Legal News

Our Ponzi Nation: Will Dechert End Up Holding the Bag for Marc Dreier?

By Ashby Jones

It’s a fairly familiar plotline in the world of large financial scandals. Jilted or swindled investors often have a hard time finding someone to sue, especially if the fraud was perpetrated by a single individual who’s been locked up and left destitute. That’s when the auxiliary players — the law firms, the accounting firms and consultancies — used by the perpetrator start getting a little sweaty atop the brow, as they watch the pointed fingers turn to them.

The WSJ’s Peter Lattman on Tuesday brings us the latest such example, this one arising out of the huge Marc Dreier scandal. Private-equity behemoth Fortress Investment Group has sued Dechert LLP in connection with the $700 million Ponzi scheme perpetrated by Dreier.

The lawsuit, filed Monday in New York state court, alleges Dechert issued a “false” legal opinion letter that Dreier used to defraud Fortress. New York-based Fortress has said it lost $125 million buying phony promissory notes from Dreier. Click here for the complaint.

“We have not yet seen the complaint but are aware of the claim, which is completely baseless and we intend to defend the case vigorously,” a Dechert spokeswoman said.

Fortress alleges that before buying one of the phony notes Dreier was arranging to sell, it wanted an independent legal opinion from an “internationally recognized law firm” on the transaction.

Dreier proposed Dechert, which in a legal opinion letter assured Fortress that one transaction-a $50 million loan Fortress would make to property owner Solow Realty & Development Co.-was legitimate, the suit says. The letter said Dechert represented Solow in the deal, the suit alleges.

“In fact, the loan was an utter sham, the proceeds of which Dreier misappropriated for his own use,” says the complaint, which was filed by Kasowitz, Benson, Torres & Friedman LLP.

Dechert never confirmed its relationship with Solow with a telephone call or email to anyone at Solow, the lawsuit alleges. The opinion letter also stated that the loan documents had been “duly executed and delivered” by Solow, when they were actually forged by Dreier, the suit says.

Instead, Dechert allegedly relied on Mr. Dreier’s assurances that the transaction was legitimate, Fortress alleges.

Had Dechert not issued its legal opinion, Fortress wouldn’t have entered into the loan transaction, the complaint says.

Full post as published by Law Blog - WSJ.com on December 22, 2009 (boomark / email).