Unusual Cases: NY Attorney Charged With Criminal And Civil Securities Fraud
Another attorney was charged with both criminal and civil securities fraud. Some commentators have raised questions about what seems to be an increasing trend toward prosecuting attorneys. While there may be legitimate questions regarding some of these cases, based on the pending court papers in the actions filed yesterday, this matter seems more like a TV movie, complete with phony documents, a staged phone call, restitution by the accused when confronted by one victim and ultimately a confession to the authorities.
The accused: The cases were brought against New York Attorney Marc S. Dreier, head of the Drier LLP law firm. The firm has 250 attorneys in offices located in Manhattan, Los Angeles, Stamford, and Pittsburgh. Mr. Dreier was arrested on securities fraud charges in New York following his return from Toronto where he had been arrested earlier this month in connection with another alleged scheme.
The charges: The U.S. Attorney’s Office for the Southern District of New York unsealed a criminal complaint against Mr. Dreier on Monday. That complaint contains one count of securities fraud and one count of wire fraud. At the same time, the SEC filed a civil fraud action against the attorney. SEC v. Dreier, Civil Action No. 08 Civ. 10617 (S.D.N.Y. Filed Dec. 8, 2008).
The allegations: The two complaints detail a multi-million dollar fraud scheme. According to the court documents, Mr. Dreier engaged in a scheme to sell bogus promissory notes supposedly issued by a New York based real estate development company. That company was a former client. Mr. Dreier offered the fraudulent notes to three hedge funds.
First, Mr. Dreier solicited Hedge Fund I. That Fund ultimately purchased two groups of discounted notes, one for $83.6 million and a second for $16.25 million. To induce the Fund to purchase the discounted notes, Mr. Dreier furnished the purchaser with bogus documentation regarding the transaction. He also staged a telephone call, supposedly with the CEO of the issuer. In fact Mr. Dreier had one of his henchmen on the line, not the issuer’s CEO according to the court documents.
Second, Mr. Dreiser solicited Hedge Fund II in an effort to sell more discounted, but bogus notes from the real estate company. The scheme worked again. Fund II paid $13.5 million for the notes.
Third, Mr. Dreiser solicited Hedge Fund III as part of a continuing scheme to sell even more bogus notes. Fund III however, decided to check out Mr. Dreiser. It telephoned the audit partner named in an audit opinion Mr. Dreiser furnished them. The audit partner was real. The opinion was not. The audit partner told Fund III that the opinion was false. When Fund III learned that the audit opinion was false, it refused to go through with the purchase of the notes.
Restitution: Hedge Fund II subsequently learned about the discovery by Fund III. At that point, Fund II demanded that Mr. Drier pay back its money. He did.
The Confession: According to the SEC’s complaint, Mr. Dreier confessed key aspects of the scheme apparently to the authorities including the fact that:
• The notes were fictitious;
• The notes were never issued by the developer;
• He was never authorized by his former client to market the notes;
• He fabricated documents to facilitate the transactions; and
• The financial statements and audit opinions he furnished potential investors were false.
The cases filed by the U.S. Attorney’s Office and the SEC are pending. It is unclear if charges were also filed in Toronto.