Before Madoff Marc Dreier's name may not ring any bells
to the general public.
If you don’t know about him, it’s because back in 2009, the top financial scandal of
the decade was Bernie Madoff's huge ponzi scheme.
But, just a few months before Madoff, Dreier had been busted for running an elaborate Ponzi
scheme that made his newly-born law firm millions of dollars in loans.
Investors believed they were putting money into a Canadian real estate mogul, but the
money wound up in Dreier's pocket instead.
Like any classic Ponzi scheme, Dreier found himself up to his neck in debt, and his world
came crashing down.
He took to TV to tell his story, but were his TV appearances a way to clear his mind
or an attempt to clear his name?
Dreier, Baritz & Federman Growing up on Long Island, New York, Dreier
garnered some positive attention from his class in Lawrence High School– they even
named him "most likely to succeed."
After graduating from both Yale and Harvard, he started his career in the late '70s as
a respectable lawyer at Rosenman & Colin, one of the most prestigious law firms of the
time.
A few years later, he was named a partner but, in 1989, he jumped ship to another firm
and became co-head of litigation in New York.
He left the company in 1995 and joined Duker & Barrett, a firm whose leading partner, William
Duker, would be convicted of fraud years later.
Did this specific event spark a subconscious fire in Dreier's mind?
A year later, in 1996, he joined forces with Neil Baritz and founded Dreier & Baritz.
In 1999, the company became Dreier, Baritz & Federman.
The firm's offices were located on Park Avenue, New York, and the team preferred class-action
lawsuits, which are considered cash cows in the legal world.
Dreier's lack of financial control and management style led to years of confrontation.
Federman filed a lawsuit against him, stating that Dreier owed him money and misused the
funds kept in his clients' escrow accounts.
In the world of lawyering, touching money awarded to clients is a cardinal sin.
While the lawsuit settled in 2002, their business fizzled out.
The men parted ways soon after.
Dreier Model In 2006, Dreier founded his law firm as the
sole partner and head of operations.
Dreier LLP had offices in five cities.
The company, which was run like a corporation, had him as the exclusive equity partner, meaning
he had control over finances and administration issues without any executive committee or
partners.
Added to this, Dreier had complete control over client information and specific data
on company accounts.
He convinced his employees that this was the best way for them to focus on the legal work
while he dealt with management.
At the same time, he expanded his firm dramatically, including new departments like entertainment,
bankruptcy, and sports licensing.
His management style became known as the 'Dreier Model,' a system in which he controls all
the firm's equity.
He would pay lawyers in the firm fixed salaries plus bonuses related to how much business
they brought to the firm– not the usual way a law firm works.
Many critics thought this was a ludicrous way of managing a law firm since the whole
operation of the firm depends on one individual.
If the individual fails or dies –or becomes the subject of a multi-million-dollar fraud
scandal– the rest of the firm goes down.
Of course, this allowed him to take complete control of how money came into the company
and left him unsupervised when offering fraudulent investment opportunities using his client's
money.
Since he was the only signatory of his client's escrow accounts, he could choose to use the
money, and no one would have a clue.
Dreier LLP Dreier LLP became a booming business; many
of its attorneys were said to have received large bonuses upwards of $50,000 every two
weeks.
While his law firm kept snowballing, Dreier's ambition made him want more and more.
And here's where he became fixated with having celebrity clients.
His links to Armando Ruiz, a well-connected man, was Dreier's direct pipeline to A-list
stars.
Whenever Dreier threw a party, Ruiz seemed to be in charge of organizing the whole thing–
he had connections that benefitted Dreier's growing celebrity client base.
The two used to hang out together at Dreier's residence in the Hamptons.
By 2007, Dreier had expanded his operations to Los Angeles, where he scored clients such
as Mary-Kate and Ashley Olsen, and Hilary Duff.
This west coast expansion allowed the company to grow its revenue from $60 million to $90
million in a year.
His firm scored big Hollywood names like Bill Cosby, Justin Timberlake, and high-profile
athletes like Maria Sharapova.
By 2008, 20 of his lawyers were featured in a Law & Politics survey titled "New York Super
Lawyers, 2008 Edition."
While his firm garnered a lot of attention because of the company's growth, the numbers
weren't adding up.
It was reported that Dreier LLP had been losing close to $1 million per month– this added
to the fact that most of the firm's earnings came from the investment scam, not actual
legal work.
The company had racked up around $180 million worth of debt in fraudulent loans in addition
to $20 million in yearly interest.
Expensive Tastes If a particular trait distinguished Dreier,
it was his need to show off his fortune.
He had built himself a very public and lustrous reputation as a billionaire because, as he
says, "you don't succeed quietly in this town."
While he claimed to use a big part of the $400 million-dollar fortune for his company's
nationwide expansion, it's also pretty clear he spent a considerable amount on real estate,
expensive art pieces, and massive parties.
The persona that Dreier had created required a $10 million condominium at Beacon Court,
one of New York's most visually stunning buildings.
