Washington, D.C., Dec. 8, 2008 (LAWFUEL) – The Securities and Exchange Commission today charged New York attorney Marc S. Dreier with fraud in connection with an elaborate scheme that raised at least $113 million from the sale of bogus promissory notes. Dreier is the founder and managing partner of Dreier LLP, a 250-attorney law firm headquartered in New York with offices in Los Angeles, Pittsburgh, and Stamford, Conn., among other places.
The SEC also is seeking an emergency court order to freeze Dreier’s assets and appoint a temporary receiver.
The SEC’s complaint, filed in federal court in Manhattan, alleges that since at least October 2008, Dreier has been marketing fake promissory notes, including bogus notes of a New York-based real estate development company, to hedge funds and other private investment funds, and has closed at least three sales. According to the complaint, Dreier created an elaborate charade designed to convince purchasers that the notes were genuine. He allegedly distributed phony financial statements and audit opinion letters of a reputable accounting firm, and recruited confederates to play the parts of representatives of legitimate companies involved in the transactions, even creating dummy e-mail addresses and telephone numbers.
“Our complaint alleges a stunning, brazen fraud that targeted some very sophisticated institutional investors. Investors big and small alike should take heed, especially in these difficult economic times, that con artists are out there and may go to elaborate lengths to commit fraud,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.
James Clarkson, Acting Regional Director of the SEC’s New York Regional Office, added, “The conduct alleged here is particularly troubling because it was allegedly committed by an attorney and is contrary to the high standards of character and integrity we expect, and have a right to expect, from members of the bar.”
According to the SEC’s complaint, Dreier directed that two purchasers of the bogus notes wire payment to what appeared to be his law firm’s escrow account. At least one note purchaser discovered the fraud, and demanded and received the return of its investment. Approximately $100 million in known proceeds from the sale of the bogus notes remains unaccounted for.
The SEC’s complaint alleges that, among other fake securities, Dreier has been offering fictitious promissory notes of a New York-based real estate development company (the developer), a former client of both Dreier and his law firm. Since at least October of this year, Dreier has approached at least three different investment funds with an offer to sell them, at a deep discount, various short-term, unsecured promissory notes supposedly issued by the developer. Two of the investment funds agreed to purchase the notes (one fund purchased notes in two separate transactions) and forwarded approximately $113 million to an account in the name of “Dreier LLP Attorney Trust Account” in payment. A third fund was offered the notes, but declined to participate.
As alleged in the SEC’s complaint, 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 that the developer had never issued the notes, had not authorized Dreier to market them, and indeed knew nothing of their existence or Dreier’s offers or sales.
The SEC’s complaint further alleges that in marketing the notes, Dreier 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 the developer’s auditor, but which were printed on purported stationery of the developer’s auditing firm. Dreier did not tell representatives from the hedge funds that the notes were bogus, that the “audited financial statements” and audit opinion letters were fabricated, or that the developer had never issued the notes or authorized Dreier to market them, despite Dreier’s knowledge of these matters.
As alleged in the complaint, Dreier has confessed that:
· The notes were fictitious.
· The notes had never been issued by the developer.
· The developer had never authorized him to market the notes.
· He had fabricated documents evidencing that the notes had been issued by the developer to the original holder even though the original holder may never have purchased any notes issued by the developer. In that connection, he or his confederates forged the signature of the developer’s CEO.
· The developer’s financial statements and the audit reports were fabrications.
· He knew that the phony financial statements and audit reports had been distributed to the hedge funds without disclosure that they were false.
In addition to emergency and interim relief, the SEC seeks a final judgment permanently enjoining Dreier from future violations of the antifraud provisions of the federal securities laws and ordering him to pay civil penalties and disgorgement of ill-gotten gains with prejudgment interest.
According to the complaint, Dreier is 58 years old and resides in Manhattan, and is a former partner at two prestigious law firms and a graduate of Harvard Law School and Yale College.
The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York.