Dreier remained in jail for three days before bailing himself out, long enough for his arrest to make the news and the escrow revelations to spread within the firm. The lawyers at Dreier LLP knew that Marc Dreier was the only thing keeping the firm together. If the only equity partner was stealing clients’ money, the whole firm could implode, leaving 250 lawyers unemployed and potentially exposed to lawsuits from angry clients. “As soon as we heard there was a problem with the escrow accounts, that’s when we knew,” one partner says. “The escrow is the holy grail. You don’t touch escrow unless you have no other option.” Says one close colleague: “I’ve never seen such mass hysteria in my life. People were running out the door, lawyering up. People started to see their careers evaporate.”
During the chaos, Dreier still managed to transfer more money from another escrow fund into one of his personal accounts. The firm’s comptroller, John Provenzano, refused to do it twice before Dreier ordered him to connect him directly to someone at the firm’s bank and then arranged a $10 million transfer himself.
At 2 p.m. on December 4, Kosta Kovachev reportedly went to the fifth-floor conference room at the Park Avenue offices of Dreier LLP, took two paintings, and left in a cab.
Dreier finally made it back to New York on Sunday night, December 7. The escrow matter wasn’t public yet, and one colleague believes Dreier even thought he could still clear everything up before coming under further scrutiny. Maybe he could contain the impersonation arrest, keep the hedge funds at bay, and solve the escrow problem. Maybe Tom Manisero and Norman Kinel and Michael Padfield weren’t talking to one another yet. But it was too late. Dreier was arrested on the tarmac and charged with two counts of fraud. It was then that he learned that the Justice Department had been looking into his business affairs for weeks.
Marc Dreier now spends his days under house arrest in his Beacon Court apartment. His son and mother are guaranteeing his bail and paying the $70,000-a-month costs of around-the-clock security. If convicted, the man one prosecutor calls “a Houdini of impersonation and false documents” faces some 30 years in prison. Dreier has all but confessed to parts of the scheme, and his own lawyer has said he expects his client to plea out before the proposed June 15 trial date. Kosta Kovachev has been arrested, too, and at last report was still in jail. Through their attorneys, both Dreier and Kovachev have refused to comment. Armando Ruiz has not been charged with any crimes, but the government has subpoenaed all documents concerning him from the law firm. Because Dreier was the only equity partner in Dreier LLP, the firm vaporized, as expected, practically the day he was arrested. Many of Dreier’s former colleagues have since joined other firms and argue that they were partners of Dreier’s in name only. What liability they may face is not yet known.
All told, Dreier is accused of selling $700 million in phony notes to thirteen hedge funds and three individuals. More than 200 creditors, including a few hedge funds, have already filed more than $450 million in claims against the firm; Eton Park is seeking $84 million, Fortress wants $61.9 million. Investigators say the money is mostly gone—Dreier spent it on his homes, cars, art, and the like. It’s unclear how much anyone will recover.
It may be true that Dreier was driven by an excess of ambition and ego. “It was always important to him that people thought he was doing well,” says one old friend. “He had his name on that big fucking building on Park Avenue.” And so instead of scaling back or closing the firm or selling the yacht, “he crossed a line.”
Then again, there are those who view him in a darker light. “Marc Dreier has been a shakedown artist his entire career,” says an angry former client. “That’s what he does. That’s how he makes money. He insinuates himself into people’s lives. He gains their confidence. And then he exploits them.”