Ex-NY broker charged in Dreier fraud case
NEW YORK |
NEW YORK (Reuters) - A former broker has been arrested and charged with helping prominent New York lawyer Marc Dreier defraud hedge funds by selling them false promissory notes, U.S. prosecutors said on Tuesday.
Prosecutors said that on different occasions Kosta Kovachev, 57, posed as chief executive officer and controller of a New York City real estate development company as part of the alleged scheme by Dreier to sell notes worth hundreds of millions of dollars, purportedly issued by the developer.
Attorneys for Kovachev and Dreier could not be reached for comment.
The U.S. Attorney's Office said in a statement that Kovachev was arrested on Monday night in New York and charged in U.S. District Court in Manhattan with conspiracy to commit wire fraud, which carries a maximum sentence of five years in prison and fines.
Dreier, head of the law firm Dreier LLP in New York, was arrested earlier this month. The government has said that losses from the alleged fraud may be at least $380 million.
Dreier, 58, who associates have said had a lavish lifestyle , faces federal criminal securities and wire fraud charges, and civil fraud charges. His firm filed for bankruptcy protection on December 16.
Lev Dassin, acting United States Attorney for the Southern District of New York, said in a statement on Tuesday that in September after promissory notes worth $115 million were not repaid on time, one hedge fund asked Dreier if it could meet with representatives of the developer.
The statement said Dreier agreed to meet them at the developer's offices on October 15.
"Dreier brought them into a conference room and introduced a person who claimed to be the developer's controller and who answered questions about the developer's finances," the statement said. "That person has since been identified as Kosta Kovachev, who is not and never has been the developer's controller."
The U.S. Attorney's office described Kovachev as a former registered broker. It neither identified the hedge funds nor the developer whose name the men are said to have misused.
Later in October, prosecutors say Kovachev contacted the founder of another hedge fund who knew him as a broker to tell him about the promissory notes Dreier wanted to sell. After getting in touch with Dreier, the hedge fund bought for $13.5 million a $25 million note purportedly issued by the real estate developer.
Prosecutors said a third hedge fund bought notes from Dreier for about $100 million after Dreier arranged a conference call with a fund employee and a person claiming to be chief executive officer of the developer to discuss financial statements supplied by the lawyer. Kovachev impersonated the CEO, prosecutors said.
"The developer's true CEO has advised that the developer did not issue the notes described, that the financial statements supplied were entirely fabricated, and that he did not participate in any conference call with any hedge fund," the prosecutor's statement said.
(Additional reporting by Martha Graybow)
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