He bought a full-staffed $18 million yacht, two homes in the Hamptons, worth $12.5 million,
and a fleet of luxury cars, including a 2007 Aston Martin, 2006 convertible BMW, a 2000
Mercedes Benz.
But nothing was as impressive as his art collection.
Dreier was able to get his hands on original art pieces by some of the most renowned artists
of the 20th century.
His catalog –which amounted to 100 works of art– included Roy Lichtenstein's "First
Painting With a Bottle," now worth $4 million; Picasso's "Portrait of a Woman," last auctioned
in 2015 for $179.4 million.
He once had "Chair with Book on Red Carpet," by David Hockney on display, now estimated
to be around $12,000; several Warhol portraits of Jackie Kennedy, some of which are worth
$1.3 million nowadays.
Dreier believed that the more you showed people you didn't need money, the easier it was to
attract money.
Ponzi Origination How exactly was he able to trick several hedge
funds into giving him money in the first place?
It seems it was a response to necessity: his business model for the law firm had failed,
and he had to find ways to make money to maintain his lifestyle and business.
The Ponzi scheme was born.
The idea was simple, at least in Dreier's mind.
He'd ask for money as part of an investment plan for one of his former clients, Sheldon
Solow, a real estate mogul from Canada.
He'd ask hedge funds for millions of dollars for new real estate developments.
The catch here was that Solow was clueless about the whole thing.
As a return for their investment, they would get promissory notes with a substantial interest
rate– around 7 to 12%, a much higher rate than average for this kind of project.
To achieve this, Dreier came up with fake financial statements, forged documents –which
included letters from Solow's firm with fake letter-heading–, and emails made to look
like Solow sent them.
He arranged meetings and calls with people pretending to be part of Solow's organization
if anyone asked for confirmation from Solow's side.
Since Dreier was once Solow's lawyer, many investors probably thought he was speaking
on Solow's behalf.
He would go as far as creating a private phone line in his office to cater to clients in
the so-called "note program."
Dreier had built a respectable reputation as a lawyer, and investors took him for his
word.
The Fall In early November 2008, Dreier received a
phone call from Tom Manisero, a lawyer from the actual audit firm that managed Solow's
assets.
He told Dreier he had received a report about someone using a fake letterhead to promote
a real estate investment on Solow's behalf.
While he kept it cool for the phone call, deep inside, Dreier knew his time had come.
As expected, Manisero alerted the U.S. Attorney's Office, and an investigation was put in motion.
At the same time, one of his firm's clients had requested some of the funds they had in
their escrow account to be used to settle a bankruptcy.
Dreier had already spent more than half of the requested $38 million.
The Act Dreier's relentless impersonating brought
the whole thing home.
He went as far as necessary to convince clients and hedge funds that he had all the legal
resources to put their money to good use.
Now, needing about $20 Million overnight, Dreier set his sights on the Ontario Teachers
Pension Plan.
One of the largest pension funds in Canada.
Dreier planned to use them as bait to catch bigger fish from the business world.
Dreier met with Michael Padfield, one of the pension fund's lawyers.
After a short and meaningless meeting, the two exchanged business cards and parted ways.
This was all part of a plan to catch the real fish, Howard Steinberg.
Steinberg was a representative of Fortress, a $34 billion New York hedge fund that Dreier
had contacted in the hopes of selling some of his fake promissory notes.
Steinberg was there to meet Padfield and confirm paperwork related to Dreier's investment opportunity.
Dreier handed him Padfield's business card, shook his hand, and said, "Hi, I'm Michael
Padfield."
Dreier went as far as showing him forged documents with Padfield's signature.
But this wasn't convincing enough for Steinberg.
Dreier ended the meeting once he smelled danger and hightailed it out of the building.
In his wake, Steinberg approached the secretary and asked, "Was that Michael Padfield?"
She responded with a blunt, "No."
Someone, presumably Steinberg, called the police and told them about a suspicious individual
impersonating one of the fund's lawyers.
Dreier was contacted before he took his plane back to New York and decided to turn himself
in.
Media Interviews A year had gone by, and Dreier, still under
arrest in his Beacon Court apartment, decided to grant an interview to 60 Minutes.
In it, he went into detail on the motives behind his decisions, the lengths he had to
go to for the scam to be successful, and the reasons why he had used the money the way
he did.
He was granted bail for $10 million and had to wear an electronic monitoring bracelet,
attend therapy twice a week, and couldn't have visitors without the government's approval.
In July of 2009, he was sentenced to 20 years in prison.
Added to his interview in 60 Minutes, Dreier is the subject of numerous TV specials such
as American Greed, which investigated his crimes and Unraveled, a documentary produced
by BBC that included interviews with Dreier and his son while he awaited sentencing.
There's no doubt Marc Dreier would have made the front page of every newspaper in America
were it not for Bernie Madoff.
Maybe his TV interviews were more than an attempt to clear his mind.
Was Dreier just upset that Madoff got all the spotlight?
To use his own words against him, “I wanted to be as important as I thought I deserved
to be.”
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