Court Approves Global Settlement In Disputes Arising From Dreier Ponzi Scheme

An under-appreciated problem of substantial financial frauds is how they pit their victims against one another. Typically, the funds remaining after the fraud is uncovered are insufficient to make whole all of the numerous victims and creditors, who are left to squabble over who should get what. Moreover, resolution of competing claims might require consideration of three bodies of law – criminal law, securities law, and bankruptcy law – that cannot always be reconciled without some friction. That makes all the more remarkable Friday’s decision by federal District Court Judge Jed Rakoff approving a global settlement resolving claims in the Dreier case. 

Over a number of objections, the court approved, among other things, a "Coordination Agreement" between the government and the Chapter 11 trustee for the Dreier LLP bankruptcy estate; stipulations between the government and the Chapter 7 trustee for Dreier’s personal bankruptcy regarding the sale of two houses in East Quogue, Long Island, and a Manhattan condominium; and a stipulation between the government and certain facilities managed by Fortress Investment Group LLC and its affiliates that lost more than $84 million from their investments in Dreier's fictitious notes.
 
The court’s decision is U.S. v. Dreier, No. 09 Cr. 085 (JSR) (S.D.N.Y. Feb. 5, 2010).