Dreier Stole $380 Million, Feds Say; Bail Denied due to 'Enormous' Flight Risk
New York Law Journal
December 12, 2008
A prosecutor Thursday more than tripled, to $380 million, the sum the government says attorney Marc Dreier has stolen from hedge funds and investors.
The prosecutor, Assistant U.S. Attorney Jonathan Streeter, also told a federal magistrate judge that Dreier's frauds, initially reported as occurring since October and amounting to $113 million, stretched back at least to January 2006.
Arguing successfully that Dreier should be held without bail while a full accounting of his assets is pursued by a court-appointed receiver, Streeter called Dreier the "Houdini of impersonation and false documents."
"Mr. Dreier is in a desperate situation and the only way out of this desperate situation is for him to flee," Streeter argued Thursday before Southern District Magistrate Judge Douglas Eaton. "He faces almost certain conviction given the mountain of evidence that is growing every day."
Dreier, a commercial litigator who founded Dreier LLP, was arrested at LaGuardia Airport Sunday night on a bare-bones complaint charging one count each of securities and wire fraud for trying to sell, and selling, to three hedge funds fictitious notes he claimed had been issued by a real estate company. Along the way, he allegedly hijacked the identity of both Solow Realty and an accounting firm to make the sales.
Based on what Streeter said Thursday in court, Dreier could face additional charges.
"He has been fooling some of the most sophisticated investors in the world," Streeter said.
Defense Attorney Gerald L. Shargel came close to persuading Magistrate Judge Eaton to allow Dreier his freedom while the charges are pending. Dreier -- unshaven, looking tired and wearing a prison-issued blue jumpsuit -- watched the proceedings carefully, leaning in to speak to Shargel on two occasions to advise his lawyer to add a point to his argument.
Shargel proposed little in the way of financial guarantees that would ensure his client would return to court, instead offering to have Dreier remain under house arrest at his home in Quogue, Suffolk County, monitored by a GPS and watched round the clock by armed guards.
But Streeter said there was no reason to believe that someone who kept a box of cell phones in his office to compartmentalize his deception could be trusted to stay in the country.
Dreier had traveled extensively in the last year, including to Qatar, United Arab Emirates, Spain, St. Martins and Turkey, and had contacts abroad where money might be hidden, Streeter said.
"He is a person of exceptional ingenuity and exceptional resourcefulness" who has the ability to escape the United States and "get to that pile of money that he must have somewhere," Streeter said.
Shargel made his bail argument, in part, on the strength of Dreier's decision to return to the United States from Canada, where he was arrested on a charge of impersonation -- a charge Streeter said was leveled because Dreier had gone to Canada to commit another fraud.
Shargel said he flew to Canada last week to meet with his client. Dreier had been released on $100,000 Canadian bond. Edward Greenspan, "one of the best lawyers," Shargel said, had assured Dreier that he could stay and "fight extradition and he could get bail and it would be two years to get back to the United States."
"And Mr. Dreier refused that option," Shargel said.
Shargel said he called the Southern District U.S. Attorney's Office from Canada and spoke to Guy Petrillo, head of the criminal division, who could not comment on the investigation but confirmed the names of the prosecutors working on the case. Shargel said he knew what was awaiting Dreier upon his return to New York, but his client made the trip anyway.
Shargel also told the court Dreier took two trips out of the country in the fall -- one when he knew his victims were going to the authorities and a second when "he knew he would be arrested" -- yet returned both times.
'ENORMOUS RISK OF FLIGHT'
Shargel also cited United States v. Sabhnani, 493 F.3d 63 (2007), where the 2nd U.S. Circuit Court of Appeals, citing "extraordinary" physical restrictions imposed on a Long Island couple accused of enslaving two Indonesian girls, ordered that the couple be released pending trial.
But Streeter said the Sabhnani case did not "involve the kind of extraordinary, elaborate deception that this crime involved."
Magistrate Judge Eaton noted key distinctions between the two cases in issuing his ruling. In Sabhnani, he said, the couple had answered an "exhaustive list" of questions posed by prosecutors about their finances and the bonds were fully secured by $4.5 million.
He said he would not rule out the possibility of revisiting the bail issue once several unresolved questions about Dreier's finances are answered by a court-appointed receiver, Mark Pomerantz, particularly whether or not Dreier has money stashed abroad.
The magistrate judge was ultimately persuaded that the "government's evidence does appear to show an enormous risk of flight."
Shargel protested his client's incarceration at the Metropolitan Correctional Center, where, ostensibly because of a shortage of beds, he said Dreier is being held in solitary confinement, where he has been permitted only one shower since his arrest, and no phone calls or visitors, not even a book.
"You can lose your mind in there in three weeks," Shargel said.
"It's just inhuman for him to be in a facility for people who have committed some infraction," he said. "It's a constitutional violation."
Eaton said he would do what he could to get Dreier moved to a less restrictive environment pretrial.
And Streeter said he would do what he could to make it easier for Dreier to assist the receiver.
After the hearing, Shargel said his options were to press the bail issue de novo before a district court judge or "pick up on what Magistrate Judge Eaton said and supply a fuller financial picture" -- something he assured the court his client is committed to doing.
Shargel also argued that a different form of incarceration for his client would also make it easier for Pomerantz to do his job.
Pomerantz, of Paul Weiss Rifkind Wharton & Garrison, has been meeting with Dreier LLP partners in an effort to get a handle on the firm's assets even as lawyers are leaving and taking clients, and their accounts receivable, with them.
Vincent Pitta of the 13-lawyer Pitta & Dreier, one of 10 entities in which Dreier was the sole equity partner, said Thursday the firm is in "dire financial straights."
"All the related Dreier LLP bank accounts have been frozen," Pitta said. "We are working with the receiver to try and arrange health care coverage and to make sure there is attorney malpractice insurance and Workers' Compensation coverage.
"We're trying to keep calm, which is almost impossible, and trying to get people opportunities to interview with other law firms," he said. "We're having a job fair on Monday."
In addition to the criminal account, Dreier faces civil actions filed by the Securities and Exchange Commission and Wachovia Bank.