Marc Dreier's $400M Scam, The Inside Story

This story was first published on Oct. 4, 2009. It was updated on Sept. 17, 2010

If it hadn't been for Bernie Madoff, the most famous white collar criminal in America right now would probably be Marc Dreier. If that name is not ringing a bell, it's because Dreier's $400 million Ponzi scheme was blown off the front pages by Madoff's arrest just a few days later.

But the case is no less fascinating.

The highly respected attorney who ran a big Park Avenue law firm was initially arrested in Toronto for impersonating an officer in a pension fund, in what has been described as perhaps the most bizarre arrest in the history of white collar crime.

But unlike Bernie Madoff, Marc Dreier agreed to talk to 60 Minutes last fall, his only television interview.

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"I thought if somebody would ever interview me on a program such as yours it would be for something good I've done, not something humiliating I've done," Dreier told correspondent Steve Kroft.

"This isn't the way you wanted to be on 60 Minutes?" Kroft asked.

"No," Dreier replied.

Nor was it the way that Dreier wanted to make his final appearance in federal court: as a defendant in his own fraud case.

When 60 Minutes first interviewed him last year, he was a prisoner in his own penthouse, with a GPS monitoring device on his ankle, detained by private jailers whose $70,000 a month fee was being paid for by Dreier's 88-year-old mother.

With his assets frozen or confiscated by the court, all that remained of Dreier's $40 million art collection were the hooks on the wall.

"How did you end up becoming a crook?" Kroft asked.

"I can't remember the moment in which I decided to do something that I knew was wrong," Dreier replied. "I had an ambition that I needed to feed. I think I fell into the trap of wanting to be more successful than I was."

But he was successful. "I really wanted to distinguish myself. I wanted to be as important as I thought I was, deserved to be," he told Kroft.

With degrees from Yale and Harvard Law, and the ego of a successful trial lawyer, Dreier told friends he was going to become a billionaire. He started his own law firm that would revolutionize the business of law. He was going to hire the best attorneys, pay them top dollar, and keep all the profits for himself as the firm's only partner.

"The idea for the law firm was very viable. But it needed much more money to get off the ground than I anticipated, much more. So that wasn't very well thought out. I had a good idea, but a very bad business plan," Dreier said.

And the plan was about to get much worse.

With his law firm a money pit and Dreier tapped out, he began approaching hedge funds with a cockamamie scheme he thought might save his dream.

Dreier told the hedge funds that he was representing a billionaire real estate developer who was looking to borrow hundreds of millions of dollars to embark on some new projects.

The developer, Dreier said, would issue short term promissory notes, guaranteeing interest rates of between 7 and 12 percent, well above market rates. And it seemed like a very good deal.

The only problem was, that real estate mogul who was supposed to be borrowing all this money, Sheldon Solow, didn't know anything about it.

Nor did he know that Dreier, his former lawyer, was fabricating financial information about his company and keeping the loan proceeds for himself.

Dreier had convinced the hedge funds to lend money to Solow, but in fact that money went to him.

"So you came up with phony financial statements, phony audits, forged documents, for Mr. Solow's company?" Kroft asked.

"Yes," Dreier admitted.

Asked how he did all that, Dreier said, "Well, I invented it."

He told Kroft his biggest deal was $100 million.

"And somebody just gave you $100 million and never bothered to check with your supposed, alleged client to make sure that this was on the up-and-up?" Kroft asked.

"Right," Dreier replied. "But I don't know…I guess I heard a long time ago, too, that the more money you look for, the fewer questions people ask sometimes."

The obvious flaw in Dreier's scheme was that he would eventually have to pay off all the promissory notes, plus interest, if he wanted to stay out of jail.

And in the end the only way he could do it was by selling more notes to new investors.

Asked if he was digging himself into a hole, Dreier said, "Yeah, very much so. You start with something that you think is manageable and small. You know it's wrong, but you think you can fix it. And you can't get out of it. It became quicksand. I had to keep meeting obligations that grew bigger and bigger. Clearly, all along the way, if there was a way for me to have gotten out of it, I would've done it."

Dreier says he used most of the $400 million he stole to expand his law firm, and to finance a lifestyle designed to create the illusion that he already was a billionaire.

There was the $11 million ocean-front compound in the Hamptons, an art collection that included a Picasso, three Matisses, and 12 Warhols. And then there was the 120-foot yacht "Seascape," with a fulltime crew of ten.

All was mortgaged to the hilt.

Dreier said he paid $18 million for the yacht, $10.5 million for his Penthouse apartment.

Dreier enjoyed the good life. "It was clear to me that the more you showed people that you didn't need money, the easier it was to attract money. So having the trappings of success was a very important part of the plan."

To raise his profile, Dreier co-hosted annual charity events with former New York Giants star Michael Strahan that attracted top name performers like Diana Ross, Jon Bon Jovi and Alicia Keys.

And there were the extravagant office parties where Dreier himself sometimes performed. "In this town, you have to really be something. You know, you don't succeed quietly in this town, perhaps. And I think I succumbed to that," he said.

By 2007, Dreier LLP occupied ten floors of a Park Avenue building, employed more than 250 lawyers around the country, with high profile clients Like Bill Cosby, Andy Pettitte, Maria Sharapova and Justin Timberlake.

What no one but Marc Dreier knew was that the rents, the salaries and the expenses were all being subsidized by fraud.

