December 8, 2008 / 10:04 PM / 9 years ago

Prominent N.Y. lawyer charged with defrauding funds

5 Min Read

NEW YORK (Reuters) - A prominent New York lawyer who heads the 250-attorney law firm Dreier LLP was charged on Monday with perpetrating a brazen, $100 million real-estate investment fraud that targeted hedge funds.

Marc Dreier, who already was facing a charge of criminal impersonation by Canadian authorities, faces federal charges of securities and wire fraud, the office of the U.S. Attorney in Manhattan said.

He was arrested late on Sunday at LaGuardia Airport after returning to New York from Toronto after a Canadian court released him on bail, authorities said.

The U.S. Securities and Exchange Commission also filed civil fraud charges against Dreier, a 58-year-old Harvard Law School and Yale College graduate who founded Dreier LLP in 1996 after previously heading the litigation department in the New York office of law firm Fulbright & Jaworski LLP.

The SEC said in court papers that Dreier "has confessed to many of the deceptions he engineered in the course of this scheme."

Dreier appeared before U.S. Magistrate Judge Douglas Eaton later on Monday, but his bail hearing was postponed to Thursday after his lawyer, Gerald Shargel, requested more time to "gather information."

"This is a very complicated matter, and the facts are beyond reach of a sound bite," Shargel told reporters outside the courtroom. He said he did not think Dreier was a flight risk.

At a second hearing with SEC lawyers immediately after Dreier's appearance, U.S. District Judge Miriam Goldman Cedarbaum agreed in principal to appoint New York lawyer Mark Pomerantz as a receiver to oversee the preservation of Dreier's assets, pending a hearing.

"Our complaint alleges a stunning, brazen fraud that targeted some very sophisticated institutional investors," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement.

Authorities said that since October, Dreier had marketed fake promissory notes, including bogus notes of a New York-based real estate development company, to hedge funds and other private investment funds, and that he had closed at least three sales.

They contend that Dreier created an elaborate cover-up to convince purchasers that the notes were real. Prosecutors said he distributed phony financial statements and audit opinion letters to keep the charade going.

Prosecutors said Dreier told the hedge funds they could get a significant discount on the notes because investors who originally bought the securities wanted to sell them because they faced a cash crunch triggered by the financial downturn.

In one instance, prosecutors said, an unspecified New York-based hedge fund wired about $100 million to an account Dreier controlled in payment for the bogus notes. In another, Dreier is accused of enticing a Connecticut fund to wire $13.5 million to his account to purchase the notes.

The securities fraud and wire fraud charges each carry maximum prison sentences of 20 years in prison, and fines of more than $5 million.

Dreier, whose law firm offices are headquartered on New York's exclusive Park Avenue, was released on bail by a Toronto court on Friday after being arrested for impersonation.

U.S. prosecutors said that case involved impersonation of an employee of a Canadian entity in connection with the sale of notes valued at more than $40 million.

Amy Greenfield, a public relations specialist who has previously worked with Dreier LLP, told Reuters that she no longer represented the law firm. Another representative from the law firm could not immediately be identified.

Dreier LLP has offices in Los Angeles, Stamford, Connecticut, Pittsburgh, Pennsylvania and elsewhere. Its practice areas include commercial litigation, real estate, bankruptcy and intellectual property.

The firm's clients have included book publisher Judith Regan in a defamation lawsuit against her former employer News Corp -- a case that was settled out of court. Dreier and another law firm then sued Regan, saying she did not pay them fees and cut them out of her settlement agreement.

Also on Monday, Wachovia Corp sued Dreier and his firm in U.S. District Court in Manhattan for defaulting on loans to his law firm as part of a $14.5 million credit agreement.

Reporting by Martha Graybow and Edith Honan, editing by Matthew Lewis, Bernard Orr

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