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New York Lawyer Charged With Defrauding Hedge Funds Out of $380 Million

December 12, 2008 02:27 PM
by Anne Szustek
Marc Dreier, a veteran attorney who has represented celebrities, is facing charges for allegedly defrauding “very sophisticated investors.”

Dreier Jailed on Securities and Wire Fraud Charges

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Marc Dreier, a high-flying New York attorney who founded the law firm Dreier LLP, is in jail for charges of securities and wire fraud on allegations that he defrauded hedge funds and “very sophisticated investors” out of what has grown to be more than $380 million.

According to the case, U.S. v. Dreier, the lawyer persuaded two unnamed hedge funds to pay him more than $100 million on a ruse that he was selling discounted notes from New York developer Sheldon Solow, using fake Web sites, numerous e-mail addresses and several cell phone numbers to keep up his false appearances.

Prosecutors argued that Dreier, were he put on heavily monitored house arrest as suggested by his legal counsel, would wrestle his way out of the country. Assistant U.S. Attorney Jonathan Streeter called him “the Houdini of impersonation and false documents.”

Dreier is behind bars after a U.S. judge in New York ordered he remain in detention despite a request from his lawyer, Gerald Shargel, to have him released on a $10 million bond signed by his 19-year-old son and his 85-year-old mother, who offered her $200,000 home as collateral. U.S. Magistrate Judge Douglas Eaton said that he’d consider easing the conditions of Dreier’s detainment.

Dreier has been denied visitation, reading material and few opportunities to shower while staying in solitary confinement—conditions that are in stark contrast to his usual lifestyle. An alumnus of Harvard Law School and Yale College, Dreier represented NFL players and prominent publishers at his firm, and travelled via private jet to destinations such as Turkey, St. Martins, Qatar and the United Arab Emirates.

Dreier is also facing civil charges filed by the Securities and Exchange Commission over the alleged theft of $38 million from a client escrow account. The account belongs to unsecured creditors of 360networks Inc., a company that Dreier’s firm was representing in bankruptcy proceedings.

Dreier was also arrested last week in Toronto for allegedly impersonating a lawyer working for Ontario Teachers’ Pension Plan. He was released last Friday on $100,000 bail and arrested again upon landing at New York’s LaGuardia Airport Sunday evening.

The Pension Plan also made headlines this past summer. In June, Canada’s Supreme Court ruled in favor of Bell Canada, a major telecom, in what is the largest buyout in Canadian history: a $35 billion takeover bid by the Ontario Teachers’ Pension Plan.

Related Topic: SocGen rogue trader scandal

Dreier is not the first individual accused of hoodwinking sophisticated industry experts.

Early this year, Société Générale, or SocGen, France’s second-largest bank, discovered that a single futures trader committed a “massive” fraud, resulting in a $7.1 billion loss for the bank. The trader concealed the money using “sophisticated and varied techniques.”

The rogue trader turned out to be 31-year-old Jérôme Kerviel, a trader at the bank working at such a low-level position in the company that few suspected he was capable of such a feat. Kerviel made an unauthorized bet on European indices worth $50 billion—more than SocGen’s entire value.

Comparisons have been drawn between Kerviel and Nick Leeson, a financial trader at British bank Barings, and a rising star at the institution’s Singapore offices. When his trading took a downturn, he hid his losses in a secret bank account. By the time the auditors traced that account, Leeson had lost Barings more than £800 million ($1.2 billion). Barings lost nearly all its assets, collapsed soon after and was bought for £1 by Dutch banking and insurance group ING. Leeson was sentenced to six and a half years in prison.
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