The lawyer and a massive hedge fund fraud

NY Times:

His legal lineage was impeccable. A Yale man with a law degree from Harvard, he was a litigation powerhouse, a leader at some of the more prominent firms at the New York bar who then started a top-shelf practice of his own.

But when the lawyer, Marc S. Dreier, stepped off a flight from Canada on Sunday night, federal authorities in New York arrested him in a $100 million fraud scheme, portraying his recent undertakings as more high-stakes grifting than high-end lawyering.

In brazen and carefully choreographed scams here and in Canada, Mr. Dreier, who in 1996 founded a 250-lawyer firm that bears his name, is said to have tried to take advantage of the current financial crisis by selling phony debt to hungry hedge funds looking for deals.

But in an era when high-tech frauds and inside information seem to dominate the world of white-collar crime, the square-jawed lawyer, known for his forceful personality and his penchant for high living, apparently did it the old-fashioned way.

Using little more than his position, poise and a kind of reckless bravado, he cajoled his way into accounting, real estate and pension fund offices where he had no real business, according to a criminal complaint unsealed on Monday.

Once there, seated in conference rooms that lent credibility to his charade, he peddled forged promissory notes — utterly worthless paper — linked in some way to his unwitting hosts, the complaint said. He backed up his claims with phony financial statements and bogus audit opinions from a reputable accounting firm, correspondence on the stationery of the New York real estate developer who supposedly issued the debt, and the help of a few confederates, the government said in court papers.

With these tools and little more, he allegedly took hedge fund executives for $100 million in one instance alone, money that the authorities say remains unaccounted for.

Mr. Dreier, 58, is charged with stealing $113 million since October, according to the complaint, although the case is continuing and a spokesman for the acting United States attorney in Manhattan, Lev. L. Dassin, whose office investigated the matter, would not say whether other alleged frauds are under scrutiny.

Indeed, Mr. Dreier was working on getting an additional $33 million last Tuesday, according to the complaint, when that scheme unraveled in a bizarre tableau played out in the offices of a Toronto pension fund, court records and officials said.

He was arrested in Canada and held by local authorities for several days on relatively minor charges. But the disclosure of that arrest eventually sent the law firm, Dreier L.L.P., reeling, and as details of the strange doings there began dribbling out, it became apparent he was also under investigation by federal authorities in Manhattan.

Suddenly, the law firm could not make its payroll, people there said; the Christmas party at the Waldorf-Astoria was canceled; the firm lacked the ability to pay the rent at its Park Avenue offices (once occupied by Bloomberg L.P.); lawyers started packing up; and what had once been a lucrative law practice — a conglomeration of several separate firms — began to collapse.

On Monday afternoon, a United States magistrate judge, Douglas F. Eaton, ordered Mr. Dreier detained until a bail hearing on Thursday. However, because the Securities and Exchange Commission has sought to freeze his assets and those of Dreier L.L.P. in a parallel civil action, it is unclear how he might post bond.

Mr. Dreier’s efforts to enrich himself apparently did not end with his arrest, according to authorities. In a hearing on the S.E.C. action, which immediately followed the arraignment, a lawyer for the commission told Judge Miriam G. Cedarbaum of Federal District Court that Mr. Dreier “did attempt and may have transferred assets” while he was jailed in Canada last week. But the lawyer, Nancy Brown, would not elaborate.

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At some point in the investigation, according to the complaint, a cooperating witness secretly recorded Mr. Dreier admitting that he had “participated in the fabrication” of certain financial statements that he was to give to a hedge fund. On the tapes, the government contends, Mr. Dreier “further stated that he was ‘ashamed’ of his role in fabricating the documents and that it was “very serious what’s happened here.’ ”

Smart people should know they cannot get away with this big a scam. But, tough times reveal character and lack there of. The audacity of the scheme is worthy of a politician.

Trial lawyers are good at projecting a confident position. In this case it appears that the confidence game got away from Drier.