Dreier Seeks Assets to Pay Defense Costs
Meanwhile, legal observers say that bail arguments in the Bernard Madoff case could bolster defense arguments in Dreier's case
New York Law Journal
January 9, 2009
Jailed attorney Marc S. Dreier is seeking an exception to a freeze on his assets that will leave him enough money to pay the costs of his defense in what the government says is a $380 million fraud case.
Defense lawyer Gerald Shargel has requested a hearing to argue for an exception to the freeze that Southern District Judge Miriam Goldman Cedarbaum granted in December to the Securities and Exchange Commission in a related civil case, SEC v. Marc Dreier, 08 civ 10617.
Dreier has been held without bail since Dec. 7, when he was arrested at John F. Kennedy International Airport after returning from Toronto, where he had been arrested the previous week for impersonation.
Charged with securities and wire fraud, the only equity partner of the now-shattered 250-member Dreier LLP is accused of hijacking the identity of New York City development company Solow Realty to sell fictitious promissory notes to hedge funds in New York City and Connecticut.
As part of Dreier's scheme, prosecutors say, he enlisted former broker Kosta Kovachev to impersonate Solow's comptroller. Kovachev has been charged with a single count of conspiracy to commit wire fraud.
Shargel's efforts have focused on gathering the evidence to convince Magistrate Judge Douglas Eaton that his client does not pose a flight risk and should be released from the Metropolitan Correctional Center until his trial.
Shargel said in an interview Thursday he expects to make a renewed bail application in United States v. Marc Dreier, 08 Mag 2676, within the week.
The defense lawyer said his client is cooperating with the receiver appointed by Cedarbaum in the SEC case, Mark Pomerantz of Paul Weiss Rifkind Wharton & Garrison.
"We have spent hours with Mr. Pomerantz or his colleagues aiding them in their effort to identify assets and we have been cooperative with the SEC as well," Shargel said.
"One of the principal problems the government identified at the initial bail hearing, and Magistrate Judge Eaton identified, was the suggestion that Mr. Dreier had access to millions of dollars and millions were somehow offshore," Shargel said. "That's not true. I believe that what we've been able to do is demonstrate there is no reservoir of money and no money off-shore and that will be an important part of our bail argument."
Prosecutors have 30 days following a defendant's initial appearance to bring an indictment, but Shargel has already consented to a one-month extension until the first week in February.
Shargel wrote to Cedarbaum Wednesday responding to an SEC order to show cause. He stated that "there are significant issues as to whether Mr. Dreier will be able to pay his attorney's fees and other expenses related to his defense in his related criminal case."
Shargel said in the interview he has been retained by Dreier, although he declined to discuss the specifics of the arrangement. He also said his application to Cedarbaum was not to seek additional attorney fees right away, but was more forward-looking.
"In every criminal case, apart from legal fees, there are costs attendant to defending the case -- the ability to investigate all facts and circumstances surrounding the allegations," Shargel said. "It's our duty to see what evidence can be mounted or gathered in connection with defending Mr. Dreier or presenting mitigating circumstances and it may be necessary to apply to the court because every dollar he has is frozen."
He added, "It may be necessary for me to engage professionals who will aid me in my effort," but he declined to comment on whether he would try to present a defense of insanity or diminished capacity.
Shargel's request for a hearing before Cedarbaum was made pursuant to United States v. Monsanto, 491 U.S. 600 (1989), which requires an "adversary, post-restraint, pretrial hearing as to probable cause that (1) the defendant committed crimes that provide the basis for forfeiture, and (2) the properties specified as forfeitable ... are properly forfeitable."
He cited Southern District Judge Kimba Wood in SEC v. Coates, No. 94 Civ. 55361, 1994 WL 455558 (S.D.N.Y.).
"In Coates, Judge Wood held that where an order may affect a defendant's right to counsel of his choice in a related criminal case, Monsanto requires that such an order 'may not be continued through trial in the absence of an adversary hearing as to whether (1) the SEC has established a prima facia case of securities law violations, and (2) the SEC has made a showing that the frozen assets are traceable to fraud."
Shargel's only other objection to the order to show cause in the SEC case was the agency's demand for a "verified written accounting" of assets.
He said that demand is impossible to fulfill because the imprisoned Dreier does not have access to the documents he would need to provide an accounting. In any event, he said all the documents are either in the possession of the SEC, the U.S. Attorney's Office or both, and are in the possession of Pomerantz as well.
A spokesman for the SEC said it would have no comment on Dreier's requests.
On Dec. 12, Assistant U.S. Attorney Jonathan Streeter told Magistrate Judge Eaton that Dreier was an "enormous" flight risk. The prosecutor cited multiple deceptions to show that Dreier was likely to flee the jurisdiction if released, including his attempt to commit an additional fraud in Canada and the fact that Dreier kept "a box of cell phones" in his Park Avenue offices.
Nonetheless, Magistrate Judge Eaton invited Shargel to return to court if he could present evidence that Dreier had not secreted funds abroad and had been cooperative with the receiver in identifying assets.
THE MADOFF ANALOGY
As Shargel marshals his bail arguments, there is an elephant in the room who may be of assistance -- Bernard Madoff.
Madoff, accused of fleecing investors of tens of billions of dollars in what has been described as the largest Ponzi scheme in history, remains free on bail, although prosecutors are now trying to have Magistrate Judge Ronald Ellis revoke bail because Madoff and his wife mailed packages of jewelry valued at over $1 million to relatives and friends in late December -- a violation of an order not to dissipate assets in a related SEC case.
Ellis is expected to decide the issue today or Monday. Legal observers have argued that the risk of flight in the two cases must be evaluated against their particular facts, but if Madoff is allowed to stay at liberty, the example could at least help Shargel make his case for Dreier.
Meanwhile, proceedings are continuing in a Chapter 11 bankruptcy case filed by Pomerantz in the Southern District for the firm, In re Dreier, LLC, 08-bk-15051.
Thursday, at a meeting held by the U.S. Trustee's Office, a seven-member committee of unsecured creditors was appointed and Klestadt & Winter was selected as counsel, said Tracey L. Klestadt. The committee includes the firm's landlord, Hines 499 Park LLC, and the legal staffing agency, Mestel & Company.