Settlements allowing the U.S. government, GSO Capital Partners and other parties to share recoveries from imprisoned ex-lawyer Marc Dreier’s $700 million Ponzi scheme need changes before they can be approved, a judge ruled.
The accords must narrow the way they protect parties at Dreier’s biggest investor, GSO Capital, owned by Blackstone Group LP, from lawsuits, U.S. Bankruptcy Judge Stuart Bernstein in New York said yesterday in a court order. He withheld approval of the settlements while calling them mostly reasonable and rejecting objections that GSO would keep 94 percent of its investment while other funds suffered.
“Unfortunately, Dreier’s fraud did not spread its harm evenly, and some suffered more than others,” Bernstein wrote. He said a new settlement with “a more narrowly tailored permanent injunction” can be submitted.
Dreier, confessed operator of a Ponzi scheme from 2004 to 2008, sold bogus promissory notes and profited by about $700 million, the government said. He pleaded guilty in May.
His law firm, Dreier LLP, filed for bankruptcy in December 2008 and a dispute broke out among the creditors and the government, which usually seizes funds made through fraud to redistribute to victims.
Investors who lost money said those who profited should give some back. If the U.S. held assets, recoveries it would take too long, they said.
Terms of Accord
Under the settlements, a trustee for Dreier’s estate would release GSO from a claim in exchange for $9.25 million plus ownership of artwork worth as much as $3 million.
The judge noted that the trustee can also file lawsuits that might recover $25 million paid out to Drier’s investors and other claims worth up to $32 million.
GSO Capital, a portfolio manager for other investors, wired Dreier $165 million and received payments $196 million in return, according to court documents.
Under the accord, GSO would give $250,000 to a trustee overseeing a wind-down of Dreier’s personal estate.
The bankruptcy case is In re Dreier LLP, 08-15051, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Dreier, 09-cr-2676, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Tiffany Kary in New York at firstname.lastname@example.org.