Attorney Marc S. Dreier said "guilty" eight times but remained free on bail after admitting Monday evening to selling fictitious promissory notes in a scheme that ripped off investors of hundreds of millions of dollars and ended with the implosion of his 250-member law firm.
Southern District of New York Judge Jed S. Rakoff said that allowing Dreier to remain free pending his July 13 sentencing was a close call in a case where Dreier "has disgraced the honorable profession of law."
Jonathan Streeter, assistant U.S. Attorney for the Southern District, argued that every day Dreier was allowed to remain in his 151 E. 58th St. penthouse interfered with the sale of the apartment and slowed the delivery of monies to victims.
The judge urged Streeter and defense attorney Gerald L. Shargel to compromise and agree that Dreier surrender one month prior to his sentencing.
However, after Shargel and Streeter briefly conferred during a break, Shargel told the court the government had refused to consent.
1972: Graduates with B.A. from Yale University
1975: Graduates with J.D. from Harvard Law School.
1984: Joins Rosenman, Colin, Freund, Lewis & Cohen.
1989: Moves to Fulbright & Jaworski.
1995: Joins Duker & Barrett.
1996: Forms Dreier & Baritz with Neil Baritz of Boca Raton, Fla.
1998: Takes on as a client Sheldon Solow, a New York real estate developer.
1999: Firm is renamed Dreier, Baritz & Federman with addition of William Federman of Oklahoma.
2001: Federman and Dreier dissolve their relationship.
2002: Baritz leaves the firm. Federman sues Dreier over client escrow funds the matter ultimately settles.
2003: Dreier LLP grows to some 30 lawyers, with Dreier functioning as the sole equity partner. He pays the bills but also has control over at least 12 client escrow funds.
Dreier moves aggressively over the next few years to bring a number of affiliates under his umbrella, opening offices in Stamford, Conn., Albany, New York, Pittsburgh, Los Angeles and Santa Monica, Calif.
2004: Drier LLP increases to 50 lawyers.
Dreier begins marketing promissory notes supposedly issued by Solow Realty & Development Co. to various hedge funds and investment funds. The "notes" pay between 8 percent and 12 percent interest with terms of between one and two years. In several instances, Dreier provides fake financial statements, backed up with forged letters purportedly issued by the accounting firm Berdon LLP.
2006: Drier LLP increases to 100 lawyers.
2007: Drier LLP grows to 175 attorneys.
2008: Firm peaks at 250 lawyers.
Oct. 15, 2008: Dreier walks into the offices of Solow Realty at 9 West 57th St. with Kosta Kovachev. The pair use a conference room to present Kovachev as a top Solow official and reassure two hedge fund managers about their investment in the promissory notes.
Oct. 23, 2008: Kovachev and Dreier use a law firm conference room in Stamford, where Kovachev impersonates a Solow executive on the phone and helps to seal the sale of $100 million in notes to a hedge fund.
November 2008: Thomas Manisero, a partner at Wilson Elser Moskowitz Edelman & Dicker, representing Berdon LLP, confronts Dreier in a phone call, saying he believed Dreier forged an audit report in an effort to dupe a hedge fund into buying more fictitious Solow notes.
Dec. 1, 2008: A bankruptcy partner tells Dreier, who is in Canada, and the firm's controller that a $38.5 million payment is due a client, 360networks Corp. The controller finds the escrow accounts have only $19 million.
Dec. 2, 2008: Dreier is arrested in Toronto by Canadian authorities for criminal impersonation after he pretends to be a lawyer with the Ontario Teachers' Pension Fund, which he claims was guaranteeing the notes he was trying to peddle to another hedge fund.
News of his arrest sparks emergency partnership meetings and attorneys affiliated with the firm begin jumping ship.
Dec. 7, 2008: Dreier is arrested after returning to the United States and hires veteran defense attorney Gerald Shargel.
Dec. 8, 2008: Dreier makes his initial appearance in the Southern District on one count each of securities fraud and wire fraud. Shargel makes it clear the case will not go to trial, intimating that his client will plead guilty within months.
The Securities and Exchange Commission files a civil suit against Dreier.
Dec. 11, 2008: Assistant U.S. Attorney Jonathan Streeter says the size of Dreier's fraud is $380 million and growing. Citing "an enormous risk of flight," Magistrate Judge Douglas F. Eaton refuses to authorize bail.
Dec. 16, 2008: Citing "an accelerating onslaught" of demands from creditors, clients and attorneys, court-appointed receiver Mark F. Pomerantz files for Chapter 11 bankruptcy protection for Dreier LLP.
Dec. 22, 2008: Kovachev is arrested and charged with conspiracy to commit wire fraud for his impersonation.
Dec. 23, 2008: The Appellate Division, First Department, suspends Dreier from the practice of law "on the basis of uncontroverted evidence of serious professional misconduct."
