Prominent New York attorney Marc Dreier was arrested at LaGuardia Airport in New York on Sunday night and charged with two counts of fraud

Prominent New York attorney Marc Dreier was arrested at LaGuardia Airport in New York on Sunday night and charged with two counts of fraud in a $113 million scheme to defraud investors that he had allegedly engineered since October. His return to New York followed his arrest and three-day jail stay in Canada last week, where he was accused of impersonating a Canadian pension fund official as part of the scheme.
Prosecutors, and the Securities and Exchange Commission, accuse Dreier of selling fake notes to two hedge funds in an elaborate scheme that included false financial and marketing materials, forged signatures and false statements. Dreier allegedly sold fake notes on behalf of a New York real estate development company that had been a client of his in the past. The victims are a pair of unnamed hedge funds, one in Connecticut and the other in New York. The third fund, Fortress Investment Group (nyse: FIG - news - people ), didn't get the chance to invest before Dreier's arrest in Canada last week.Dreier, 58, is to appear in New York court Monday. His attorney was not immediately available. Prosecutors are seeking to freeze his accounts.
The arrest and shocking allegations don't augur well for the 250-person Dreier law firm, based in New York with offices in Los Angeles and elsewhere. Reports over the weekend said attorney groups, including a big chunk of its bankruptcy practice, were quitting and going off on their own. A call to the Dreier law firm wasn't immediately returned. Dreier is the firm's sole equity partner. Wachovia (nyse: WB - news - people ) sued Dreier in New York federal court on Monday, claiming default on more than $9 million in loans. Reports over the weekend said $20 million or more in escrow funds are missing at the firm. Speculation Monday was that the escrow funds were invested in hedge funds that tanked during the fall, putting pressure on Dreier to come up with cash in a hurry to refund the escrow accounts. But that is pure speculation and not an accusation made in the court documents Monday.The U.S. Attorney in Manhattan says Dreier approached two hedge funds in October, offering to sell them notes issued by a New York developer at a discount to face value, explaining current investors were liquidating to cover hedge fund losses. One of the funds, based in Connecticut, wired $13.5 million to an account controlled by Dreier in October. Another New York hedge fund agreed to buy $100 million worth of notes. Dreier was arrested in Canada last week in the process of negotiating the sale of $44 million in notes purportedly issued by the Ontario Teachers Pension Fund.Turns out the trip to Toronto last week was only the latest brazen fraud Marc Dreier allegedly tried to pull off in order to obtain millions for his firm. A federal indictment released today (and available below) accuses Dreier of fabricating a $100 million scam starting in October in which he falsely told two area hedge funds that a New York real estate company was offering promissory notes for sale at discount prices. To get the hedge funds to bite, Dreier allegedly did the following: fabricated the promissory notes themselves; had someone else at his firm impersonate the CEO of the real estate company on a conference call with one hedge fund manager; and forged documents from an accounting firm showing the firm had audited the real estate developer.

The first hedge fund (based in Connecticut) agreed to buy one note worth $13.5 million; the second, based in New York City, purchased more than $100 million worth of notes. They wired the money directly to an account Dreier controlled. The latter hedge fund's $100 million payment came through on Nov. 7, the complaint says.

Dreier also allegedly lied to receptionists at the offices of both the real estate developer and the accounting firm to gain entry as part of the scam, the complaint says.
Even worse for Dreier, he reportedly confessed to the crimes in taped conversations with a government informant (an employee from the accounting firm from which Dreier sent forged documents) last month. Dreier told the informant he was "ashamed" and that it was "very serious what's happened here," the complaint says.
Given what's in this Wall Street Journal story today, it's clear that the real estate developer in question is Solow Realty, a former Dreier client. Investigators interviewed Solow officials (who may have tipped them off to the scheme), and they denied having any promissory note program, the complaint says. The accounting firm likewise denied doing any audit of Solow's finances.
And that Canada trip last week? Dreier was trying to sell a third investment fund (Fortress Investment Group) $44.7 million in bogus notes reportedly from the Ontario Teachers Pension Fund.
The complaint charges Dreier with one count each of securities fraud and wire fraud.
There's even more trouble for Dreier, according to the WSJ and Bloomberg. The Securities and Exchange Commission has charged Dreier with fraud linked to the scheme, according to the Journal, and Bloomberg is reporting that Wachovia has filed suit against Dreier for allegedly defaulting on a $9 million loan from the bank