WSJ: [Dreier case] Fast Living, Bold Ambitions Drove Lawyer's Rise and Fall

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The Wall Street Journal
December 19, 2008, 6:19 A.M. ET

Fast Living, Bold Ambitions Drove Lawyer's Rise and Fall

By NATHAN KOPPEL, JUSTIN SCHECK and STEVE STECKLOW

Marc Dreier had four dazzling homes on two coasts, drove an Aston
Martin and sailed a 123-foot yacht. The law firm he owned displayed
artwork worth at least $30 million. And he gave many of its 250
attorneys huge guaranteed compensation, no matter how much business
they generated. His colleagues couldn't figure out how he afforded it
all.

An answer began to trickle out in October, when a hedge fund that was
considering buying some promissory notes was puzzled by the documents'
fine print. Seeking more detail, the fund, Whippoorwill Associates
Inc., got in touch with the auditor whose name was on the documents --
and learned they had been forged, say people familiar with the matter.

The auditor and the purported issuer of the notes in question informed
federal authorities. They began examining the marketing of the notes.
And Mr. Dreier's law firm, one with a national reputation and
celebrity clientele, was on its way to collapse.

Mr. Dreier has since admitted to others that he sold bogus promissory
notes, federal authorities say. They allege, in criminal and civil
complaints and testimony in federal court in New York, that the
Harvard-educated attorney bilked clients and investors of $380 million
in a fraud that entailed impersonation of businessmen, faked documents
and ruses staged at the hijacked conference rooms of unsuspecting
companies. Arrested in Toronto Dec. 2, Mr. Dreier is now in custody in
New York. His firm, Dreier LLP, filed for bankruptcy protection this
week.

Some who know Mr. Dreier blame desperation to support an extravagant
lifestyle and a law firm that he expanded too aggressively. Mr. Dreier
acquired law practices on both coasts, signing up lawyers with big
contracts and taking leases on space at the best addresses -- all the
while throwing lavish parties, developing a swank restaurant in Santa
Monica, Calif., and meeting the terms of a settlement with his now-
former wife.

A headhunter who placed lawyers at Mr. Dreier's firm says that after
it hired a large group in California in 2006, he told Mr. Dreier to
slow down. "I said, 'Look at the size of your firm, take a deep
breath,'" says the recruiter, Mark Rosen. "But he wanted to grow
bigger, bigger, bigger. That was just his personality. He liked being
the owner of a large law firm, and the status that goes along with
it."

A lawyer for Mr. Dreier, Gerald Shargel, says his client "is
cooperating with the receiver, and we hope to resolve this case in a
fair and reasonable way." He adds, "Under any analysis, this is a
tragedy of epic proportions. He was so able as a lawyer. He had the
benefit of a fantastic education. He worked very, very hard."

If Mr. Dreier did what prosecutors allege, his precise motive -- and
strategy -- are unclear. Among the questions: whether the alleged
fraudulent note sales might have been just a means of temporary
financing, and how the deals were eventually to be unwound.
Prosecutors haven't offered a theory.

Mr. Dreier grew up on New York's Long Island, the son of a Polish
immigrant who came to America in 1939 to work at the New York World's
Fair and later built a small chain of movie theaters. He studied at
Yale and then Harvard Law School. People who've dealt with him
professionally describe him as a brilliant litigator, quick and witty,
with a ferocious work ethic but a temper, too. As a young lawyer in
the 1970s, says a colleague from that period, he was fond of saying,
"You only live once -- you gotta go for it."

After making partner at one law firm, he moved to Fulbright & Jaworski
LLP in the Texas firm's New York office. He left in 1995, worked
briefly at another firm and in 1996 started his own, with a partner.
When the partner left in 2003, Mr. Dreier was sole proprietor of an
obscure 30-lawyer firm.

Typically, a law firm's partners share in revenue and expenses, have a
say in strategy and can see the books. Here, Mr. Dreier had all of the
equity and all of the risk. "Partners" were independent business units
paid a salary.

Mr. Dreier signed every check and decided matters big and small. At
its offices on Park Avenue in New York, one former partner says, Mr.
Dreier chose everything from the wall colors to the fresh-cut flowers
replaced daily on each floor. He also selected the artwork, which
court filings described as being valued at $30 million to $40 million.

Among other lawyers there, "the topic came up fairly regularly about
how does Marc do it from a financial perspective, when you looked at
the expenses of expansion," says a former partner, Daniel Coughlin,
who adds that occasionally partners would ask if they could examine
the books. Mr. Dreier would rebuff them by asking them whether their
paychecks were still coming, says Mr. Coughlin, who left in 2007.

