Arrested Lawyer Accused Of Defrauding Hedge Funds

Dec 9 2008 | 1:59am ET

The New York lawyer arrested in Toronto last week for impersonating a Canadian pension fund lawyer at a meeting with Fortress Investment Group is in even more trouble at home.

Marc Dreier has been charged by federal prosecutors in the U.S. with defrauding hedge funds of more than $100 million. As part of the alleged scheme, Dreier and several associates are accused of posing as representative of legitimate businesses. According to the criminal complaint, filed today in Manhattan, Dreier lied to at least three hedge funds—which were not identified—claiming to represent a real estate investor selling discounted promissory notes.

Dreier was detained by a magistrate judge in Manhattan yesterday, with a bail hearing set for Thursday. He spent two days in an Ontario jail after his arrest in Toronto at the offices of the Ontario Teachers Pension Plan, where he allegedly impersonated OTPP lawyer Michael Padfield at a meeting with Fortress. Dreier did not enter a plea at yesterday’s hearing.

“This is a very complex matter, and the facts are beyond the reach of a sound bite,” Dreier’s attorney, Gerald Shargel, said. “He’s had a tough several days.”

And how: Dreier, who heads the eponymous 250-attorney Park Avenue law firm, has also been sued by both the Securities and Exchange Commission and Wachovia Corp., the latter alleging that he has defaulted on $12.6 million in loans. He also faces charges of criminal impersonation in Ontario.

If convicted of both the U.S. and Canadian charges, Dreier faces as much as 10 years in prison in both jurisdictions.

According to the U.S. charges, Dreier promised the hedge funds, which are based in New York, Greenwich, Conn., and Toronto, a deep discount on the notes. But the complaint alleges that “the developer did not issue any of the notes” and that Dreier “has never been responsible for managing or selling notes on the behalf of the developer.”

Federal prosecutors said that Dreier engaged in an impersonation ploy similar to his alleged Toronto exploits at the developer’s New York office in October. The complaint says he told a receptionist that he was authorized to attend a meeting that “the CEO had not scheduled.”

“The CEO subsequently observed Dreier having an unauthorized meeting with three individuals in a conference room,” the complaint alleges.

Prosecutors also have several taped phone calls in which Dreier allegedly admitted that the financial statements he provided to a hedge fund were false. One of the hedge funds wired Dreier $100 million, the complaint says, while another sent him $13.5 million.

In its suit, the SEC accuses Dreier of raising some $113 million marketing phony promissory notes to hedge funds and other investors, of which about $100 million is missing.


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