Wachovia Bank Can Keep $9M Collateral It Snagged from Marc Dreier's Failed Law Firm, Judge Rules
A bankruptcy judge in the Southern District of New York has blocked a trustee’s effort to claw back some $9 million obtained by Wachovia Bank from a money-market account for the new-defunct Dreier law firm.
The trustee had argued that the bank should have known, when it extended another $9 million in credit to the law firm in October 2008, that it was not operating in the black, in part because sole partner Marc Dreier was behind on the payments for his $17 million yacht. He was arrested in December 2008 and charged with operating a $700 million Ponzi scheme and is now serving a lengthy prison term.
But the bank was not involved in the law firm’s wrongdoing, ruled Judge Stuart Bernstein, and hence was within its rights to seize the collateral securing the line of credit, reports the New York Law Journal.
“While Wachovia may have had reason to question Marc’s honesty and the accounting for and source of all of the funds used by him and Dreier LLP, this does not add up to actual or constructive knowledge that (1) Marc was running a Ponzi scheme through Dreier LLP’s account at [another bank], or (2) the October 2008 loan proceeds were destined for a Ponzi scheme investor,” said Bernstein in his written opinion. “Wachovia did not invest in the Ponzi scheme; it loaned money to Dreier LLP, a seemingly legitimate enterprise which, unlike Marc, apparently paid its obligations on time.”
Related coverage:
ABAJournal.com (Dec. 2008): “Dreier Law Firm to File for Bankruptcy”
ABAJournal.com (Nov. 2009): “Ex-SEC Lawyer Pleads in Dreier Case, Got $100K to Play Role re $44M in Fake Notes”
ABAJournal.com: “$6.3M Settlement Wired to Marc Dreier Is Toast, Bankruptcy Judge Tells Ex-Lawyer’s Ex-Client”