By then, Mr. Dreier was accumulating a flashy array of personal
assets. He had a spectacular three-story apartment in midtown
Manhattan with floor-to-ceiling windows. Already the owner of a home
in the Hamptons on Long Island, he added a second one, currently
assessed at $1.26 million, and held parties on a $15 million yacht,
Seascape.

"We were told he came from family money," says Timothy Bechen, a
patent-law specialist, who adds that he was a week away from making
partner when the firm imploded.

Some secretaries at the firm earned more than $200,000 annually,
according to Douglas Hamilton, a former secretary and computer
specialist there who says he was paid $112,000 last year.

In 2006, Mr. Dreier began a rapid expansion in California in which he
lured lawyers with promises of autonomy, seven-figure salaries and
hefty bonuses. Mr. Dreier joined the Brentwood Country Club, says a
club manager, who adds that the fee is $180,000. He took over the
lease on an oceanfront penthouse from Larry Feldman, a Los Angeles
litigator he was trying to recruit, says Mr. Feldman (who didn't sign
on).

Two blocks from his new penthouse, Mr. Dreier opened a branch of
Tengu, a fancy sushi restaurant. Mr. Dreier, who is 58 years old,
often brought attorneys there for late dinners, frequently joined by
younger women, says Tengu's events manager, Raphaela Bazalgette. "He
just had a lot of friends and was always having a good time."

Mr. Dreier "liked exotic things," she adds, especially live California
scorpion fish, a bulbous-headed, venomous species. He would eat one
"on a stick, with its heart still beating," she says.

Stanton "Larry" Stein, an attorney who specializes in representing
celebrities such as the Olsen twins and Rob Lowe, joined with Dreier
LLP in early 2007, bringing along 35 or so other lawyers. Mr. Dreier
assumed the costs of the group's offices in Santa Monica's Water
Garden, one of the costliest commercial spaces in Los Angeles County.
He agreed to pay Mr. Stein more than $2 million a year for the first
three years, say three people familiar with the matter. Mr. Stein
declined to comment on his compensation from Dreier.

Marshall Grossman, a former partner of Mr. Stein's who didn't come
along, was surprised at Mr. Dreier's willingness to shoulder such
costs. "I understood the economics of what he was buying, and the
cost...made no sense," says Mr. Grossman, who describes his split from
Mr. Stein's group as acrimonious.

View Full Image

New York lawyer Marc Dreier leaving the Ontario Court of Justice in
Toronto on Dec. 5, after his arrest three days earlier. Mr. Dreier,
58, is expected to face charges of impersonating an executive in
connection with an effort to sell allegedly bogus promissory notes to
a hedge fund.
Associated Press

New York lawyer Marc Dreier leaving the Ontario Court of Justice in
Toronto on Dec. 5, after his arrest three days earlier. Mr. Dreier,
58, is expected to face charges of impersonating an executive in
connection with an effort to sell allegedly bogus promissory notes to
a hedge fund.
New York lawyer Marc Dreier leaving the Ontario Court of Justice in
Toronto on Dec. 5, after his arrest three days earlier. Mr. Dreier,
58, is expected to face charges of impersonating an executive in
connection with an effort to sell allegedly bogus promissory notes to
a hedge fund.
New York lawyer Marc Dreier leaving the Ontario Court of Justice in
Toronto on Dec. 5, after his arrest three days earlier. Mr. Dreier,
58, is expected to face charges of impersonating an executive in
connection with an effort to sell allegedly bogus promissory notes to
a hedge fund.

Mr. Dreier leased space in a Century City building used in the movie
"Die Hard." By the end of 2007, he was paying more than $300,000 a
month for Los Angeles office rent, says a person with knowledge of the
firm's finances.

Early this year, Mr. Dreier brought in a prominent Los Angeles
litigation group that included attorney Eric George, whose father is
the chief justice of the state supreme court. Several lawyers in the
group were guaranteed more than $1 million a year, says a person with
knowledge of the arrangement. Mr. George says he and other California
attorneys have ended their relationship with Mr. Dreier since his
arrest and now operate independently.

Mr. Dreier assembled a California branch with a broad range of
practices, including sports and entertainment law. The unifying theme
of the growing firm was its roster of bold-face clients, people like
comedian Jay Leno, pitcher Andy Pettitte, musical artist Diana Krall
and rock band Wilco.

Celebrating the growth, Mr. Dreier threw parties that got increasingly
lavish. In 2007, he hosted a charity golf tournament with former New
York Giants defensive end Michael Strahan. Diana Ross sang at the pre-
party, and actor William Shatner was M.C. At this year's event, held
in June, the headliner was pop singer Alicia Keys.

