N.Y. Law Firm Sued Over 'Utterly False' Opinion Letters in Deals Involving Dreier

Fortress Investment Group LLC filed suit against Ruskin Moscou Faltischek on Tuesday for allegedly issuing "utterly false" legal opinion letters used by ex-lawyer Marc S. Dreier, who is now in prison for his role in a massive Ponzi scheme.

In a complaint filed in Manhattan Supreme Court, Fortress claims the Uniondale, N.Y.-based law firm issued three letters that Dreier used to defraud the investment firm out of $50 million. The suit against Ruskin Moscou follows one filed by Fortress in December against Dechert that made similar allegations.

The Ruskin opinion letters, issued in 2006 and 2007, stated that the firm was "special transaction counsel" to companies controlled by real estate developer Sheldon Solow. But Fortress said Ruskin Moscou never checked with anyone working for Solow's companies to confirm the relationship between the firm and Solow. Loan documents that Ruskin Moscou in its letters claimed to have been "duly executed and delivered" by the real estate companies had been forged by Dreier, the complaint said.

"We believe the suit is baseless and look forward to complete vindication through the judicial process," Barbara Cerrone, a spokeswoman for Ruskin Moscou, said in a statement.

Fortress was one of a number of hedge funds that fell victim to Dreier's scheme, which involved fake promissory notes which were purportedly issued by the Solow companies. Dreier, ran the eponymous 250-lawyer Dreier LLP before being arrested in 2008. He pleaded guilty in May 2009 to charges including securities fraud and money laundering and was sentenced to 20 years in prison.

Fortress lost more than $84 million as a result of investing in the bogus promissory notes, according to a February 2010 decision by Southern District Judge Jed S. Rakoff in the criminal case against Dreier, United States v. Dreier, 09 Cr. 085.

According to its state court complaint, which was filed by Fortress subsidiaries Fortress Credit Corp. and Fortress Credit Opportunities I LP, Dreier approached the investment firm in November 2005 about providing a loan to the Solow companies to finance real estate investments.

During negotiations, Fortress told Dreier it needed a legal opinion from independent counsel for the Solow entities, since Dreier would himself be a principal in the deal and was providing a limited resource guarantee. Dreier reached out to Eric C. Rubenstein, a Ruskin Moscou partner who is co-chair of the firm's real estate department.

Rubenstein, "in clear dereliction of applicable professional obligations," provided the legal opinions without contacting anyone who worked at the Solow companies, the complaint said.

Fortress agreed to provide a $25 million loan in January 2006. Later that year, it agreed to increase the loan with an additional $35 million, with $10 million coming from an entity unaffiliated with Fortress, for a total in principal of $50 million, the complaint said. Fortress in December 2007 agreed to extend the loan for an additional year.

The Fortress complaint maintains that in each of those transactions, Ruskin Moscou issued opinion letters without investigating by checking with Solow's companies to verify that the deals were legitimate. The law firm received its fees from Dreier, and Fortress claims that as long as Ruskin continued to receive funds, it continued to provide the opinion letters. Ruskin Moscou "simply acted as an 'opinion mill'" for Dreier, providing letters that "helped propel and perpetuate the Ponzi scheme."

Typically, Fortress says, law firms are involved in forming the entities for which they issue legal opinion letters and often obtain signed certifications from the client to document the facts. Ruskin Moscou, in contrast, "had no personal knowledge of its purported client," the complaint said.

"Dreier's brazen deception of Fortress would not and could not have been accomplished without Ruskin Moscou's misconduct," Fortress said in the complaint.

In December Fortress sued Dechert in Manhattan Supreme Court claiming the firm provided an "utterly false legal opinion letter" that Dreier used to secure an additional $50 million in 2008. Dechert has denied wrongdoing and sought to dismiss the complaint. Justice Charles Ramos in June denied that request, calling the firm's motion "premature," according to a transcript.

Marc Kasowitz, a lawyer for Fortress at Kasowitz, Benson, Torres & Friedman, declined comment. Ruskin Moscou is represented by Lawrence A. Steckman of Lester Schwab Katz & Dwyer. The case, Fortress Credit Corp. v. Ruskin Moscou Faltischek P.C., 651023/2010, has not yet been assigned to a judge.

(Published by New York Law Journal - July 22, 2010)