Jan. 22, 2009: Magistrate Judge Eaton agrees to set bail conditions, but they are so tough that Shargel says his client has been "effectively" denied bail.
Jan. 29, 2009: Dreier is indicted for defrauding investors of more than $400 million. The case is assigned to Judge Jed. S. Rakoff.
Feb. 5, 2009: Judge Rakoff sets bail conditions that include confinement monitored by a 24-hour armed guard at Dreier's penthouse at 151 E. 58th St.
Feb. 13, 2009: Dreier is released from the Metropolitan Correctional Center.
March 17, 2009: A superseding indictment includes new charges against Dreier. An accompanying forfeiture allegation seeks to recover $700 million - the amount of fake notes the government says Dreier sold to investors.
April 22, 2009: Streeter and fellow prosecutor Raymond Lohier file a new criminal information against Kovachev alleging he was paid $215,000 from Dreier LLP accounts to impersonate the Solow executive and perform other tasks. Kovachev pleads not guilty.
April 27, 2009: Shargel announces at a hearing that Dreier intends to plead guilty to all eight counts in the indictment.
Yesterday: On the eve of his 59th birthday, Dreier pleads guilty.
- Mark Hamblett, The American Lawyer
"As an abstract matter there are a hundred good reasons why Mr. Dreier should be remanded," the judge said. "By his own admissions here today, he has shown that he is to be ranked with those who have committed some of the most egregious frauds in history."
Dreier, who turns 59 today, pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud, one count of money laundering, one count of securities fraud and five counts of wire fraud.
The former head of Dreier LLP agreed that everything he had done was "illegal and wrong" when asked about the first seven counts of the indictment. But he hesitated when Rakoff asked him about the eighth and final count -- a money laundering charge based on Dreier's actions on Dec. 4, 2008.
On that date -- with his world collapsing in New York while under arrest in Canada for yet another scheme to sell fake notes -- Dreier arranged to have $10 million transferred from attorney trust accounts at Dreier LLP into his personal account.
Shargel had a quick word with his client, and Dreier said he understood that the money transfer was done in furtherance of his broader scheme to defraud. Nonetheless, he stubbornly added, "It was not my intent."
Rakoff told Dreier that intent was not the issue on the charge, and the judge went on to settle an unfinished piece of business by accepting the argument of Streeter that the notes Dreier sold and attempted to sell were, indeed, securities. Shargel had asked the judge to dismiss the securities fraud charge.
All of the counts carry maximum penalties of 20 years in prison save the conspiracy count, which carries five years.
With the guilty plea concluded, the parties turned to the question of whether Dreier would be allowed to remain free pending sentencing or be remanded to the Metropolitan Correctional Center.
Shargel said his client, whose assets have been frozen, has neither the means nor the ability to flee.
While Rakoff pointed out that "the virtual certainty of meaningful prison time" now "looms with a greater immediacy" than previously, Shargel responded that he had made clear from the beginning that the case would "end in a guilty plea."
"This day comes as no surprise," Shargel said, adding that a "very effective mechanism" is in place to ensure his client does not flee.
Dreier has been confined in his penthouse since his release on bail in February in February. His whereabouts have been monitored 24 hours a day by armed guards.
The government countered that Dreier no longer has a constitutional right to bail. However, Rakoff said that if Dreier has a "statutory right to get bail, he should get bail," regardless of how it may appear to anyone in the world, including the media.
Sheila Gowan, the trustee for the Chapter 11 bankruptcy proceeding against Dreier LLP filed on Dec. 16, told the judge she expected to interview Dreier approximately two more times and suggested the meetings could more effectively occur in his apartment.
She also said Dreier did not believe he could be "clear and lucid" if a May 18 deposition scheduled in a fee dispute involving his former firm occurred in the correctional center's special housing unit.
Salvatore LaMonica, the trustee in Dreier's personal bankruptcy, also said he would prefer to continue to meet with Dreier in his apartment. But he conceded that the unit could be sold more easily if it were empty.
Authorities accused Dreier of receiving $670 million between 2004 and 2008 from the sale of the fictitious securities; they are seeking the restitution of the proceeds.
They say Dreier spent much of it on a lavish lifestyle, including $39 million in artwork, beachfront homes on both coasts and an $18.5 million yacht, "Lady Seascape."
During the hearing, Streeter said Dreier held parties in which he invited celebrities and attempted to pitch the notes. Dreier also approached lawyers he knew in New York and asked them to solicit their clients to buy the notes, Streeter said.
A court-appointed receiver has said $100 million in assets have been identified that can be pursued on behalf of victims who lost more than $400 million.
Dreier also is facing civil charges by the U.S. Securities and Exchange Commission, filed in December.