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Diamond McCarthy named as counsel to Sheila Gowan, Trustee for Dreier LLP bankruptcy

December 2008

In late December 2008, Sheila M. Gowan, a partner in our New York office, who spent thirteen years in the United States Attorney’s Office for the Southern District of New York, was appointed Trustee in one of the most highly publicized bankruptcy cases in the United States: the chapter 11 liquidation of Marc Dreier’s law firm, Dreier LLP (“Dreier Firm”). Diamond McCarthy was retained as her counsel with Steve Loden, Howard D. Ressler, J. Benjamin King and Joan M. Secofsky leading the team.

Previously, on December 8, 2008, the SEC filed a complaint in the United States District Court for the Southern District of New York charging Marc Dreier with violations of the securities laws by selling, and offering to sell, fictitious notes purportedly issued by a New York City-based real estate development company. The SEC case was assigned to United States District Court Judge Miriam Cedarbaum. Judge Cedarbaum appointed a Receiver for Marc Dreier and his assets, including his interest in the Dreier Firm. With Court approval, the Receiver commenced the chapter 11 case on behalf of the Dreier Firm. At the same time, the United States filed a criminal complaint charging Marc Dreier with securities and wire fraud violations (and, in a superseding indictment, money laundering) and that case was assigned to United States District Court Judge Jed S. Rakoff. The criminal complaint contained multiple forfeiture allegations. On January 26, 2009, with the consent of Judge Cedarbaum and other interested parties, the Trustee, together with other petitioning creditors, filed an involuntary chapter 7 petition against Marc Dreier. Both bankruptcy cases are pending before Stuart M. Bernstein, the Chief Bankruptcy Judge for the Southern District of New York. Thus, there are currently four cases, and three federal judges, dealing with issues relating to Marc Dreier’s fraudulent conduct.

On the one hand, the Dreier Firm case involves legal issues typical of many chapter 11 business liquidations, such as the recovery and dispositions of assets, avoidance actions, rejection of executory contracts and a cash collateral dispute with the pre-petition secured lender. Some of these issues have been particularly contentious and have resulted in significant court hearings. The case also raises unique and cutting edge bankruptcy issues, most significantly, the intersection of the criminal forfeiture statute with federal bankruptcy law. It is particularly in this respect that the case receives widespread national media attention. These unique issues also led to the extraordinary convening of a three judge panel comprised of United States District Court Judges Cedarbaum and Rakoff and Chief Bankruptcy Judge Bernstein and appearances by the SEC, the United States Attorney, Sheila and Marc Dreier’s chapter 7 Trustee. Marc Dreier has pleaded guilty to the allegations of the criminal indictment and will be sentenced in July. In the meantime, Sheila and Diamond McCarthy continue to explore novel ways to recoup recoveries for the benefit of the Dreier Firm’s many creditors in this high visibility case.

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