Anatomy of a Crack-Up: The Marc Dreier Case

What's remarkable is that Marc Dreier fooled so many people for so long. People had faith in Dreier, who delivered on his promises -- until he self-destructed

, The American Lawyer


At the end, when his longtime client had found out about the phony promissory notes and the auditor's lawyer was threatening to turn him in, when the client escrow accounts had been plundered and the hedge funds had figured out the scam, when he had to come up with money for the hundreds of people he'd persuaded to work for him and there was nothing left to pay them with, when the houses in the Hamptons and the restaurant in Los Angeles and the condo in Anguilla and the yacht and the cars and the art collection were about to be exposed as mere props in the stage set of his life -- when the inevitable had finally arrived -- Marc Dreier was ready to give up.

On Dec. 2, when officials at the Ontario Teachers' Pension Plan told Dreier that they'd reported him to the Toronto police for pretending to be a pension fund executive in an attempt to fleece yet another hedge fund, he could have tried to flee. Dreier had a private plane waiting for him at the Toronto airport. He had friends in Italy and Turkey, clients in Argentina and the Middle East. And he knew that in New York, everything was unraveling. For months he'd been on a desperate, manic tear, trying to keep the show going. But in Canada he knew it was over.

After Dreier returned to Manhattan and was charged with committing a $400 million fraud -- the most brazen and spectacular deception in law firm history -- people who knew him said that they were stunned. Lawyers at Dreier LLP, where Marc Dreier was the only equity partner, insisted there had been no signs that anything was awry. Dreier had been as dapper and confident as ever, flying around the world to meet with prospective clients. In fact, 2008 seemed to have been a banner year for both the man and the firm. The 58-year-old Dreier already had a name in New York, where he'd practiced for 30 years, but his splashy invasion of the Los Angeles market gave him a profile in California as well. He seemed to all the world to be nothing less than the extraordinarily successful head of a thriving firm. No one thought he was a con man.

Dreier has pleaded not guilty to prosecution charges, but the truth is that for at least the last four years, his professional life has been a sham. He was not the high-flying litigator or convention-busting law firm innovator he so badly wanted to be. Dreier had been dumped in 2006 by the most important client of his career -- the billionaire real estate developer Sheldon Solow -- after losing three big cases and racking up a couple of harsh judicial sanctions. His firm, despite its web of affiliations, its lavishly decorated offices and its spare-nothing approach to expenses, was not a firm at all. It was a collection of practices in which lawyers, all working on contract, rarely intersected with anyone outside of their small groups. His one-partner management model, which Dreier touted as revolutionary, was a failure. He had to borrow hundreds of thousands of dollars from a friend to renovate the Park Avenue office, and some of the $400 million he's alleged to have stolen went, by Dreier's own admission, "to cover millions of dollars in deficits incurred by [Dreier LLP and its affiliates] from operating expenses, capital expenditures, construction costs and security deposits." It's now clear that there was no legitimate way Marc Dreier could have afforded the extravagant life he lived.

What's remarkable is that he fooled so many people for such a long time. At the firm there was talk of his prowess as an investor and about money he was said to have inherited from his father, who died in 2006. Mostly, though, there was faith in Dreier, who until last December, delivered on his promises to the lawyers who worked for him. He paid them what he was supposed to, when he was supposed to. Even when they look back, they say they had no reason not to believe in Dreier.

The only man who knew the truth -- aside from a shadowy Serbian-born ally with a key card to Dreier's office and a history of trouble at the Securities and Exchange Commission -- was Marc Dreier. And in the end, when the Toronto police came for him, Dreier must have realized that he could no longer fool himself.

On Feb. 4, Manhattan Federal district court Judge Jed Rakoff agreed to release Dreier to home confinement under the surveillance of armed guards who will essentially turn his $12 million 58th Street duplex into a private jail. Rakoff called Dreier "a master of deceit and a doyen of dishonesty," but decided that the guards -- as well as a $10 million bond signed by Dreier's 85-year-old mother and his intensely loyal 19-year-old son -- would keep him from trying to flee.

Rakoff's ruling came after a series of brutal hearings that exposed Dreier as a broken, friendless man. The most revealing of the sessions took place on the afternoon of Jan. 22, before U.S. magistrate Douglas Eaton. Dreier was escorted into the federal courthouse by U.S. marshals from the Metropolitan Correctional Center, where he had been locked up since federal agents arrested him at LaGuardia Airport on Dec. 7. The once-elegant Dreier, who prided himself on impeccable tailoring and a year-round tan, was wearing short-sleeved prison blues and slip-on sneakers -- clothing that made him seem even smaller than he is. His eyes, though, were as fierce as ever, piercing blue under thick brows.

Dreier's defense lawyer, Gerald Shargel, laid out before Eaton the bail terms that Rakoff would later accept. Eaton told Shargel he wanted to see some evidence that people who knew Dreier still had enough faith in him to sign a $20 million surety bond. "Mr. Dreier recently had friendships with dozens of multimillionaires," Eaton said. "Who is willing to give us some reasonable assurance?"

The answer became painfully obvious at the hearing: No one, aside from his son and his mother, would vouch for Dreier. His sister had pledged to help pay $70,000 a month for armed guards, but Shargel said she and her husband would not co-sign the bond. Nor would Dreier's brother, who'd been paid almost $1 million in the two years he worked at the California branch of Dreier's firm; Shargel said the brother's in-laws forbade him to help. Even Dreier's onetime best friend, a Turkish hedge fund manager named Erinch Ozada -- with whom he shared a now-frozen $10 million investment account and ownership of a $3 million condominium in the Caribbean -- had abandoned him: At the Jan. 22 hearing prosecutors revealed that Ozada is cooperating with the government. "That's a friend who's no longer a friend," Shargel said.

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