More brazen than Madoff? (pg 2)

The recollections of another Dreier attorney are more intense, yet consistent. "I've never met anyone more charming than him," this lawyer says. "He will probably be the most charming person I'll have ever known." But he was also an "egomaniac," this colleague continues, who used to tell people that he didn't have any friends and make other bleak comments while drinking. "He wasn't really open, but he'd say stuff," the source says. "Like 'I don't care about this person or that person. I'm going to do what I want.'"

Dreier's lawyer, Shargel, declined to respond individually to the recollections of his client reported in this article, but did say, generally, "It is unfortunate that because Mr. Dreier has in large part forfeited his credibility, people now apparently feel licensed to revise history and furnish distorted accounts of his personality."

***

Marc Stuart Dreier, 58, grew up in a middle-class family on New York's Long Island, where his father, a Polish refugee, built a chain of movie theaters. Brilliant on his feet and able to write beautifully, Marc breezed through Yale College and Harvard Law School before landing a position with Rosenman & Colin, then one of New York's premier corporate-litigation firms. He made partner in 1984 and married an associate in 1987. In 1989 he jumped to another top-drawer firm, Houston-based Fulbright & Jaworski, to co-head its New York litigation outpost.

At Fulbright, Dreier was a "lone wolf" who "didn't quite fit in with the other partners," according to someone who worked with him then. "Marc wasn't the kind of guy to stop and say, 'Let's run this past a committee.'"

Dreier abruptly quit in March 1995, briefly joined another firm, and then set up his own shop in 1996, originally called Dreier & Baritz. There Dreier blazed a professional trail of acrimony and judicial sanction that, even in the intrinsically brutal arena of litigation, can have had few equals.

"He is a thoroughly vile human being," says Kevin L. Smith, an attorney at Manhattan's Stroock & Stroock & Lavan, who litigated against Dreier for many years. "This is really a bad guy."

One of Dreier's earliest clients at his new firm was Ken Laub, a wealthy, bare-knuckled real estate broker who ended up suing Dreier for malpractice. Though Laub's complaint was thrown out, the bizarre facts that prompted it underscore Dreier's hypertrophied entrepreneurial zeal and addiction to risk.

In 1997, Laub hired Dreier to sue an investment adviser whom Laub blamed for $40 million in stock losses. In the midst of the assignment, Dreier himself became Laub's investment adviser, persuading Laub to invest $5 million in a tech stock called IATV, and signing a contract whereby Dreier would take 10% of Laub's profits or cover 10% of his losses. In an interview with Fortune, Laub claims that Dreier told him he had a "special understanding" with an IATV insider, and that Laub would make back all the money he had lost with the first broker. The IATV stock immediately plummeted, and the company was soon in bankruptcy. "Then he made up stories," Laub recalls. "'Hang on, it's going to a hundred.' All sorts of bullshit."

Dreier not only stopped working on Laub's original suit, Laub alleged in his 2001 malpractice case against Dreier, but also refused to turn over the case file unless Laub would waive his right to come after Dreier for 10% of his IATV losses. (Eventually Dreier did surrender the file without condition.)

In 2002 a judge rejected Laub's malpractice suit. While noting that "the court does not approve of [Dreier's] behavior in this matter," state supreme court justice Shirley Kornreich found that since Dreier's stock touting hadn't constituted the practice of law, it couldn't constitute malpractice. (Laub's goodbye kiss to Dreier: "I hope they take the key and throw it away.")

The Laub fiasco was just an opening teaser for the main events in Dreier's litigation career, which were his many jaw-dropping assignments for eccentric New York City real estate developer Sheldon Solow. As we'll see, Solow appears to have come to haunt the recesses of Dreier's outsize id. Solow was many of the things Dreier aspired to be: a keen and successful businessman, an art collector, and a connoisseur of the finer things in life.

"It was rumored," says one Dreier attorney, "that Mr. Solow gave Dreier money to start the firm." (A Solow spokesperson declines to comment.) Nevertheless, this attorney continues, "I think Marc resented the fact he had to deal with Mr. Solow and his crap."

Although Solow has won some important court battles, he is famously litigious and had been criticized by judges for bringing abusive legal claims even before his relationship with Dreier began. Solow was a client who badly needed lawyers who would rein him in. In Dreier he found just the opposite: an attorney who'd indulge his worst instincts.

In 1998, because of an ambiguous sales contract, Solow became embroiled in a dispute with Peter Morton, founder of the Hard Rock Cafe, with each man staking a claim to the same multimillion-dollar East Hampton beach house. Solow lost the main battle in state court, lost the appeal, and lost at least three peripheral suits that Dreier had brought for him, including two in federal courts, seemingly ending the case. Nevertheless, Dreier filed a third federal action for Solow. (Meanwhile, outside court, Solow was harassing Morton by other means, Morton alleged. Solow sent a helicopter to hover over his house and frogmen to land on his beach and take photographs, Morton testified. Solow admitted sending the helicopter, but testified that he feared Morton hadn't adequately fenced in the swimming pool, endangering the village's children.)

In August 2002, U.S. District Judge Loretta Preska dismissed Solow's latest suit and enjoined him from bringing any more federal cases over the beach house without getting her prior permission, noting that he had already "had so many bites at the apple, [he] has swallowed the core." When Solow and Dreier appealed Preska's ruling, a unanimous federal appeals panel not only affirmed it but also fined both Solow and Dreier for having taken a frivolous appeal. (Despite Judge Preska's injunction, litigation over the beach house continued, but only in state court.)

