Dec. 16 (Bloomberg) -- The law firm Dreier will seek bankruptcy protection after its founder was jailed for cheating hedge funds out of more than $100 million, its receiver says.

Marc Dreier, who is being held on federal criminal charges, may seek protection too, said the receiver, lawyer Mark Pomerantz, who was appointed to run the firm. In a Dec. 11 letter publicly filed yesterday, Pomerantz alerted U.S. District Judge Miriam Cedarbaum in Manhattan to the anticipated filings.

“I have advised counsel for the SEC and counsel for Mr. Dreier of my intention to seek bankruptcy protection, and I believe that Mr. Dreier himself will file a personal petition for bankruptcy in the near future,” Pomerantz wrote.

Prosecutors said Dreier, 58, a graduate of Harvard Law School and Yale College, convinced two unidentified hedge funds to give him more than $100 million by claiming, falsely, that he was selling at a discount notes issued by New York developer Sheldon Solow. At a court hearing on Dec. 11, prosecutors said they’d discovered additional losses for a total of $380 million.

Dreier, who was arrested on Dec. 7 as he returned to New York from Toronto, hasn’t yet responded to the charges.

The lawyer, the New York firm’s only equity partner, has put 250 attorneys out of jobs. His arrest had a “devastating effect” on the firm, partner Joel Chernov said in affidavit in Dec. 8 court papers. The December rent is overdue, the month’s health-insurance premium hasn’t been paid and AT&T Inc. will shut down Blackberry service, Chernov said.

Hedge Fund Writedown

Dreier’s lawyer, Gerald Shargel, said today in an interview he is “not as certain” as Pomerantz about a bankruptcy filing for his client. “That’s still an issue under consideration,” he said.

Separately, Eton Park Capital Management LP, the New York- based hedge fund started by Eric Mindich, wrote down loans stemming from deals with Dreier, according to a Dec. 12 letter to investors posted on the Dealbreaker.com Web site.

Eton Park has loans “with which Dreier was involved,” the fund said in the letter. The loans were worth less than 1 percent of the investments Eton Park manages, according to the letter, which didn’t disclose their value. Mindich, a former Goldman Sachs Group Inc. partner, founded the firm in 2004 with $3.5 billion, a record for a hedge-fund startup size at the time. The firm now manages $13 billion.

Eton Park spokesman Steve Bruce declined to comment.

‘Gather and Preserve’

The U.S. Securities and Exchange Commission has filed a related civil case against Dreier, saying Dreier cheated the funds and stole $38 million from a client escrow account. The latter claim isn’t part of the criminal case. The SEC identified the escrow funds as belonging to the unsecured creditors of 360networks (USA) Inc., for whom the firm was counsel in a bankruptcy.

In the SEC case, Pomerantz told Cedarbaum that he’d been “taking steps” to “gather and preserve” the firm’s assets. The purposes of the receivership are “best served” through a bankruptcy filing of the firm and possibly other unidentified entities in which Dreier holds interests, Pomerantz said.

“Once these bankruptcies are begun, the respective bankruptcy trustees will have the comprehensive authority provided by the bankruptcy laws to gather and conserve assets,” Pomerantz wrote.

Cedarbaum initialed Pomerantz’s letter, indicating that Pomerantz may begin a bankruptcy filing.

‘Hedge Fund I’

In its complaint, the SEC says Dreier was able to mislead “Hedge Fund I,” which invested $99.85 million, by sending it fabricated financial statements and audit letters with forged signatures of Solow’s auditor.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

The criminal case is U.S. v. Dreier, 08-mag-2676, U.S. District Court, Southern District of New York (Manhattan). The civil case is SEC v. Dreier, 08-cv-10617, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net;

Last Updated: December 16, 2008 14:47 EST