How did it begin?
Marc Dreier was born in Long Island, New York, in 1950 and graduated with a law degree from Harvard Law School in 1975. After two decades working at various Wall Street law firms, he left to strike out on his own and by 2000 he was experiencing modest success as a senior partner in the medium-sized law firm Dreier, Baritz & Federman. Dreier’s restlessness drove the other partners away, leaving him in sole charge of the firm, which he renamed Dreier LLP. He then started to expand aggressively.
What was the scam?
To raise money for the expansion, as well as to fund a lavish lifestyle, Dreier began to borrow money from hedge funds, issuing fake bonds from a corporation, Solow Realty, run by one of his clients, Sheldon Solow. To make the scam seem convincing, Dreier constructed a fake balance sheet and offered interest rates that were slightly above the going rate. Initially Dreier hoped that the profits from his law firm would repay the loans, but with the expansion costing more money than expected, and as he acquired a taste for the high life, his firm began to turn into a traditional Ponzi scheme.
What happened next?
By 2008 the economic downturn led many investors to demand their money back. To cover these redemptions, Dreier borrowed more money from hedge funds, even holding meetings in Solow’s offices (which he had access to as Solow’s lawyer) and hiring someone to impersonate one of his client’s executives. The hedge funds started to grow suspicious and ask questions. Dreier was finally arrested after an attempt to sell more notes, this time on behalf of the Ontario Teachers’ Pension Plan, which ended in disaster when a receptionist at the fund called the police. After Dreier’s arrest in November 2008, his law firm was wound up and he would eventually be sentenced to 20 years in prison. The sale of the firm’s assets, as well as of Dreier’s property, cut losses from the gross figure of more than $700m (£576m), but investors still ended up $400m out of pocket.
Lessons for investors
Many of the losses could have been avoided had the funds done more due diligence, rather than taking Dreier at his word. Indeed, the trigger for the collapse came when a hedge-fund analyst contacted Solow Realty directly.