As if the recession, the credit crisis and the Bernie Madoff business weren’t enough, investors — especially hedge fund investors — got more humbling news toward the end of 2008 in the person of Marc Dreier, the New York lawyer who stands accused of peddling hundreds of millions of dollars worth of phony promissory notes to prominent funds that included Fortress Investment Group and Eton Park Capital Management.
Dreier, 58, was indicted on a number of counts that included wire fraud and securities fraud. He was apprehended in Toronto in early December after he was caught allegedly attempting to impersonate an attorney for the Ontario Teachers’ Pension Plan, one of Dreier’s clients, as part of a scheme to sell promissory notes to Fortress. Prosecutors say an investigation subsequently revealed a spate of Dreier forgeries and impersonations dating back to 2004 that resulted in clients’ being defrauded of an estimated $380 million. Authorities say Dreier relied on the scams to support an increasingly extravagant personal and professional lifestyle. He was released in early February on an unsecured $10 million bond.
Shelley Greenhaus, manager of White Plains, New York–based hedge fund Whippoorwill Associates, blew the whistle after receiving an offer to purchase promissory notes listing New York–based Solow Realty & Development Co., a former client of Dreier’s, as issuer. Daniel Gewanter, a Whippoorwill lawyer, confirmed to Alpha that the firm’s due diligence discovered that the notes were fake and that it was Whippoorwill that had first tipped off the Securities and Exchange Commission.
Dreier’s Park Avenue law firm, which he founded in 1996, specialized in commercial real estate litigation as well as contract negotiations for sports and entertainment figures, and included such high-profile clients as Steve Nash, the all-star guard for the Phoenix Suns, and singer Alicia Keys. The law firm has since filed for Chapter 11 bankruptcy protection.
Though it is small potatoes compared with Madoff, the Dreier case serves as yet another painful reminder that especially during tough economic times con artists will go to elaborate lengths to commit fraud, says Linda Chatman Thomsen, who until last month was director of the SEC’s enforcement division.
Notes attorney David Feldman, managing partner at New York law firm Feldman Weinstein & Smith: “Often, in hindsight, duped investors say they had a feeling something wasn’t right. My advice: Go with your gut and run, don’t walk, when you have those feelings. Then maybe, just maybe, we make it a little harder for these guys to take advantage.”
