuses. He financed the expansion by factoring receivables. Although the firm had “partners,” Dreier remained the sole equity partner, which limited oversight.
Dreier amassed a large quantity of luxury property, including a $10 million condominium in Manhattan; two mansions in the Hamptons; properties in the Caribbean; an art collection worth $40 million, including works by Henri Matisse, AndyWarhol and David Hockney; and a 120-foot yacht. Dreier threw lavish parties with private performances by Diana Ross, Bon Jovi or Alicia Keys, and hosted a celebrity golf tournament.
IV. The Fall
By 2008, however, Dreier had a total of $180 million in debt to hedge funds, as well as annual interest payments of $20 million. He began selling a new form of phony note, allegedly issued by the Ontario Teachers Pension Plan (OTPP) and backed by BCE, the parent company of Bell Canada.
In September of 2008, Dreier failed to meet his obligations to one of the funds, likely GSO Capital Partners LP, and the fund demanded to meet with representatives of Solow Realty at Solow Realty’s offices. On October 15, 2008, Dreier, Kovachev and the fund representatives arrived at Solow Realty’s offices, and Dreier, without Solow’s knowledge, proceeded to hold a meeting in Solow Realty’s conference room in which Kovachev pretended to be Solow Realty’s Controller.
Finally, in late October 2008, a prospective buyer of the phony notes finally contacted the Solow Realty’s audit firm, Berdon LLP, whose name had been forged on the notes, and discovered the scheme. Berdon notified Solow, and Tom Manisero, a lawyer for Berdon, telephoned Dreier.
Dreier lied to Manisero, stating that he had only attempted to sell the notes once. He had several other telephone calls with Manisero, which were recorded by the U.S. Attorney’s Office. During the calls, Dreier admitted that the audit reports were fake, and that he was ashamed. On the final call, Dreier attempted to offer Manisero a “settlement.” Meanwhile, the Verition hedge fund discovered the irregularities with the phony notes.
On December 1, a bankruptcy attorney with the firm Norman Kinel sent Dreier an e-mail asking for $38.5 million out of the firm’s escrow account for one of the firm’s clients to pay its creditors. However, less than half of the money remained in the escrow account.
While Dreier was under investigation, he offered Fortress Investment Group $33 million of the phony OTPP notes. A Fortress representative, Howard Steinberg, asked to meet with the OTPP representative in person, and Dreier arranged for a meeting with OTPP’s general counsel in Toronto. On December 2, Dreier flew to Toronto met with the general counsel, Michael Padfield, himself to discuss alleged business opportunities and got his business card. He then proceeded to meet with Steinberg at OTTP’s offices, posing as the general counsel. Steinberg became suspicious and asked the receptionist if Dreier was actually the general counsel, and was told he was not. The police were contacted, and Dreier was arrested for criminal impersonation.
Prosecutors allege that, after the initial call from Manisero, Dreier attempted to move funds to a personal account Dreier used for his Caribbean properties. On December 3, Dreier’s 19-year-old son, Spencer, attempted to deliver a message from Dreier to about 40 partners of Dreier LLP, but was shouted out of the conference room. Furthermore, at around this time, Dreier succeeded in having the firm’s bank transfer $10 million in escrow monies to one of his personal accounts. At this time also, Kovachev also went to the firm’s offices and took two paintings.
Dreier posted bail in Canada, and arrived back on New York on December 7, where he was arrested upon arrival. Kovachev was also arrested. Authorities have also subpoenaed all documents from Dreier LLP relating to Armando Ruiz.
On January 29, Dreier was charged with seven counts wire fraud, securities fraud, and money-laundering. He initially pled not guilty, but filed affidavits admitting large portions of the allegations against him. Drier was placed under house arrest in his condominium in Manhattan. He is represented by attorney Gerald Shargel, who has formerly represented members of the Mafia. Dreier’s friend, Erinch Ozada, a Turkish hedge fund manager, is reported to be cooperating with the government.
In the meantime, Dreier LLP has ceased to exist. Attorneys and employees of Dreier LLP have unpaid salaries and unreimbursed expenses.
In all, Dreier is alleged to have committed $700 million in fraud against 13 hedge funds and three individuals, resulting in $400 million in losses, and to have taken $40 million from his clients’ escrow accounts. On Monday, May 11, 2009, Dreier pled guilty to all charges before U.S. District Court Judge Jed Rakoff in the U.S. District Court for the Southern District of New York. He faces a potential 20 years on some counts.
Over 200 creditors have already filed more than $450 million in claims against Dreier LLP. Investigators report that any monies are mostly gone. The government has seized Dreier’s luxury property in order to forfeit the property or distribute it among creditors. There has been some interest in the movie or book rights to Dreier’s saga, however New York’s Son of Sam laws prevent such exploitation.
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sufficient evidence that the six defendants entered into any agreement to oppose the authority of the United States. Following its indictment of the defendants, the government changed its theory of conspiracy to allege that the defendants conspired to provoke a response from law enforcement, and not to overthrow the U.S. government. The Court noted, in oft-quoted language, in its order that "The prosecution is not free to roam at large — to shift its theory of criminality so as to take advantage of each passing vicissitude of the trial." Attorneys for the government acknowledged that there was no specific date, place, or target for the defendants' alleged actions..jpg)
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