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Sunday, April 05, 2009

(Another) American Psycho

The April 13, 2009 edition of Fortune has a fascinating (in the train wreck sense) article on New York attorney Marc Dreier and the multi-million dollar fraud he perpetrated for more than a decade. The article, entitled The Imposter (#1) summarizes more than a decade of alleged legal malpractice, investment fraud and frivolous lawsuits on behalf of a New York real estate developer. As the author puts it, the story of Dreier's fraud reads like another version of the movie Catch Me If You Can -- the story of someone seemingly addicted to living on the edge and perpetrating their fraud in the spotlight, rather than minimizing their risk.

The more interesting aspect of the Dreier story involves the number of alarm bells Dreier's very public conduct set off in the minds of nearly everyone that dealt with him. Not just in the last few months as the end of his fraud drew near, but for YEARS. A few quotes from the article:

At Fulbright, Dreier was a "lone wolf" who "didn't quite fit in with the other partners," according to someone who worked with him then. "Marc wasn't the kind of guy to stop and say, 'Let's run this past a committee.'"
"He is a thoroughly vile human being," says Kevin L. Smith, an attorney at Manhattan's Stroock & Stroock & Lavan, who litigated against Dreier for many years. "This is really a bad guy."
Kalikow's lawyers brought the phony legal-notice stunt to the attention of U.S. bankruptcy judge Burton Lifland, who had presided over the original Kalikow bankruptcy. At a hearing in June 2004, Lifland suggested that Solow's and Dreier's conduct had been "sleazy," and then read aloud a series of synonyms from a thesaurus: "tacky, shabby, base, low, malicious, petty, nasty, unsavory." In October 2004 he ordered Solow and Dreier to pay $335,000 in sanctions for having violated Kalikow's rights. But today - more than four years later - the fine has still not been paid, since, tellingly, Solow and Dreier are still appealing it.

So how many similar narratives are waiting to be uncovered as the next house of cards collapses and the rats within scurry for cover? It's hard to guess but the more important question might involve what has happened to our legal and accounting professions where people like Dreier can not only exist but thrive? Dreier wasn't leading a silent, double life of fraud behind a "pillar of the community" public persona. This guy was DESPISED by nearly anyone that ever dealt with him. What does it say that someone with this track record could attract clients searching for legal or financial help?

The best part of the article is a perfect analogy made in the conclusion:

There is an unfortunate optical illusion - a variant on the Doppler effect - that besets all frauds. It's unfortunate, because it has the effect of exacerbating the pecuniary losses that fraud victims endure, by unfairly leaving them, like many rape victims, irrationally ashamed of themselves.

The Doppler principle we posit holds that as a victim approaches a swindler, he sees nothing but green lights. But as soon as he realizes that his money is gone, he spins around and beholds, as if by magic, bright red flags as far as the eye can see.


#1) http://money.cnn.com/2009/03/31/news/newsmakers/parloff_dreier.fortune/index.htm