Law Firm on the Brink of Collapse After Arrest of Sole Equity Partner
In 1996, Marc Dreier founded Dreier LLP as an
innovative alternative to conventional large firm practice. Twelve years later, the firm stands on the brink of collapse after Dreier, the sole equity partner, was arrested for the most desperate (and perverse) kind of innovation: impersonating a lawyer in an attempt to secure tens of millions of dollars in a sham business transaction. [Source: Wall Street Journal]. This afternoon, Bloomberg reports that Dreier was charged by federal prosecutors with attempting to cheat hedge funds out of more than $100 million. To make matters worse, Dreier's charges come on the same day that Dreier was sued by Wachovia Corp. for defaulting on $12.6 million in loans.
Meanwhile, the 250 attorneys at Dreier LLP are preparing for the worst. Some partners announced that they would leave to start their own firms, bank accounts have been frozen and BlackBerrys shut down. And not surprisingly, there's money missing from client escrow accounts. In short, a huge mess.
At least two bloggers have a passing personal connection to the Dreier incident and offer comment. At Legal Watercooler, Heather Milligan, who interviewed for a position with the firm years ago and knew several folks who worked there, says she watched the firm's growth over the years and started to believe that its alternative business model (no billable requirements and partners who could bill what they wanted) could work. Until this incident, that is, which destroyed not just a law firm, but possibly the belief that an alternative practice could work:
I think, "How many of these partners will be willing to take a risk again on an alternative business plan?" How many will simply return to the safety of mind & grind or "eat what you kill"?
Meanwhile, Scott Greenfield, whose friend works at a company represented by Dreier, remarks on the trickle-down effect of the firm's demise:
The ramifications of this raiding of the escrow account will send shockwaves throughout the legal world. The Lawyers Fund for Client Protection only covers up to $300,000 in losses, so Lion Button, with $1.6 million missing, is screwed but good, and stands to collapse for loss of its working capital. Worse still, the faith the businesses repose in lawyer escrow accounts, particularly with Biglaw and Big Deals, may be fatally undermined as a result of this fiasco.
I don't know much about the Dreier firm or how innovative it was in comparison to "conventional biglaw practice." Perhaps Dreier confused innovation with playing fast and loose with the rules, or perhaps the firm's innovative approach didn't produce the levels of profits that the Dreier wanted to earn. At this point, it doesn't much matter. It's just unfortunate that a lawyer with the vision to found this kind of alternative practice suffered from the types of flaws that ultimately resulted in its downfall.
Posted by Carolyn Elefant on December 8, 2008 at 03:57 PM | Permalink
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