Marc Dreier, facing charges that he cheated hedge funds out of more than $100 million, may be forced to file personal bankruptcy amid confusion about his bankrupt law firm’s affiliates and his personal loans, a lawyer said. “The truth is, the dimensions of this estate are unknown because of the interrelationship of Mr. Dreier’s affairs with those of the partnership,” Stephen J. Shimshak, a lawyer for the bankrupt estate, told U.S. Bankruptcy Judge Stuart Bernstein in New York yesterday. “We will do the best we can to get Mr. Dreier into bankruptcy -- voluntarily or involuntarily.” Bernstein gave Dreier LLP permission to pay wages owed its remaining 17 employees and to cover other costs out of about $1 million held by the firm’s estate. The judge also approved the hiring of a trustee to oversee the law firm’s wind-down. The judge gave Wachovia Corp. a guarantee that it would get back the cash spent by the estate, including $100,000 for employee salaries. Wachovia, which sued Dreier for defaulting on $9 million in loans, said even small amounts leaving the estate need to be protected by a new lien because the money is collateral for its secured loans to the New York-based firm. Bernstein gave lawyers for Dreier LLP extra time to file a full list of creditors, and acknowledged a personal bankruptcy filing by Dreier, its founder, may be necessary. The firm filed for bankruptcy after Dreier, its only equity partner, was arrested on Dec. 7 and jailed. Joseph Lubertazzi, a lawyer for Wachovia, told Bernstein that the bank’s only collateral for its loans is cash on hand, as well as whatever can be collected from accounts receivable. Bernstein granted the Charlotte, North Carolina-based bank, Dreier LLP’s only secured lender, a replacement lien on whatever new cash a trustee collects for the estate. The judge gave the law firm permission to pay $14,000 to a provider of backup tapes for its computers, $97,146 in pre- bankruptcy wages, $22,095 in withholding taxes, $160,167 for medical coverage, and $213,570 in premiums on a $10 million insurance policy to cover malpractice claims.
Dreier LLP’s current cash comes from about $600,000 that was in an operating account held with Wachovia as of Dec.8 -- the day New York federal prosecutors charged the lawyer with fraud --plus about $500,000 already collected by its receiver, Lubertazzi said. The firm may have other bank accounts for related trusts, he said.
“The unknown for Wachovia is, what are the other assets and their value? By us not objecting to the dollars debtors seek in court yesterday, in my opinion, my collateral is diminished,” Lubertazzi said. Bernstein said that, given the possibility the estate may not have much cash, it should try to find cheaper medical insurance than that currently being used. He also expressed doubt that Dreier would reveal much in a personal bankruptcy filing. “You’re not likely to get much information out of him,” Bernstein said. Bernstein asked about whether there are other entities affiliated with Dreier LLP that may be able to keep operating or be tied to the bankruptcy. “Our analysis is incomplete,” said Shimshak. “There are at least some that can function independent of Dreier LLP. The attorneys at those other firms can go on making a living.”
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