With respect to this Hundred Years' War over the beach house, one can at least understand the nature of Solow's gripe. The same cannot be said for the next assignment Solow gave Dreier, which related to rival builder Peter Kalikow, a former owner of the New York Post. In 1991, Kalikow and his real estate company sought Chapter 11 bankruptcy protection. Solow then loaned him $7 million. Solow apparently became incensed when Kalikow paid him back earlier than Solow had expected. (You read that correctly; don't ask.) Anyway, in February 2004 - nine years after Kalikow had emerged from bankruptcy with his earlier debts having been paid off or extinguished by order of the bankruptcy court - Solow came to Dreier with a legal project.

Though Solow's exact goals remain foggy, the assignment unquestionably had the effect of publicly humiliating Kalikow. At Solow's behest, Dreier took out full-page ads in both the New York Times and New York Post that looked like legal notices - i.e., public announcements published by order of a court - listing the 400 original creditors of the Kalikow bankruptcy and advising them that they "may have additional rights of recovery based upon a failure by [Kalikow] to make truthful disclosure." Creditors were invited to call or fax a company called Evergence Capital Advisors at certain phone numbers. More than 50 creditors did so - many hired prominent law firms to pursue the matter - though none of their inquiries were returned.

As it turned out, the phone numbers listed in the ad led to lines in Dreier's offices, while Evergence Capital was the name of a dissolved Florida corporation that had been set up by an old acquaintance of Dreier's named Kosta Kovachev. (Remember that name.) A former securities broker who had fallen on hard times, Kovachev then had no known residence and was being sued by the Securities and Exchange Commission for his role in an alleged Ponzi scheme that had bilked 600 investors in 30 states out of $28 million.

Kalikow's lawyers brought the phony legal-notice stunt to the attention of U.S. bankruptcy judge Burton Lifland, who had presided over the original Kalikow bankruptcy. At a hearing in June 2004, Lifland suggested that Solow's and Dreier's conduct had been "sleazy," and then read aloud a series of synonyms from a thesaurus: "tacky, shabby, base, low, malicious, petty, nasty, unsavory." In October 2004 he ordered Solow and Dreier to pay $335,000 in sanctions for having violated Kalikow's rights. But today - more than four years later - the fine has still not been paid, since, tellingly, Solow and Dreier are still appealing it.

***

While Dreier was pursuing these singular litigations, he was also building his firm - at first slowly, then steadily, then frantically. Despite the name, Dreier & Baritz was not a true partnership; Dreier ran the New York office and securities lawyer Neil Baritz ran the one in Boca Raton, Fla. Early on, Dreier began a business practice that he would repeat frequently over the next decade, in which he cut deals with independent lawyers and law firms. He promised to handle the collection of their gross revenue and payment of their office expenses in exchange for paying guaranteed salaries and incentive bonuses. One such early Dreier "affiliate" was Oklahoma City lawyer William Federman. But in October 2001, Federman sued Dreier, alleging not only that he was owed money but also, more troublingly, that Dreier had failed to return or provide an accurate accounting of Federman's clients' escrow funds. Attorneys must scrupulously keep client escrow funds separate from their own accounts, on pain of disbarment.

Dreier settled with Federman in July 2002. Two months later Dreier's titular partner, Baritz, terminated his relationship with Dreier. In an e-mail Baritz says he did so "for personal reasons and because our businesses were no longer compatible," declining to elaborate. In February 2003, Dreier officially changed his office's name to Dreier LLP.

By then his part of the firm comprised about 25 lawyers and filled three floors of pricey space in an I.M. Pei - designed building at 499 Park Ave., a few blocks from Solow's headquarters.

From this point forward, Dreier propounded a unique management philosophy. No matter how large his firm grew, he would remain its sole equity partner. Though senior lawyers could attain the title of "partner," they were all really just Dreier's employees. Dreier struck individual one- or two-year employment contracts with each partner. As with the outside affiliates, Dreier paid "partners" a guaranteed salary, and if the amount of business a partner brought in exceeded a certain benchmark, the partner would keep a percentage of the excess as a bonus.

In contrast to the opaque, subjective compensation policies at many big law firms, Dreier's compensation was alluringly objective. At the end of the year, one partner observes, "you could calculate to the penny what you'd be paid." Productive partners weren't dragged down by unproductive ones either.

The potential fly in the ointment was that partners' salaries weren't tied to the firm's profitability. If the firm had a bad year, and Dreier couldn't pay the salaries he'd promised, he was in trouble.

In fact, though Dreier LLP's office space was always impressive, it's unclear whether the firm was ever profitable. Whatever that reality was, Dreier's personal financial situation cannot have been helped by his marital woes; in January 2002 his wife had sued for divorce, launching litigation that would grind on for the next six years.

In any case, in November 2004, prosecutors allege, Dreier embarked upon a lucrative but stressful new practice specialty at his young firm: stealing. That month Dreier began selling promissory notes to hedge funds. The notes were supposedly issued by Sheldon Solow's realty company, but in truth, the government says, Solow knew nothing about what Dreier was doing. Dreier forged the notes along with financial statements purportedly audited by one of Solow's accounting firms. By December 2006 one hedge fund had invested $60 million in Dreier's phony Solow notes, according to the indictment. That means Dreier's debt to that one fund alone exceeded his firm's entire gross revenues for that year ($58 million), according to bankruptcy court records.

Though Dreier's pitches to the hedge funds varied, according to the indictment, he generally told them that Solow was trying to raise $500 million and that his notes paid about 11% interest and came due in a year.

NEXT: More brazen than Madoff? (pg. 3)

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