July 8 (Bloomberg) -- Marc Dreier, the New York law firm- founder who pleaded guilty to defrauding hedge funds of more than $400 million, should be sentenced to 145 years in jail, prosecutors said, as a defense lawyer sought a term of as little as 10 years.

The rival requests came in court filings today in federal court in Manhattan. Dreier will be sentenced on July 13 by U.S. District Judge Jed Rakoff. Investors who placed more than $740 million with Dreier lost at least $400 million, lawyers said.

“This defendant, an officer of the court, engaged in a more than $740 million series of frauds over a seven-year period largely to finance a personal life of extraordinary lavishness,” Assistant U.S. Attorney Jonathan Streeter wrote.

“In seeking some measure of leniency we appeal not to sympathy but to reason,” defense attorney Gerald Shargel wrote in his legal brief. “As colossal frauds capture national headlines, sentences for white-collar offenders must not become disproportionately long.”

Prosecutors said Dreier, 59, sold more than 85 phony promissory notes to at least 13 hedge funds and three individuals from 2004 to 2008. Dreier falsely told investors many of the fake notes were issued by New York developer Sheldon Solow, a client of his firm.

Dreier was arrested in Toronto on Dec. 2 and charged with impersonating a lawyer with the Ontario Teachers’ Pension Plan. He doesn’t have a plea deal with prosecutors. He pleaded guilty on May 11 to charges of money laundering, conspiracy, securities fraud and wire fraud.

‘Inexcusable’

“My crimes are inexcusable,” Dreier wrote in a letter to Rakoff that was included in court papers. He said he had been deeply in debt from his law firm expenses and costs of his divorce.

“All of this left me feeling overwhelmed -- by my debt, by a disappointing career, by a failed marriage. And so, incomprehensibly, in 2002 I started stealing.”

Dreir said he first invaded settlement proceeds due to a client. Then he arranged “a few bogus investments” with some individuals.

“And soon I stumbled upon the brazen idea of arranging fictitious loans from hedge funds, ostensibly from my principal client” and “diverting the loan proceeds to myself,” he wrote. “I can’t remember or imagine why I didn’t stop myself.”

‘Quicksand of Spending’

Dreier said he wound up in “a quicksand of spending.”

A court-appointed receiver in the bankruptcy of his 250- attorney law firm, Dreier LLP, reported that Dreier used investors’ money to subsidize the money-losing firm, to pay off some of the victims of the scam and to buy luxuries for himself, including a 121-foot yacht, vacation homes in the Hamptons on New York’s Long Island and a $39 million contemporary-art collection.

If Rakoff doesn’t sentence Dreier to 145 years, he should impose a sentence that keeps Dreier in prison for the rest of his life, Streeter said. Shargel said Dreier deserves “the opportunity to still have some meaningful life beyond incarceration.” Shargel proposed a sentence of 10 years to 12 1/2 years.

Confined, Watched

Dreier has been confined to his Manhattan luxury apartment and watched around the clock by armed guards paid for by friends and relatives, a condition of his $10 million bail.

Looming over the Dreier sentencing is the 150-year term handed out last week to Bernard Madoff, who pleaded guilty to a decades-long Ponzi scheme that cheated investors out of billions of dollars.

“It is impossible to ignore the sentence of 1,800 months recently handed out to Bernard Madoff,” Shargel wrote. “The facts of that case were unique. Respectfully, that sentence, which is far out of line with national standards and circuit precedent, is likewise unique and unsuitable for comparison.”

Also writing letters on Dreier’s behalf were his son Spencer, his daughter Jackie, and his mother Mildred.

The case is U.S. v. Dreier, 09-cr-00085, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in New York federal court at dglovin@bloomberg.net; Erik Larson in New York at elarson4@bloomberg.net.

Last Updated: July 8, 2009 14:45 EDT