Marc Dreier, the jailed New York law firm founder, was indicted by a federal grand jury for cheating hedge funds

Marc Dreier, the jailed New York law firm founder, was indicted by a federal grand jury for cheating hedge funds and other investors of more than $400 million. The indictment, made public today in federal court in Manhattan, follows Dreier’s Dec. 7 arrest on charges that he persuaded two hedge funds to give him more than $100 million by falsely claiming he was selling at a discount notes issued by Sheldon Solow, a New York developer. Prosecutors later said investors’ losses exceeded $400 million, a figure repeated in the indictment. “Dreier conspired to engage in securities and wire fraud,” Acting U.S. Attorney Lev Dassin in New York said in a statement announcing the seven-count indictment. The indictment expands the number of charges against Dreier, says his scheme began in 2004, and identifies new crimes he allegedly committed. Among them were the embezzlement of client funds and the sale of fake promissory notes purportedly issued by a Canadian pension plan.
“The indictment is not a surprise,” Dreier’s lawyer, Gerald Shargel, said in an interview. Dreier, 58, hasn’t formally responded to the charges. With today’s indictment, he’ll be required to enter a plea. Shargel has said his client wants to resolve the case with prosecutors. Dreier, a graduate of Harvard Law School and Yale College, is being held in prison after he was unable to post $20 million bail.

Elliott Management Corp., a $12.8 billion hedge fund, has told clients it bought securities from Dreier. Eton Park Capital Management LP, a New York-based hedge fund, wrote down loans “with which Dreier was involved,” according to a Dec. 12 letter to investors posted on the Dealbreaker.com Web site.

The indictment reiterates allegations that Dreier gave the purchasers of his notes false financial statements. He also arranged meetings for investors with people who impersonated officials from purported issuers of the notes, according to the indictment. A former broker, Kosta Kovachev, was charged last month with helping Dreier defraud investors by pretending to be a controller of a real estate firm. Michael Gross, a spokesman for Solow Realty, didn’t immediately return a voice-mail message seeking comment. Dreier said in court papers on Jan. 15 that he lost part of the funds that prosecutors say he stole in failed investments and used the rest to repay the hedge funds, cover his firm’s expenses and buy property.

Prosecutors are seeking to force Dreier to forfeit property including a Manhattan luxury apartment, a home in East Quogue, New York, a 2005 motor yacht named “Seascape,” a 2007 Aston Martin DB9 Volante automobile, and 150 works of art. The artworks include paintings by Keith Haring, Mark Rothko and Andy Warhol and prints by Henri Matisse and Pablo Picasso.

Dreier’s law firm, Dreier LLP, which had 250 lawyers and offices nationwide, filed for bankruptcy after its founder’s arrest.
Dreier also faces charges in Toronto, where he was arrested for impersonating a lawyer at the Ontario Teachers’ Pension Plan.