Thursday, December 18, 2008

Dreier Law Firm Files for Bankruptcy After Founder Arrested

This post courtesy of Bloomberg's Christopher Scinta and David Glovin

The law firm Dreier LLP, after its founder was jailed and accused of cheating hedge funds out of more than $100 million, filed for bankruptcy protection yesterday.

Marc Dreier is being held on federal criminal charges and may also seek court protection from creditors, said Mark Pomerantz, a receiver for the law firm chief. The Midtown Manhattan-based law firm yesterday listed assets of $100 million to $500 million and debt of $10 million to $50 million in its filing in U.S. Bankruptcy Court in New York.

“In the aftermath of the arrest of Mr. Dreier, no effective management of the debtor or other Dreier entities exists,” Pomerantz said a statement to the bankruptcy court. “I have determined an orderly liquidation of the firm cannot take place without bankruptcy protection.”

Pomerantz alerted U.S. District Judge Miriam Cedarbaum in Manhattan to the anticipated bankruptcy filing in a Dec. 11 letter made public on Dec. 15. Cedarbaum is presiding over Dreier’s criminal case.

Pomerantz filed court papers asking the bankruptcy court to appoint a Chapter 11 trustee to oversee a liquidation of the firm and said he wouldn’t seek to be named as the trustee. The firm has fewer than 1,000 creditors and expects unsecured creditors to receive at least some of their money.

The case was assigned to Judge Robert E. Gerber. Dreier LLP is being represented by Stephen Shimshak of Paul Weiss Rifkind Wharton & Garrison.

Books in ‘Disarray’

The receiver said he couldn’t provide all the information typically required by the court about a bankrupt firm because of “the disarray of its books and records,” the complexity of the case and the short time he had to prepare.

Prosecutors said Dreier, 58, a graduate of Harvard Law School and Yale College, persuaded two unidentified hedge funds to give him more than $100 million by falsely claiming he was selling at a discount notes issued by New York developer Sheldon Solow.

At a Dec. 11 court hearing, prosecutors said they had discovered additional losses for a total of $380 million.

Dreier, who was arrested on Dec. 7 as he returned to New York from Toronto, hasn’t responded to the charges.

The arrest of Dreier, the New York firm’s only equity partner, has put 250 attorneys out of jobs. His arrest had a “devastating effect” on the firm, partner Joel Chernov said in affidavit in Dec. 8 court papers. The December rent is overdue; the month’s health-insurance premium hasn’t been paid; and AT&T Inc. will end its BlackBerry service, Chernov said.

The criminal case is U.S. v. Dreier, 08-mag-2676, and the civil case is SEC v. Dreier, 08-cv-10617, both U.S. District Court, Southern District of New York (Manhattan). The bankruptcy case is In re: Dreier LLP, 08-15051, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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