Say what you will about Marc Dreier, yes, ok, so he was into that whole “Yale thing,” but he sure know how to pick victims. The list of his stingees has grown to include Amaranth Group Inc., Perella Weinberg Partners and Blackstone Group LP’s GSO Capital Partners. Given the current environment, prosecutors are going to have to prepare themselves to defeat the dreaded Robin Hood defense.
Government lawyers identified the firms in a court filing in New York on Feb. 9 as three of the 20 institutions they claim are victims of Dreier’s thefts. Prosecutors didn’t disclose how much it alleges each of the companies lost.
Is it possible that all these losses never came to light before because these big name hedge funds failed to report the crimes? It seems awfully unusual that Dreier could have defrauded all these funds without tipping a few of them off before now. (Amaranth? That was so 2006).
Amaranth, Perella Were Victims of Dreier’s Fraud, U.S. Says [Bloomberg]
Ok, it is funny as all hell that these hedge funds got scammed, but how much more due diligence can one do?
1) They were meeting in the ACTUAL offices of the purported borrowers.
2) The guy pulling the scam is a HLS-educated corporate lawyer. I’m sure all of the documents were very legitimate – it is just that the signatures were forged.
3) The initial payments were made on the notes.
I am sure a new layer of due diligence will be added on to avoid scams like this, but I can’t get over that these firms (e.g., Solow) allowed the guy to actually set up camp and run meetings in their offices.
Ya’ know how corporate security blasts out emails every now and then about how you shouldn’t hold the doors open for people who aren’t familiar to you and all that crap?
Well, turns out a few people shoulda actually read ‘em before hitting ‘delete’, whoops?
@1 – You make some good points. Overall, anyone with a functioning brain, sufficient motivation, and a bent toward criminal behavior can fool a due diligence process. It is difficult to detect sufficiently advanced affirmative fraud, which this was.
Can you imagine if you were an associate level peon and did suspect something? Going to your boss with “um, I know this sounds weird, but I think this lawyer guy faked these $100 million of bond documents, impersonated someone else in a meeting, and is setting up sham meetings in other companies offices?”
Your MD would, at first, look at you like you had a hole in your head.
@2 the guy wasn’t drafting into an office. He had ongoing business with those firms. He’d come in and tell the receptionist that he has a meeting and get set up in a conference room.
was he really doing this with meetings at the “Borrowers”? i thought that was more a one-shot desperation gig up in Ontario once that investor was getting suspicious
@4
Noted, however, no one ever wondered why he had a habit of hanging around for a while after client meetings? I mean its tough to know the difference between legitimate business and scam in that case, but methinks some better vigilance perhaps would have at the very least made it harder for Drier to conduct “business”
The client office meetings only took place at Solow and then out of desperation he had to set up the OTTP stunt. That is hwere he was caught. The rest of the HFs bought the bonds without ever meeting him!
If I were an investor in these funds, I would demand to see proof of their due diligence. Any analysis, third party advice etc etc. I bet there was zilch done.