Ex-Dreier broker pleads guilty to fraud

* Kovachev pleads guilty to fraud, conspiracy

* U.S. says defendant impersonated real estate executives

* Dreier previously sentenced to 20 years in prison

By Jonathan Stempel

NEW YORK, Nov 2 (Reuters) - A former broker pleaded guilty on Monday to criminal charges for helping the disgraced New York lawyer and Ponzi scheme operator Marc Dreier defraud hedge funds by selling millions of dollars of fictitious debt.

Kosta Kovachev, 58, pleaded guilty to one count each of wire fraud and conspiracy to commit securities and wire fraud before federal Judge Naomi Reice Buchwald in Manhattan, federal prosecutor Preet Bharara said. Kovachev will also forfeit $215,000 that Dreier is alleged to have paid him.

Prosecutors accused Kovachev of impersonating employees of New York City developer Solow Realty & Development Co as part of a scheme to sell more than $228 million of fake promissory notes to three hedge funds.

The sales were part of Dreier's nearly $400 million Ponzi scheme, which led to last December's collapse of the law firm that bore his name. Kovachev was charged the same month.

Dreier confessed to the fraud and was sentenced in July to 20 years in prison by U.S. District Judge Jed Rakoff. Prosecutors had sought 145 years.

Paul Madden, Kovachev's lawyer, described his client as "contrite" and "obviously very upset." "He really is a minor player in this whole situation," he said.

Prosecutors said Kovachev in October 2008 pretended to work in Solow's finance department when he answered questions from a hedge fund that held $115 million of supposed notes from the developer. The notes had not been repaid on time.

The same month, Kovachev pretended to be Solow's chief executive in dealing with a second hedge fund that eventually bought $100 million of fake notes, and introduced Dreier to a third hedge fund that bought $13.5 million, prosecutors said.

"Kovachev's play-acting caused millions of dollars of real losses to real victims," Bharara said in a statement.

Kovachev faces up to 20 years in prison on the wire fraud charge and up to five years on the conspiracy charge, and potential fines of $250,000 on each charge, prosecutors said.

Sentencing is scheduled for March 5, 2010.

In a Sept. 29 order, Rakoff ordered Dreier to pay $389.1 million in restitution, including $99.9 million to Elliot Associates LP, $84.4 million to Fortress Investment Group LLC (FIG.N) and $71.3 million to Eton Park Asset Management LLC.

The case is U.S. v. Kovachev, U.S. District Court, Southern District of New York, No. 09-00403. (Reporting by Jonathan Stempel; editing by John Wallace)