At a Christmas party last year at the Waldorf Astoria, he ascended a
platform and danced wildly to the party anthem "Shout," as employees
surrounded him waving their arms. He donned a Viking helmet at a party
at the Hiro Ballroom in New York this year.

But by November, Mr. Dreier was being investigated by the U.S.
attorney for the Southern District of New York, thanks in part to the
suspicions aroused at the Whippoorwill hedge fund when it was
considering buying some notes. The authorities had heard both from the
purported auditor of the paperwork, Berdon LLP, and from the firm
portrayed as having issued the notes -- Solow Realty & Development Co.
in New York.

According to a criminal complaint since filed in federal court in
Manhattan, prosecutors instructed a cooperating witness who was
associated with Berdon to confront Mr. Dreier about the documents --
in recorded phone calls. During the calls, the complaint says, Mr.
Dreier admitted fabricating documents he'd provided to a buyer in
connection with a note sale. "Dreier further stated that he was
'ashamed' of his role in fabricating the documents and that it was
'very serious what's happened here,'" prosecutors said in the
complaint.

Then around the start of this month, Mr. Dreier was attempting to sell
some notes to Fortress Investment Group LLC, according to people
familiar with the matter. Fortress asked for certain guarantees from a
pension plan Mr. Dreier represented as being involved in the deal, and
wanted to meet in person with a manager from the plan, Ontario
Teachers' Pension Plan.

As the people familiar with the events tell it, Mr. Dreier set up a
meeting in Toronto with Ontario Teachers on an unrelated matter;
stayed on in its offices afterward; then intercepted a Fortress
executive when he arrived and took him to a conference room. They say
Mr. Dreier posed as a lawyer who actually works for the pension plan,
Michael Padfield, and signed documents as him.

But the Fortress executive began asking questions about Mr. Padfield.
Mr. Dreier's alleged ruse came undone. An Ontario Teachers employee
notified the police, and Mr. Dreier was arrested.

He intends to plead not guilty to an expected impersonation charge,
his lawyer in Canada says. The charge can be either a misdemeanor or a
felony, at prosecutors' discretion.

Fortress says it is cooperating with law enforcement. Mr. Padfield
couldn't be reached for comment.

Freed from jail, Mr. Dreier returned to the U.S., where he was re-
arrested. Filings by U.S. authorities in federal court in Manhattan
allege he sold fake promissory notes purportedly issued by a New York
real-estate developer; according to people familiar with the
situation, this was Solow Realty, once one of his firm's biggest
clients. Prosecutors say Mr. Dreier claimed to be offering them on
behalf of hedge funds that needed to sell because of the financial
crisis. To do so, he is alleged to have commandeered conference rooms
at both Solow and one of its accounting firms, besides the room in
Toronto.

U.S. prosecutors include, in the tally of $380 million of losses they
allege he caused, $100 million in fake Solow notes sold to a New York
investment fund in October. As part of that sale, according to court
filings, Mr. Dreier arranged a conference call between analysts at the
unidentified investment fund and an accomplice who posed as a Solow
executive. Prosecutors haven't named the alleged accomplice.

As far back as early 2006, Mr. Dreier sold $100 million in purported
Solow Realty notes to another New York asset manager -- GSO Capital
Partners LP, now owned by Blackstone Group LP -- according to a person
familiar with the transaction. This person says the debt was repaid
with interest, and Blackstone has no exposure.

A spokesman for Solow said, "The company never authorized Marc Dreier
to negotiate any financing or issue any promissory notes on its
behalf."

Mr. Dreier's law practice began to unravel the day after his arrest in
Toronto. Top lawyers there assigned employees to check on the status
of bank accounts, and then called a meeting to report their findings.
To their surprise, according to two people who attended, Mr. Dreier's
college-age son Spencer showed up, and said his father had told him
that as soon as he got out of jail, he would come back and everything
would be fine. Spencer Dreier couldn't be reached for comment.

The lawyers asked the son to leave and then debated, among other
things, whether to cancel a Christmas party at the Waldorf set for the
next evening. They agreed to go ahead with it, since it was paid for,
but reconsidered the next day after learning that most of the money in
a $38 million escrow fund held in a bankruptcy case was missing.

A firmwide email went out: The Christmas festivities were canceled.
"People were angry and perplexed," says Brad Lowary, a secretary at
the law firm.

To try to rally their spirits, he says, a paralegal ran out to a
neighboring bar and gathered about $100 worth of beer. Pizza was
ordered, and staffers partied in a partner's office. "The ship was
going down," says Mr. Lowary, "so we wanted to bond for one last
evening."

—Amir Efrati contributed to this article.