Early on, Dreier & Baritz sought to expand by establishing limited partnerships with lawyers in other cities. In 2001, an Oklahoma City attorney named William Federman sued Dreier, saying that Dreier owed him money, and, worse, that Dreier had failed to offer a proper accounting of Federman’s client escrow funds. Federman settled with Dreier in 2002. That same year, Neil Baritz left the firm. He has said that he left “for personal reasons and because our businesses were no longer compatible.”
In 2003, Dreier took his small firm of 30 lawyers and rechristened it Dreier LLP. It was an odd time to embark on an expansion. Not only had his partner just left him, but Dreier had cash-flow problems. He had secured a revolving credit line in 2001 for $750,000, which he amended a year later to $2 million, with another $2 million in outstanding debt, and now needed to refinance yet again owing to lack of payment. He was also getting divorced: He had married an associate at Rosenman & Colin named Elisa Peters in 1987; the couple had a son, Spencer, in 1989, and a daughter, Jackie, in 1992, but now Elisa was divorcing him. (The matter dragged on for six years, in part, a source says, because Elisa claimed Dreier was hiding assets from her.) But friends and former classmates were surpassing Dreier, and that seemed to chafe him. One former colleague, Marc Kasowitz, had already won a historic tobacco-related settlement that Dreier couldn’t help but notice. Kasowitz had left Rosenman to start his own firm, just like Dreier. But Kasowitz was doing far better. “Dreier wanted the big cases,” says a friend. “His firm wasn’t doing anything that looked really impressive. I think that bugged the shit out of him.”
Whether Dreier expanded his firm to make money to pay the interest on his phony notes or sold his phony notes so that he could expand his firm is an open question. What’s clear is that the firm grew dramatically. Dreier lured away entire departments from other shops, establishing practices in everything from bankruptcy and tax law to sports licensing and entertainment, and bringing the firm’s total number of lawyers to more than 250. With the new acquisitions came high-profile clients, such as Jay Leno, Wilco, and Michael Strahan. Dreier moved the company’s offices to 499 Park Avenue, the sleek I.M. Pei–designed former Bloomberg headquarters (complete with private entrance), and opened satellite branches in Stamford, Connecticut; Albany; Pittsburgh; Los Angeles; and Santa Monica. One source says Dreier hired an aircraft to fly over a party he was hosting in the Hamptons displaying the firm’s name. “He was charming, gregarious, sure-footed, and clear-thinking,” one lawyer says. “It seemed like he built just what he said he would build—a large, successful, bi-coastal firm.”
To finance the firm’s expansion, Dreier used a risky accounting practice called factoring receivables, in which one borrows money against future income. Essentially, he was leveraging himself not on real assets, but on a wish. Dreier also structured the firm in an unusual way. Instead of sharing ownership with a group of partners, he owned the firm himself. The other attorneys were partners in name, but really employees. Rather than sharing in the firm’s profits and being subject to the ups and downs of its performance, they were paid guaranteed salaries, plus a bonus or commission on new business. Many of them took in salaries of up to $1 million a year, well above market rate. To the extent anyone suspected that Dreier was spending more than he was earning, they assumed, as one friend says, that “he had independent means.” As the firm’s sole equity partner, Dreier had virtually no oversight. He was the lone signatory, for instance, on more than a dozen different escrow accounts that were supposed to be holding clients’ money. The money was supposed to be off-limits, but if he chose to tap it, no one could stop him. Of course, Dreier was also the sole responsible party if the firm couldn’t pay its bills.
Although he was never on the firm’s payroll, Kosta Kovachev was a close associate of Dreier’s. As recently as last year, he had an electronic entry card for Dreier LLP’s offices, and access to the firm’s computers. A stocky and bearded ex-banker in his late fifties, Kovachev was born in Belgrade and educated at Columbia University and Harvard Business School. He lived in Greenwich, Connecticut, for years in the nineties before moving to Florida, but has no recorded residence at the moment, just a cell-phone number that flips over to the Harvard Club. Over the years, he has worked for Morgan Stanley and Drexel Burnham Lambert. But his banking career ended in 2006, when the SEC revoked his broker’s license after a scandal involving a low-level Ponzi scheme to sell time-shares in Florida. Kovachev’s lawyer in that proceeding was Marc Dreier.