Dreier Case Leads to Charges Against Broker Kovachev

Date: Tuesday, December 23, 2008
Author: David Glovin, Bloomberg

A former broker was arrested on federal charges that he helped Marc Dreier, the jailed New York law firm founder, defraud hedge funds of $100 million.

Kosta Kovachev was charged today in a criminal complaint in New York federal court with conspiracy to commit wire fraud. Prosecutors said he pretended to be a developer’s controller when Dreier held meetings with hedge funds that he later duped. Kovachev will appear in Manhattan federal court later today.

“The person representing himself to be the controller of the developer explained various financial records purportedly of the developer that were presented during that meeting and answered questions concerning the developer’s finances,” a complaint against Kovachev, 57, said.

Dreier is in custody after being arrested Dec. 7 on charges that he persuaded two unidentified hedge funds to give him more than $100 million by falsely claiming he was selling at a discount notes issued by New York developer Sheldon Solow. Prosecutors have since said that “very sophisticated investors” lost $380 million.

In a separate case, Kovachev in 2006 was ordered to pay $350,000 in a civil suit brought by the Securities and Exchange Commission accusing him and 11 others of defrauding more than 600 investors of more than $28 million in a Ponzi scheme. The SEC said that Kovachev and others sold unregistered securities structured as hotel timeshare rental interests.

Bankruptcy

Dreier LLP, his 250-person firm, filed for bankruptcy on Dec. 16.

Dreier’s lawyer, Andrew Rendeiro, didn’t immediately return a call seeking comment.

Kovachev pretended to be the controller in October, prosecutors said. That month, he also contacted the founder of another fund, who knew Kovachev as a broker, to tell him about notes Dreier had for sale, prosecutors said. Kovachev put Dreier in touch with the fund, which bought a $25 million note, Acting U.S. Attorney Lev Dassin said in a press release.

Kobachev also held himself out to be the developer’s chief executive officer when a third fund wanted to speak to one of its executives, Dassin said. The hedge fund later bought about $100 million in notes.

Dreier, a graduate of Harvard Law School and Yale College, faces as long as 20 years on each count for securities and wire fraud. Separately, he faces charges in Toronto where he was arrested for impersonating a lawyer at the Ontario Teachers Pension Plan.

The New York Times reported in July 2004 that Drier said Kovachev, then head of a dissolved Florida company called Evergence Capital Partners, was a client of his law firm. In a dispute between Solow and developer Peter Kalikow, Solow and Dreier hired Evergence to place newspaper ads listing ex- creditors of Kalikow, the Times reported, citing a judge.

The criminal case is U.S. v. Dreier, 08-mag-2676, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at 9245 or dglovin@bloomberg.net.