Marc Stuart Dreier - SEC Civil Charge

SEC Civil Charge

On December 8, 2008, the Securities and Exchange Commission charged Dreier with fraud in connection with an elaborate scheme that raised at least $113 million from the sale of bogus promissory notes. The complaint alleges that since at least October 2008, Dreier had been marketing illegitimate promissory notes, including bogus notes of a New York–based real estate development company, to hedge funds, and other private investment funds. He had closed at least three sales, convincing purchasers that the notes were genuine. He allegedly distributed fake financial statements and audit opinion letters of a reputable accounting firm and recruited assistance to represent legitimate companies involved in the transactions, including false e-mail addresses and telephone numbers. Dreier directed that two purchasers of the bogus notes wire payment to his law firm's escrow account. At least one purchaser discovered the fraud and received the return of its investment. There is an unaccounting of approximately $100 million in known proceeds from the sale of the bogus notes. Dreier had been offering fictitious promissory notes in the name of former client, Solow Realty, a New York real estate development company. Since at least October 2008, Dreier had approached at least three different investment funds with an offer to sell, at a deep discount, various short-term, unsecured promissory notes, ostensibly issued by Solow. Two of the investment funds agreed to purchase the notes (one fund purchased notes in two separate transactions) and forwarded the payments of approximately $113 million to an account in the name of "Dreier LLP Attorney Trust Account". A third fund was offered the notes, but declined to participate. All of the offers were accompanied by documents that Dreier subsequently admitted he knew were fabricated. Dreier offered the notes for sale even though he knew Solow had never issued them, had not authorized Dreier to market them, and knew nothing of their existence. Dreier had provided the hedge funds with fabricated documents including a "form" note and related agreements, "audited financial statements," and purported audit letters, which bore the forged signature of Solow's auditor, but which were printed on purported stationery of Solow's auditing firm. Dreier never told the representatives from the hedge funds that the entire marketing and sales plan was fictitious.

On December 8, 2008, the SEC filed declarations from firm controller John Provenzano and Dreier lawyer Norman N. Kinel. Provenzano detailed how millions of dollars were missing from client accounts. He stated that he was aware since he took his position in August 2005 of the disbursement of between $30 million and $40 million in Dreier accounts to pay for works of art. Dreier LLP maintained eight escrow accounts where client funds were commingled and eight other accounts for individual clients. Kinel e-mailed Dreier on December 1 requesting disbursal of $38.5 million out of an escrow account on behalf of 360networks (USA) Inc., a client that had emerged from bankruptcy in 2002. Dreier had remained counsel for the official committee of unsecured creditors in connection with 360's Chapter 11 bankruptcy and Kinel asked for the money for distribution to unsecured creditors, but only $19 million remained in the accounts. Provenzano recounted that in phone conversations with other firm partners, Joel A. Chernov and Steven R. Gursky on December 3 and 4. Dreier said that, had he not been in custody, he would have been able to return to New York and sell some of his art so the money could be returned. On both days, Provenzano was asked by Dreier, who was incarcerated in Canada on a charge of impersonation, related to his dealings with the hedge funds, to transfer $8 million and then $10 million from the escrow accounts into Dreier's own accounts, but Provenzano refused.

The case is SEC v. Dreier, 08-cv-10617 U.S. District Court for the Southern District of New York (Manhattan).

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