Marc Dreier — the lawyer who sold notes that never existed

In New York, in December 2008, a prominent Manhattan attorney’s six-year fraud collapsed in a foreign office where he had gone to impersonate someone else. Marc S. Dreier, the founder and sole equity partner of the law firm Dreier LLP, had since 2004 manufactured and sold roughly $700 million in fictitious promissory notes, securities purportedly issued by a real estate developer and a Canadian pension plan that had issued nothing. He sold them to sophisticated hedge funds using forged financial statements, a fabricated auditor, accomplices who posed as corporate officers, and, on at least one occasion, his own physical impersonation of an executive he was pretending to represent.

The outcome was unambiguous. Dreier was arrested in Toronto on December 2, 2008, after a receptionist at the Ontario Teachers’ Pension Plan grew suspicious of a visitor presenting himself as the fund’s in-house lawyer. United States authorities arrested him again on his return, and on May 11, 2009, he pleaded guilty in the U.S. District Court for the Southern District of New York to eight federal felonies, including conspiracy, securities fraud, wire fraud, and money laundering. On July 13, 2009, Judge Jed S. Rakoff sentenced him to 20 years in federal prison and entered a forfeiture order of roughly $700 million.

The figures sat in an unusual register. Prosecutors traced approximately $700 million in fake notes sold and estimated that Dreier had also looted close to $400 million from a client escrow account that his firm controlled. The named institutional victims included Fortress Investment Group, which lost an estimated $125.7 million, Elliott Management, and Eton Park Capital Management. Prosecutors initially sought a sentence of up to 145 years; the judge declined, observing that Dreier, whatever his crimes, was “no Mr. Madoff,” whose 150-year sentence had been imposed two weeks earlier in the same courthouse.

What distinguished the Dreier case was its author. Most large frauds are run by people operating a business that purports to invest money. Dreier ran a working law firm of more than 250 lawyers and used it as theater: its letterhead, its escrow accounts, and its respectability furnished the props for a confidence scheme he operated very largely alone. He did not need a Ponzi pyramid of thousands of investors, only a handful of professional buyers and a stage convincing enough to make a fiction look like a security.