Vet Your Lawyer

There’s been a lot of ink spilt in recent weeks about the missed or ignored warning signs that might have prevented or limited the Bernie Madoff scandal. I contend there were red flags in the case of Marc Dreier as well.

It’s now become evident that the Fed’s were closing in on Dreier even before his arrest on impersonation charges in Toronto. It seems that Sheldon Solow, one of the former clients whose paper Dreier claimed to be selling, had alerted the US Attorney. Solow was likely tipped off by suspicious would be buyers who had been approached by Dreier and did their due diligence.

But what about before that? Could some of the chaos, pain, and the loss left in Dreier’s wake have been avoided?

4 1/2 years earlier, on July 5, 2004, Charles Blagi of the New York Times reported on a bankruptcy court hearing before Judge Burton R. Lifland. To summarize, Solow and Dreier published misleading ads in the NY papers which Judge Lifland strained to find adequate negative adjectives for.

According to the Times, the judge virtually invited the opposing party, Mr. Kalikow, to pursue the matter against Dreier further. I can understand why Mr. Kalikow might not want to be the moving force behind any further action. He had just been dragged back into an ugly and unnecessary court fight and was probably glad to simply be done with them. But there was nothing to stop Judge Lifland from making a complaint himself. And since the whole incident was fully reported in the New York Times, there was nothing to stop the disciplinary committee from opening a case on their own if they wanted to. But no one did.

True enough, hindsight is 20-20, and one could argue that there is no necessary nexus between harassing an opposing party and embezzling hundreds of millions of dollars. But I would say two things about that.

First, it was obvious to all concerned that an ethical breach had occurred, and that very publicly, and yet Dreier got away with it. Clearly this emboldened him to feel that he was untouchable. Second, it shows that Dreier was unwilling or unable to say no to a wealthy and lucrative client even when that clients demands threatened Dreier’ standing with the courts. This suggests that his polestar was not law and ethics, but money and profit. The cynics among you will say that’s hardly shocking, but lawyers take no oath to mammon when they are licensed.

Besides, Dreier had been sanctioned at least two other times in state and federal court, both for frivolous legal filings, in 2003 and 2005. But until last month, he had no record of discipline. What, then, was the basis of his great reputation? Apparently not his legal acumen but his willingness to do the bidding of the rich and unreasonable.

I was struck by the following line in the Disciplinary Committee’s recitation of the uncontested evidence: “…sworn declarations from a number of attorneys at, and affiliated with, Dreier LLP attesting to the fact that the firm’s escrow accounts, to which respondent was the sole signatory, had repeated shortfalls amounting to tens of millions of dollars; …”. New York, like every state to my knowledge, has a bank reporting law. Any time an attorney’s trust or escrow account goes negative, the bank is supposed to report it to the authorities and the attorney is called upon to explain himself. Trust accounts are by definition not the attorney’s money. He can pay himself out of it once it’s been earned, and he can spend it at the client’s direction and in the client’s interest, but under no circumstances should it ever be overdrawn, hence the bank reporting laws.

This is where language is important. By ‘shortfall’ does the committee mean overdrawn, or simply that some of the money was missing? Because if the former, the banks have a lot of explaining to do. That Dreier was the sole signatory does not prove he was the only one with knowledge.