Marc Dreier’s epic fraud looted some $750 million from its corporate victims. Could investigators hunt down the loot before it vanished?
In January 2009, as federal Judge Douglas Eaton pondered bail for super lawyer-turned-master con artist, Marc Stuart Dreier, the scope of Dreier’s swindle and the fascinating lengths he was willing to go to perpetrate it were still coming into focus.
Dreier, the bon vivant behind Dreier LLP, the high-powered national law firm named after himself, had turned 250 of the country’s top lawyers into contract players in a elaborate scheme – one that involved his sale of $100 million in fake promissory notes to a major investment fund, impersonating other lawyers and siphoning funds from client trust accounts – to bilk investors of nearly $750 million.
Setting bail at $20 million with a myriad set of conditions, including electronically monitored house arrest with armed guards on post, Judge Eaton remarked to famed criminal defense attorney Gerald Shargel that Dreier’s actions were so surreal that they bordered on mental illness.
More urgent than assessing Dreier’s sanity, however, was determining whether it was possible to recover any of his victims’ money. The monumental task of unraveling Dreier’s legal empire and his far-flung bank accounts and international properties became the holy grail for an army of court-appointed receivers, private investigators, and government prosecutors.
The Marc Dreier asset search highlights the immense challenge of tracking and recovering assets in fraud cases. Even with Dreier’s purported cooperation-undoubtedly offered as his only hope of being released from prison with some breath in his lungs-there remains somewhere in the ballpark of $300 million in investor funds still missing.
“There is no doubt these can be enormously challenging projects in the best of conditions,” said David Cogan, a certified fraud examiner and Managing Director of Sapient Investigations, Inc. “But it is essential to initiate asset searches quickly after fraud is discovered to prevent the perpetrator from liquidating bank accounts and selling property.”
In Dreier’s case it became clear that shortly before his arrest in December 2008 he was falling ever more deeply in debt and struggling to maintain the illusory appearance of his Park Avenue lifestyle.
Mark F. Pomerantz, a former federal prosecutor who was appointed the receiver in the case, reported that while Dreier had a functioning law firm and impressive series of homes and townhouses on both coasts, he had burned through almost all of his cash by the fall of 2008.
“[The] facts suggest that as of September or October, 2008, Dreier had largely run through the cash under his control and was relying on additional sales of fictitious notes to pay overdue bills, replenish stolen escrow funds, and maintain the extravagant lifestyle that his crimes had made possible,” Pomerantz stated in a report to the Securities and Exchange Commission.
The sleuthing began in earnest, Pomerantz told reporters, by digging through 27 large boxes of documents and materials detailing Dreier’s sales of bogus notes. Then a team of investigators were dispatched to Dreier’s various offices and properties across the hemisphere to begin itemizing the wealth, in some cases, that was literally nailed to the walls.
As the receiver began to unearth Dreier’s assets, a portrait came into focus of a man who possessed everything but wanted even more. There was 300-piece art collection valued at nearly $40 million, a Manhattan apartment that Dreier bought for $10 million in 2007, two multi-million dollar homes in the Hamptons (including an eight-bedroom ocean front getaway), a beach house in Santa Monica and property in Antigua.
Pomerantz also tracked down and recovered a collection of sports and luxury cars and took possession of more than $1 million in furniture. He managed to find some smaller, but pricey items as well, including $11,000 in watches.
Then there was Dreier’s crown jewel: a unique $20-million luxury yacht (one of only 10 like it in the world) called the Seascape which Dreier had stashed in the Caribbean and hoped to keep even after his scam imploded. Negotiating the successful return of the Seascape proved to be one of the trickier challenges that Pomerantz faced in the effort to recover Dreier’s assets. Faced with a cash crunch, Dreier had stopped paying the crew and the docking fees months earlier. Pomerantz’ teams had to negotiate a deal to pay off the crew before they would agree to allow the Seascape to be repatriated to the United States.
Locating and recovering assets in the Dreier case also came with the associated task of effectively managing the collapse (and scope of the damage) of Dreier LLP, employees of which like the crew of the yacht were riding on a financially sinking ship. Pomerantz told reporters that immediately upon taking over control of the sprawling law firm that he has his colleagues at Paul Weiss, a New York law firm, determined the cash shortage was so bad the firm could not even make its next payroll, leaving not just attorneys but scores of receptionists and clerks and other staff heading into the unemployment lines.
In the end, Pomerantz and federal prosecutors were able to identify and locate $100 million worth of Dreier’s assets. Unfortunately, that left $300 million still missing.
The scenario here is not something unique to Park Avenue names like Dreier. Even in smaller cases, assets can scattered in short order across the globe, laundered into other companies and dispersed into offshore bank accounts in destinations like the Cayman Islands.
Investors, unfortunately, can not count on the U.S. Government to make them whole. According to a 2005 Government Accounting Office report, only between four and seven cents of every dollar stolen from investors are recovered by the government.
One major of the reasons for this is that, in most cases, successful prosecutions are the government’s goal not asset recovery.
“Investigators are generally more effective at helping victimized investors find stolen assets than the government,” Cogan said. “If you want to be successful and actually recover money, you need professionals who do this work everyday. In the cyber world of 2011, tracking down missing funds has really become an art form.”