"Prestigious Manhattan Law Firm 499 Park Avenue, New York -- EVERYTHING MUST BE SOLD" reads a notice on the Web site of the auctioneer for the court-ordered liquidation of Dreier LLP scheduled for Thursday.
But a new criminal indictment released last week against disgraced attorney Marc S. Dreier has created a tug of war between prosecutors and the bankruptcy trustee that casts a cloud over the value of the items up for auction.
According to the superseding indictment, which adds a count of money laundering to the host of charges against Dreier, the 58-year-old attorney not only must forfeit hundreds of millions of dollars and a vast array of luxury vehicles, homes and artwork, but "all assets of Dreier LLP."
"Tremendous uncertainty ... now hovers over this case" as a result of the government's "complete turnaround," attorney Howard D. Ressler told Southern District Chief Bankruptcy Judge Stuart M. Bernstein at an emergency hearing Friday in the Chapter 11 proceeding of Dreier LLP. Ressler, a partner at Diamond McCarthy, is counsel to Sheila Gowan, the bankruptcy trustee in this case.
The government's uncertainty about whether it will proceed with the criminal forfeiture of the firm's assets could decimate the value of those assets and leave unsecured creditors "wiped out," Ressler said.
This represents "one of the first collisions of the bankruptcy statute and the criminal forfeiture law ... that we know of," Tracy L. Klestadt of Klestadt & Winters, who serves as counsel to the creditors' committee, explained in an interview.
Dreier, the former sole equity partner of now-defunct 250-lawyer Dreier LLP, was arrested on Dec. 7 in New York on wire and securities fraud charges after returning from Toronto where he was caught impersonating an Ontario Teachers' Pension Plan executive trying to sell pension plan notes to a hedge fund.
On Jan. 29, a month after Dreier LLP filed for Chapter 11 bankruptcy protection, prosecutors accused Dreier of bilking hedge funds and investors of approximately $400 million during a four-year scheme involving the sale of bogus promissory notes.
According to the superseding indictment released last week, Dreier, who has been free on bail since Feb. 13, sold as much as $700 million in phony notes between 2004 and 2008 to at least 13 different funds and three individuals.
But whereas the initial indictment contained an allegation that Dreier "shall forfeit" all of his real and personal property, including at least $400 million, a yacht, several luxury cars, and an impressive collection of contemporary artwork, the forfeiture notice in the superseding indictment ups the dollar amount Dreier must turn over to approximately $700 million and extends to all of the Dreier firm's assets.
As far as Gowan is concerned, this amounts to a "complete turnaround by the government" and "creates a huge problem" for the imminent asset sale, Ressler told Bernstein.
Before proceeding with a liquidation, the trustee would have to disclose that Dreier LLP's assets could be subject to forfeiture, a move Ressler suggested would obliterate their value.
CAUTIOUS REASSURANCE
But while Bernstein seemed sympathetic to Ressler's arguments, Assistant U.S. Attorney Matthew Schwartz assured the judge that the trustee had nothing to worry about.
"I don't think there's any fight to be had," he told the judge.
Calling the forfeiture allegation in the superseding indictment a "notice provision," Schwartz went so far as to announce on the record that the government had no present intent of forfeiting Chapter 11 assets.
"Our current intention, I believe, is not to forfeit property that is currently part of the estate" or brought into the estate by the trustee, he announced from a bystander bench in the courtroom.
Bernstein suggested the parties hammer out an agreement to address the trustee's concerns. Or Ressler could make a motion to dismiss the Chapter 11 proceeding, the judge said.
In the absence of a written agreement, Klestadt said in an interview, nothing stops the government from going back on their word.
"From what I understand," the forfeiture statute apparently is "all powerful" and supersedes the bankruptcy law, he added.
In a phone interview following the hearing, Ressler said, "We expect to work cooperatively with the U.S. attorney's office going forward."
A spokeswoman for the U.S. Attorney's Office declined to comment on the matter.
As of press time Friday, no agreement had been disclosed.
Among the items up for bid Thursday -- on eight "fully furnished floors consisting of top of the line office & designer's furniture" -- are plush leather couches, BlackBerrys and Cisco switches.
Potential buyers can inspect the lot on Wednesday between 10 a.m. and 5 p.m. at 499 Park Ave.
Meanwhile, Southern District of New YorkJudge Jed S. Rakoff has set a June 15 trial date for the criminal case against Dreier.
