Affiliates of Hedge Fund Manager Fortress Investment Group Sue Dechert Over Opinion Letter Endorsing Marc Dreier

On December 21, 2009, Fortress Credit Corp. and FCOF UL Investments LLC (together, Fortress) sued law firm Dechert LLP in New York state court for malpractice.  Fortress accused Dechert of issuing a false opinion letter on behalf of Marc S. Dreier, without conducting any due diligence.  Fortress claims that as a result of the opinion letter, it entered into a purported $50 million loan agreement with Solow Realty & Development Company (Solow Realty) which, in reality, was a sham arranged by Dreier to misappropriate funds from Fortress for his personal use.  (Briefly, by way of background, on May 11, 2009, Dreier pleaded guilty to a complex scheme in which, among other things, he sold fraudulent notes to investors, including various hedge funds, who collectively lost at least $400 million.  On July 13, 2009, Dreier was sentenced to 20 years in prison.  See Bryan Burrough, “Marc Dreier’s Crime of Destiny,” Vanity Fair, Nov. 2009.)  We detail the allegations in the Fortress complaint – which have yet to be proven – and the relief requested by Fortress.  The parties and allegations in the Fortress complaint – the financing unit of a hedge fund manager suing a law firm in connection with a lending transaction – recall another complaint covered in last week’s issue of the Hedge Fund Law Report.  See “Cerberus Financing Unit Sues its Former Law Firm and Two of Its Partners for $55 Million for Allegedly Giving Bad Advice,” Hedge Fund Law Report, Vol. 2, No. 51 (Dec. 23, 2009).  The complaint also parallels other efforts by hedge fund managers (and in some cases hedge fund investors) – many of which have been unsuccessful – to seek redress from service providers for losses incurred during the credit crisis.  See “Appellate Division Upholds Dismissal of Complaint by Hedge Funds Holding More than $190 Million of Defaulted Loans Against Credit Suisse, as Arranger of Financing and Administrative and Collateral Agent, for Aiding and Abetting Fraud and Breach of Fiduciary Duty,” Hedge Fund Law Report, Vol. 2, No. 31 (Aug. 5, 2009); “New York Court Rules that Limited Partners of Collapsed Hedge Fund Cannot Sue Fund’s Outside Legal Counsel for Fraud and Breach of Fiduciary Duty,” Hedge Fund Law Report, Vol. 2, No. 24 (Jun. 17, 2009); “New York Supreme Court Dismisses Hedge Fund Investors’ Claims Against Prime Broker,” Hedge Fund Law Report, Vol. 1, No. 18 (Aug. 11, 2008); “Hedge Fund Service Professionals Do Not Owe Fiduciary Duty to Investors But May be Subject to Liability for Aider and Abettor Claims if Provided by State Statute,” Hedge Fund Law Report, Vol. 1, No. 6 (Apr. 7, 2009); “Madoff Feeder Funds Sue Casualty Insurers for Breach of Contract and Seek to Recoup Costs of Defending Against Liability Suits,” Hedge Fund Law Report, Vol. 2, No. 33 (Aug. 19, 2009); “New York Supreme Court orders separate trial on existence of attorney-client relationship between former hedge fund principal and outside lawyer and firm,” Hedge Fund Law Report, Vol. 1, No. 1 (Mar. 3, 2008).

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