Bankruptcy Court Deemed Too Risky for Prisoner Testimony

A bankruptcy judge has ruled that while Marc Dreier should testify at an upcoming trial, the imprisoned ex-lawyer can’t do so in his courtroom.

As readers of Bankruptcy Beat recall, the attorney winding down Mr. Dreier’s old law firm wants Mr. Dreier to appear in a New York courtroom to bolster her position in a $138 million lawsuit against an investment firm that allegedly profited from Mr. Dreier’s fraud.

A federal judge granted the request last month, even as Mr. Dreier penned a legal plea saying he’d rather not leave the confines of the low-security federal prison in Minnesota where he’s serving out a 20-year sentence after pleading guilty to cheating investors out of hundreds of millions of dollars.

In a rare showing of solidarity between prisoner and prosecutor, the U.S. attorney’s office agreed that Mr. Dreier would be better off giving video testimony. In a letter dated Sept. 26, U.S. Attorney Preet Bharara in the Southern District of New York expressed concern about the safety of the bankruptcy court at One Bowling Green in lower Manhattan.

Unlike in the local federal district court, the letter says, bankruptcy court has no holding cells to allow private access to bathrooms and a secure place to wait during breaks. Instead, if Mr. Dreier needed to use the restroom during the proceedings, “his only option is to be escorted in shackles and waist chains down open hallways,” the letter said. (Bankruptcy Beat can attest that finding bathrooms at One Bowling Green often involves a long trek down an echoing hallway.)

The U.S. Marshals Service was also concerned about the overall safety of Mr. Dreier’s appearance, the letter said, because of “the number of investor-victims who suffered losses as a result of Mr. Dreier’s well-publicized fraud.”

Judge Stuart Bernstein of U.S. Bankruptcy Court in Manhattan decided Monday that the bankruptcy court did indeed pose too much of a threat and that the testimony should take place in nearby federal district court, Dreier LLP administrator Sheila Gowan said in an email.

The news should come as a welcome development for the defendant in the bankruptcy lawsuit, Westford Asset Management. In an Oct. 1 letter to the bankruptcy court, an attorney for Westford argued that interviewing Mr. Dreier by video would put him at a disadvantage to Ms. Gowan and her counsel, who have interviewed Mr. Dreier many times in person.

“The basic dynamic of personal, physical interaction with a witness, a key in developing effective cross-examination, is severely undermined by video conferencing,” the letter says. “If this were a less important witness, perhaps these issues would not be so important.”

As of now, Mr. Dreier is scheduled to testify when the trial begins Oct. 27.

Write to Sara Randazzo at [email protected]. Follow her on Twitter at @sara_randazzo.