Marc Dreier, the founder of the New York law firm Dreier, has allegedly defrauded investment firms of $113 million after selling bogus promissory notes, according to a US Securities and Exchange Commission filing.
Dreier has already admitted to key aspects of an extensive scam, including selling to unnamed hedge funds securities that he knew were false. A hedge fund controlled by Fortress Investment Group was among the potential buyers targeted by Dreier, although it is unclear if the lawyer’s interactions with Fortress are included in the SEC charges.
Dreier, who was arrested and released on bail last week in Toronto on separate charges of impersonating an official from the Ontario Teachers’ Pension Plan, was allegedly engaged in an “elaborate charade” whereby he sold promissory notes to hedge funds and private investment funds and closed three sales. The law firm Dreier was unavailable for comment at press time.
The SEC filing states that the notes, including bogus notes from a New York-based real estate development company, were backed up with “phony financial statements and audit opinion letters”. Dreier also recruited “confederates” to play the roles of representatives of legitimate companies involved in the transactions.
One investment firm that uncovered the fraud received its investment back, the filing stated, but $100 million “in known proceeds” remains unaccounted for.
The filing says that Dreier has admitted the notes were fictious and the development company never authorised their issuance or sale. He also admitted to fabricating evidence to back-up the notes' sale, including the financial statement and audit reports.
Since October, Dreier has approached at least three investment firms offering to sell various short-term unsecured notes at a steep discount, including fake notes from the developer – a former client of Dreier and his law firm.
Two investment funds agreed to purchase the notes and wired Dreier $113 million, to what appeared to be “his law firm’s escrow account”. A third fund declined to participate in the deal, the filing went on to say.
The SEC is now seeking to freeze Marc Dreier’s assets and appoint a receiver and temporary restraining order and injunction on the 58-year-old founder.
According to a report in Canada’s Globe and Mail, Dreier had been in talks with a division of Fortress about a $50 million investment in an unnamed company.
According to the report, Dreier had assured Fortress – which manages two listed real estate vehicles, known as Castles, as well as various private equity funds – that Ontario Teachers’ would guarantee the company’s assets and the safety of the investment. Fortress then sought more concrete evidence of this guarantee.
After reportedly arranging a meeting with Fortress official, Howard Steinberg, and Ontario pension’s in-house counsel, Michael Padfield, Dreier passed himself off as Padfield. Steinberg, however, was said to have become suspicious during the meeting and Ontario Teachers’ staff later notified the police. Dreier was arrest the same afternoon.
The staff at Dreier, which has some 250 lawyers, are reportedly in emergency meetings. The firm has a corporate and securities practice, as well as a restructuring practice. Dreier is the sole equity partner of the firm.