Marc Dreier, What Can I Say?

Lawyers already have a bad name.

“What do you call 500 lawyers at the bottom of the ocean? A good start.”

“How do you save a drowning lawyer? Take your foot off his head.”

“What’s the difference between a lawyer and a bucket of pond scum? The bucket.”

And of course the joke that became famous because then Presidential candidate John McCain told it in a speech: “What’s the difference between a lawyer and a catfish? One is a slimy, bottom dwelling, scum sucker. The other is a fish.”

There’s even a popular website - www.lawyer-jokes.us (I hesitate to give that one out, but alas).

None of us in the legal profession is perfect. I tell my associates the minute you stop making mistakes, you should just hang it up. Some even dance the line of ethics in terms of the choices they make in what clients to represent or when to look the other way when clients do questionable things. Some even cross that line, sometimes without horrible intent, “borrowing” money from an escrow account to tide them over before a big fee comes in (this is unethical and illegal even if paid back).

It is alleged that the founder of 250-lawyer firm Dreier LLP, Marc Dreier, took it to a ten thousand times more horrible level. A prominent, respected attorney who had run the litigation department at the law firm I worked at, Fulbright & Jaworski (he came there after I left), he started his own firm and built it by stealing lawyers from other firms with promises of lavish salaries and perks. He was the sole equity partner and never gave other partners access to information about the firm’s finances. Partners didn’t realize, for example, that the firm’s malpractice insurance had been allowed to lapse.

Then it appears he duped hedge funds into investing hundreds of millions of dollars in promissory notes issued by well-known real estate firm Solow Realty, which was in fact a client of Dreier. The notes, allegedly, were fake and forged and it is amazing that none of these funds did proper due diligence.  He even brazenly conducted meetings in Solow’s offices without their knowledge. Then he got caught impersonating the in-house counsel of a major Canadian pension fund, and everything spiraled down from there.

He may not have done it alone. It now appears that one of Solow’s top deputies may have been in cahoots with Dreier, according to yesterday’s Wall Street Journal (http://blogs.wsj.com/law/2008/12/23/new-defendant-in-dreier-scandal-may-have-had-history-with-marc-dreier/).

On December 17 the law firm filed for bankruptcy protection, owing nearly a million dollars to their landlord, among other things. The firm’s website has been shut down. Unlike $50 billion alleged swindler Bernard Madoff, who is out on bail and under house arrest, Dreier was denied bail after the prosecuter called him a ”Houdini of impersonation and false documents.” He faces up to 20 years in prison.

I know people close to Mr. Dreier. They said the best thing that could have happened was the Madoff scandal, which indeed drove Dreier’s mere $300 million alleged scam off the front pages for Madoff’s $50 billion. I have already seen resumes of several attorneys from his firm desperately seeking employment in this tremendously difficult job environment.

In the reverse merger world and smallcap markets, we have struggled to overcome a bad reputation from years past. There remain some questionable players in our world, but there are scams both big and small out there and it is not limited to the small and microcap markets.

I hope my dear blogees will remember that in any industry, any profession, there are good and bad actors. Often in hindsight when these scandals arise, duped investors say they had a feeling something was not right. My advice: go with your gut and run, don’t walk, when you have those feelings. Then maybe, just maybe, we make it a little harder for these guys to take advantage.

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