Diary of a Scam: The Fall of Power Attorney Marc Dreier
Marc Dreier, a high-profile New York lawyer who admitted to a $400 million investment fund fraud that unraveled at the same time as Bernard Madoff's huge swindle, was sentenced to 20 years in prison in July, 2009.
But the ruse that ultimately got him there was years in the running.
Dreier's 2009 sentencing in Manhattan federal court was punctuated with comparison to the multibillion-dollar Madoff fraud after the government had asked for a 145-year sentence for Dreier. Madoff, 71, was sentenced to 150 years in prison for his fraud of as much as $65 billion, with thousands of investors swindled.
"When you turn to the facts of the crime that Mr. Dreier committed, one must still be appalled," U.S. District Judge Jed Rakoff said. "It is a huge fraud by any standard, other than the Madoff standard."
Even though the better-known Madoff's fraud was much larger than Dreier's scheme, U.S. prosecutors requested the same effective life term for the Harvard- and Yale-educated lawyer as they did for Madoff.
Dreier, who once headed a 250-member law firm, Dreier LLP, on New York's exclusive Park Avenue, was arrested in December, 2008, on charges of swindling hedge funds and investment funds in a four-year-long scheme that unraveled in the financial crisis. He pleaded guilty in May, 2009.
When he was sentenced, he acknowledged that he had disgraced his former colleagues and the legal profession.
Dreier's ruse began in 2002, when he decided to greatly expand his law firm and create a new model where partners were paid big salaries but were not required to be equity partners. He would retain sole control over the financials. But to do so, he would need a lot of money. So he stole it by creating a fake IOU, allegedly issued by one of his biggest clients, Solow Realty, for $20 million. Dreier sold the IOU to a hedge fund in Connecticut with the promise of repaying the money plus substantial interest in a year.
Dreier expanded his offices in the I.M. Pei-designed building at 499 Park Ave. He hired some of the best lawyers in town. He sponsored charity golf tournaments, bought a $10 million Manhattan apartment and acquired a 123-foot yacht with a full-time staff of 10.
Things went well for Dreier. He continued his classic Ponzi scheme, and over the next two years issued $200 million worth of notes, selling them to hedge funds in Manhattan and Connecticut.
"The one thing Marc Dreier could always do is spin a story, a believable story," said Bryan Burrough, a special correspondent with Vanity Fair. "That's what he did for these hedge funds, and the fact was these people, they had more money than God, they had more money literally than they knew what to do with, they were looking for anything to invest in. A little debt from a big New York realtor, well that seemed just normal, SOP, it's what everyone was doing in 2004."
But in 2008 things changed. The financial markets began to weaken and hedge funds started reigning in their investments. Dreier became desperate as hedge funds requested in-person meetings with his client Sheldon Solow to verify that their funds really would be returned.
Dreier began impersonating executives and even paid a former client named Kosta Kovachev $100,000 to impersonate the CEO of Solow Realty inside the actual Solow offices.
In November 2008, Dreier grew even more desperate as he began running out of cash. By then, he was the subject of a U.S. Attorney's Office investigation. As things began to unravel, he dipped into his clients’ escrow accounts to repay his debts. He issued $700 million worth of notes, and on Dec. 1, 2008, one of his partners issued a routine request for money being held in escrow. Of course, it wasn't there.
"As one of his Hail Mary passes, he took a trip to Abu Dhabi to try to raise money from some Arab investors," Burrough said. "And one night he describes standing outside in the desert air saying 'I'm a free white man with $100 million in cash — what if I just run?"
But unable to fathom life on the run, Dreier returned to New York, where he arranged to sell yet another fake security to a hedge fund in Manhattan, claiming it was being issued by the Ontario Teacher’s Pension Plan (OTPP), another former client of Dreier’s.
"He was attempting at the time to sell a $44 million note to a hedge fund located in New York," said Assistant U.S. Attorney John Streeter. "And that hedge fund had insisted on having a face-to-face meeting with a representative of this pension plan, located in Canada, that was supposedly, according to Marc Dreier, guaranteeing the note."
The hedge fund agreed to the purchase, but demanded that a representative from OTPP sign the papers in person.
The next day, Dreier flew to Toronto to meet the hedge fund representative in the OTPP offices. He first met with an OTPP lawyer and took his business card. He then asked to use a conference room while waiting for his private jet, and when the hedge fund representative arrived, Dreier quickly ushered him into the conference room, offering the attorney's business card as his own and hurriedly signed the papers. But the hedge fund representative was suspicious.
"He asked the person at the front desk if that person he was just meeting with was [the attorney]," said Robert Kolker, contributing editor for New York Magazine. "And the person at the front desk said no, it wasn't."
Back on his private jet, Dreier got a phone call telling him someone was impersonating one of the Canadians at the hedge fund. Dreier was at a crossroads. He could fly back to New York and deny any knowledge, or he could return and try to explain himself.
"He later told me, when he sat down, he was 90 percent sure if he went back to the offices of the pension fund that he probably would never get out, that something bad would happen," Burrough said. "And that's actually what happened. By the time he got back, the police had already been called. And they put him in handcuffs and took him away."
But Dreier still wasn't finished pilfering other people's money. From a jail cell in Canada, Dreier transferred $10 million from a client's escrow account to one of his personal bank accounts. and the next day, he's released on bail. But when he arrived at LaGuardia airport, the feds arrest him on charges of securities and wire fraud.
It was the beginning of the end for Marc Dreier's scam of a lifetime.
Reuters and The Associated Press contributed to this report.
Episode 48 of American Greed, Hedge Fund Imposter, premieres Wednesday April 13th at 10p | 1a ET.