Dreier Bankruptcy Advisers Request $18 Million

In the 5 1/2 years since attorney Sheila Gowan began liquidating Marc Dreier’s former law firm, she’s collected $79 million to help repay the debts Mr. Dreier left behind when he was sent to prison for operating a Ponzi scheme.

Now, nearly a dozen law firms, consultants and other professionals are asking to be paid nearly $18 million of that sum.

The amount is detailed in nearly a dozen fee requests filed last week in U.S. Bankruptcy Court in Manhattan. For her part, Ms. Gowan is asking for at least $1.2 million in fees and expense reimbursements. Diamond McCarthy LLP, Ms. Gowan’s former law firm and the lead counsel in the Chapter 11 case, requested the highest amount, at $11.3 million.

Development Specialists Inc., a restructuring firm that ran the non-legal aspects of Dreier LLP’s unwinding, is asking for $1.8 million. Klestadt & Winters LLP, counsel to an official committee of unsecured creditors in the case, filed a request for $2.2 million. The other professionals seek a few hundred thousand dollars each.

A bankruptcy judge is scheduled to weigh in on the applications at a June 16 hearing and has the final say on how much the professionals are paid.

Since the case started in December 2009, Ms. Gowan has distributed $24.7 million in cash, including $7.3 million to secured lender Wachovia, her fee application shows.

Unsecured creditors, meanwhile, are still waiting to receive their share of the funds. In April, a judge approved a bankruptcy-exit plan that will clear the way for a group of unsecured creditors owed a collective $379.8 million to be paid between six cents and 13 cents on the dollar. Payments should be made by the end of August, Ms. Gowan said.

William Brandt of Development Specialists said Wednesday that when the case first started, the uncertainty surrounding Mr. Dreier’s crimes left advisers not knowing how much money they’d be able to recoup or if they’d even be paid for their work.

“I think Sheila Gowan and all the other professionals made something out of nothing,” Mr. Brandt says. “For a Ponzi scheme that was a really extreme fraud, there’s a pretty decent return to creditors.”

Mr. Dreier is currently serving a 20-year prison sentence after pleading guilty to federal charges in connection with a scheme to sell $700 million in bogus promissory notes to hedge funds and other investors. Mr. Dreier funneled much of the money from his crimes through his law firm.

An initial challenge in the case, Ms. Gowan said in her fee application, was negotiating with federal authorities over what assets could be used to benefit Dreier LLP’s creditors. The government eventually relented that it would not seek money from the law firm’s lingering client bills, from an auction of its furniture and art, and from litigation against hedge funds and others who received a windfall from Mr. Dreier’s scheme.

“This case has presented many unique challenges,” Ms. Gowan, a former federal prosecutor now with Sadowski Fischer PLLC, said in her filing. “At the time that I came into the case, [Dreier LLP] was a major, multi-state law firm in total disarray….I believe that my services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the many issues confronting me.”

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