"I recognized in the last couple of years that what I saw as a $20 million mistake had grown into a mistake of a few hundred million dollars. And then I did some increasingly irrational things, because I wasn't thinking clearly," Dreier said.

"Crazy things," Kroft asked. "Desperate."

"Yeah," Dreier acknowledged.

As the financial crisis set in, Dreier was holding hundreds of millions of dollars in loans that were about to come due, and everyone wanted their money back.

When Dreier was a month late on a $100 million loan payment, the hedge fund that was owed the money demanded a face-to-face meeting with the executives at Sheldon Solow's real estate operations at his office building in New York.

With reality closing in, Dreier enlisted the services of a former client, Kosta Kovachev, to impersonate the president of Solow's operation. And then he commandeered a conference room in Solow's office for a meeting with the hedge fund, in hopes of getting a loan extension.

Dreier conducted this whole charade right in the middle of Solow's business.

He thought he was going to get away with it.

"You did, actually, didn't you?" Kroft asked.

"Yeah," Dreier said.

Asked if he was nervous, Dreier said, "I should've been nervous. But I don't know, I wasn't very nervous."

"I don't get the sense that you're a very emotional person," Kroft remarked.

"I think I am. I didn't plan anything I was going to say in this interview other than not to lose my emotions. But it is not going to do any good to literally cry over it," Dreier replied.

"When I ask you about the emotion, I mean, here you are, walking into a former client's office, perpetuating this scheme right in his office," Kroft said.

"That's called chutzpa. That's not emotion. You know, I mean, do I have chutzpa? Yes. Can I be very tough under pressure? Yes. So was I able to go into Mr. Solow's office and pull off that charade without falling apart? Yes. Did I think I could do that? Yes. Because I had done things that required nerves of steel before. But it doesn't mean that I'm not emotional about what I did. I clearly remember when I left that office thinking I had done something really crazy and foolish," Dreier said.

"It was bizarre. I mean, he was impervious to the idea of being caught," said Gerald Shargel, who would represent Dreier during his legal proceedings and plea negotiations with the U.S. government.

Shargel said the facts of the case were beyond the reach of a sound bite. "He was a solid lawyer, and there are a number of judges told me that Marc Dreier was probably the best lawyer that has ever appeared in front of them. And, all of a sudden, out of the blue, it's like something went off the tracks," he explained.

By December 2008, both investors and investigators had grown suspicious of Dreier.

His luck would eventually run out in Toronto, where he pretended to be a lawyer for a for a teachers' pension fund in order to swindle a hedge fund out of $33 million.

"That was the first act I'd done where I knew I was going to get caught and just couldn't help myself. I just wasn't thinking clearly," Dreier said.

Dreier had collected a business card from the lawyer he was claiming to be, but the man he was supposed to meet with sensed that there was something wrong.

Asked what he thinks made the man in Toronto suspicious, Dreier said, "You know, he had acted diligently, and he made some phone calls which I think led him to be suspicious. I knew as soon as he walked in that he was suspicious, but I still did it."

The police in Toronto were called, and Dreier was arrested for impersonation. When he returned to New York five days later, he was apprehended by the FBI on charges of fraud and money laundering, to the complete and utter astonishment of the New York legal community and to the employees of his own law firm.

"When we heard the news we thought it was a joke at first," attorney Joanne Rapuano told Kroft.

"There were ten floors of attorneys and boxes. But a lot of people started to resign immediately. They just walked out the door," longtime office manager Tori LaLonde added.

Ten days after Dreier's arrest, the law firm bearing his name had declared bankruptcy and 600 people were looking for work.

The day 60 Minutes met Rapuano and LaLonde, the firm's furniture and office equipment were being sold off by the court to pay off the creditors, mostly hedge funds and their investors who are not likely to see much of the missing $400 million.

Asked what it was like being back at the firm, Rapuano said, "Truly tragic. You know, you watch something get built. You think you're part of something on its way up. And all of the sudden you see it being carted out the front door."

"It's just disgraceful," LaLonde said. "We are victims. I have no job. I have no medical after today. I'm done. So, now what do I do? Start my career all over?"

"I don't want to compare you with Madoff, but one of the questions that people ask about Madoff, constantly, is: How could he do this? How could he walk around living this life spending all this money, never showing a crack in the façade? And there are some similarities. How did you deal with that?" Kroft asked Marc Dreier.

"I was doing a lot of things at the same time. I was engaged in a fraud, which took a lot of energy to sustain. But I was also running a law firm - a legitimate law firm, other than, obviously, the obvious fact that it was funded illegitimately. I was a practicing lawyer; I was handling my own cases in court, which took a lot of energy. I almost didn't have enough time to dwell on the elephant in the room, which was the very - you know - the crime I was engaging with to keep all this up," he replied.

He has plenty of time to dwell on it now. After entering his guilty plea, Dreier has begun serving his 20 year prison sentence.

He wanted everyone he hurt to know that he was profoundly sorry. And for someone so obsessed with his own image and what people thought about him, his punishment is just beginning.

"I've lost everything I own. I've lost my business, I've obviously lost my reputation. I've caused my family obviously enormous unhappiness. And I have nothing," Dreier said.

Asked if he has any friends now, Dreier said, "Doesn't seem so."

Produced by Ira Rosen