Foot of Pride Monday for Marc Dreier and Bernard Madoff -- WTF?

Hi folks, it's another Monday morning in paradise. The Dolphins won, the stock market stinks, and I have a hearing in 20 minutes.

How was your weekend?

I've been thinking a lot about the implications of two astonishing frauds committed by well-respected, credible members of the business and legal community -- Marc Dreier (of Dreier LLP), and former NYSE chair Bernard Madoff.

This NYT profile on Dreier is eye-opening:

In recent days, Dreier L.L.P., the Park Avenue law firm that Mr. Dreier founded, has been plunged into chaos. At least $35 million in escrow that was to have been held by the firm seems to be missing, the authorities say, and nearly all of its 250 lawyers are now looking for work.

The amounts pale next to the $50 billion fraud that another high-profile New York figure, Bernard L. Madoff, was accused last week of orchestrating, but they have unnerved lawyers and their clients in the broader legal community.

As the Dreier firm’s lawyers rummage through the law firm’s books, which had been until recently Mr. Dreier’s exclusive preserve, they are finding that bills have not been paid in months. Their health insurance is in default and the firm will not be able to make its $2.6 million payroll on Monday, lawyers there say.

“No one is in charge,” Vincent F. Pitta, a lawyer at the firm, complained last week in an affidavit in support of a government request to freeze assets. “The news of Mr. Dreier’s arrest has had a neutron-bomb-like effect on Dreier L.L.P.”

Few have fallen as quickly as Mr. Dreier, a Yale graduate and Harvard-educated lawyer who had been a partner at some of New York’s better known firms before opening up a high-profile practice of his own in 1996 that now has offices in five cities.

“He promised lavish salaries and lavish compensation and he was attracting the best and the brightest,” said Gerald L. Shargel, Mr. Dreier’s lawyer. Mr. Shargel said Mr. Dreier is cooperating with the receiver now running the firm.

The expense of running such an operation does not provide a ready explanation for thefts of such magnitude. Even the cost of sustaining Mr. Dreier’s appetite for luxury does not provide an easy answer for what instilled the desperation that seems to have prompted schemes involved here, schemes that prosecutors said involved Mr. Dreier pretending to be other people.

Mr. Dreier’s lifestyle includes a waterfront home in the Hamptons, a Manhattan triplex and a place on Ocean Avenue in Santa Monica, Calif. He kept a Mercedes 500 in New York, an Aston Martin in California, and a 121-foot blue and white Heesen motor yacht with a Jacuzzi and a crew of 10 docked in Manhattan or St. Maarten. Associates said the boat, the Seascape, was the site of late-night parties at which Mr. Dreier, who is divorced, was often joined by an attractive young crowd.

My own experience with Mr. Dreier and his law firm was limited, but negative. We resolved a fairly tricky threatened litigation, and I mostly dealt with other lawyers at his firm. The one conversation I did have revealed an arrogant, pompous, somewhat distracted figure with whom I had no interest in speaking to again.

Similarly, the fall of Madoff reflects the fall of a man who was invested with incredible respect, credibility, and presumed honesty by those who trusted him with their money:

Just days after the collapse of Bernard L. Madoff’s suspected $50 billion Ponzi scheme, two of his emissaries returned to the epicenter of the financial disaster to face some of the hardest-hit investors, many of them old friends whom they had recruited to invest in Mr. Madoff’s firm.

As Carl J. Shapiro and Robert M. Jaffe sat down at the Men’s Grill of the Palm Beach Country Club they scanned an awkwardly quiet room, seemingly looking for friendly faces and reassuring nods, The New York Times’s Ian Urbina writes.

The moment was a stark reversal for two men whom people used to trip over themselves to meet in hopes of a chance to invest with Mr. Madoff.

“You doing O.K.?” asked one of the several club members who approached the men in a show of support. “We’re here for you.”

While the fallout from Mr. Madoff’s suspected con game shook investors around the world, perhaps nowhere was there a higher concentration of victims than in this room. Investors were said to have paid hundreds of thousands of dollars a year to remain members of this club in hopes of an introduction to Mr. Madoff, usually by Mr. Jaffe or Mr. Shapiro. Mr. Madoff has been a member since 1996.

But more than wealth, these people seemed to have lost a sense of trust and prestige. During a visit to the club on Saturday, many members, asked by The Times for their reactions, requested not to be named because they did not want to ruin their standing among friends.

In Mr. Madoff’s fall, their world turned upside down, they told The Times. Those who prided themselves as financially savvy suddenly seemed gullible. The trusted friend, sage adviser and model philanthropist they thought they knew was now charged with being a multibillion-dollar swindler.

There is no evidence that either Mr. Shapiro, who is 95 and joined the club in 1974, or his son-in-law, Mr. Jaffe, who is 64 and joined in 1992, knew of the fraud. Both men, who give millions every year to countless charities, are also said to have been duped of hundreds of millions of their own money, friends of their families told The Times.

Judge Seitz recently advised Bench and Bar Conference attendees that all litigators who appear before the Court have a certain amount of credibility stored in the Court "bank," and their actions will either add to or detract from that amount.

Yet here are two examples of individuals who had huge reservoirs of credibility, trust and respect, earned over a lifetime of achievement, that they manipulated to allegedly illegal ends. And their frauds could not have been accomplished unless the people, lawyers, and institutions they dealt with were willing to defer to their "bank" of credibility, trust and respect.

Indeed, Madoff explicitly demanded that he be trusted based on his reputation as a pillar of Wall Street:

Madoff, who believes that he deserves "some credibility as a trader for 40 years," says: "The strategy is the strategy and the returns are the returns." He suggests that those who believe there is something more to it and are seeking an answer beyond that are wasting their time.

Just consider this anecdote from a profile of Madoff:

Still, his refusal to take some investors added to his allure. Robert Ivanhoe, chairman of the real estate practice of the law firm Greenberg Traurig, said that he asked one of his clients who over two decades invested at least $50 million with Mr. Madoff to approach Mr. Madoff to see if he could invest with him. He knew Mr. Madoff as a major player in charitable groups.

Mr. Madoff declined. Mr. Ivanhoe said that the rejection made investing with Mr. Madoff even more appealing.

“He was turning people away all the time,” Mr. Ivanhoe said. “He didn’t need to be active in a charity to get more investors. People chased to invest in him.”

Maybe the answer is not to accord "titans" of the Bar or industry automatic respect, credibility, deference and trust, and instead treat them the same as everybody else.

But let's wait until my hearing is over before we start this whole "treat everybody the same" business.