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Wednesday, December 24, 2008

Another Arrest in Dreier Scam

Ex-Broker Who Helped Dreier In Hedge Fund Scams Is Arrested
The New York Law Journal by Mark Hamblett - December 24, 2008

A broker who allegedly helped disgraced attorney Marc Dreier market millions of dollars in bogus promissory notes to hedge funds was arrested Monday night. According to a criminal complaint unsealed yesterday in the Southern District, Kosta Kovachev posed as the comptroller of the real estate developer Solow Realty when Mr. Dreier attempted to sell a New York City hedge fund $115 million in notes that purportedly were issued by Solow. Mr. Kovachev, 57, was charged with a single count of conspiracy to commit wire fraud in violation of 18 U.S.C. §371. He was ordered held at his initial appearance before Magistrate Judge Frank Maas late yesterday. Meanwhile yesterday, a panel of the Appellate Division, First Department, suspended Mr. Dreier from the practice of law, effective immediately, "on the basis of uncontroverted evidence of serious professional misconduct." (The First Department opinion is on page 6 of the print edition of today's Law Journal). There may be more charges to come in the Dreier case, as the criminal complaint states that Mr. Kovachev joined the conspiracy with Mr. Dreier and "others known and unknown."

In 2006 and 2007, Mr. Dreier allegedly sold to a New York City hedge fund promissory notes with a face value of $115 million purportedly issued by Solow Realty. But in 2008, when the notes were not repaid in time, a hedge fund employee sought reassurance from Mr. Dreier and asked to meet with representatives of the developer at Solow's offices. Mr. Dreier agreed and arranged a meeting at Solow for Oct. 15, 2008, without the knowledge of the real estate firm. At that meeting, the criminal complaint alleges, Mr. Kovachev pretended to be Solow's comptroller and answered questions about the company's finances. Later that month, Mr. Kovachev, this time as himself, contacted the founder of another hedge fund for whom he had worked as a broker. Mr. Kovachev allegedly told the founder about the Solow notes and put him in touch with Mr. Dreier, who then sold the fund a $25 million note for the bargain price of $13 million. Finally, when an employee of a third hedge fund wanted to speak with Solow's chief executive officer in connection with the purchase of $100 million in notes, Mr. Kovachev got on the phone and impersonated the executive. Federal officials said Solow was uninvolved in any of the transactions.

Mr. Dreier had access to the offices of Solow Realty because he had done extensive legal work for the company. "The company never authorized Mr. Dreier to negotiate any financing or issue any promissory notes on its behalf," a spokesman for Solow Realty said in a statement yesterday. The spokesman added that "as soon as the company learned that fraudulent and forged instruments purporting to be obligations of Solow Realty were circulating, the company reported the facts to the U.S. Attorney's Office and we have been cooperating fully with the investigation." In the criminal complaint against Mr. Kovachev signed on Dec. 18 by Southern District Magistrate Judge Theodore Katz, Criminal Investigator Jordan Goodman of the Southern District U.S Attorney's Office said he interviewed Solow's chief executive, who assured him, "The developer did not issue any of the notes described above and has no note program." It was that same executive who told Mr. Goodman that the signatures appearing on the notes were forgeries. Financial statements provided by Mr. Dreier to the hedge fund, Mr. Goodman said in the complaint, "were entirely fabricated."

Mr. Kovachev, the investigator said, had an electronic pass that gave him access to Dreier LLP and also had access to computers and offices at the law firm. At yesterday's hearing before Magistrate Judge Mass, Southern District Assistant U.S. Attorney Jonathan Streeter convinced the court that Mr. Kovachev was a risk of flight and should be held until he can post a $300,000 personal recognizance bond guaranteed by three financially responsible parties and put up $100,000 in cash or property. Magistrate Judge Maas said it was "a close call" but he was persuaded by two factors. The first was that Mr. Kovachev had traveled extensively to countries from where it would be more difficult to extradite him should he choose to flee. The second was Mr. Streeter's statement that " . . . we know from our investigation that Mr. Dreier paid people up to $100,00 to engage in impersonation in a single phone call." But Andrew Rendeiro of Flamhaft Levy Hirsch & Rendeiro in Brooklyn, who represents Mr. Kovachev, said he was confident his client could meet the bail conditions within a few days.

Mr. Rendeiro said, "Eventually, when the money trail is chased you will see hundreds of millions [went to] Mr. Dreier, 99.9 percent of it" and only a small percentage to his client. Mr. Rendeiro said his client, the father of five, had already been linked to Mr. Dreier and, had he been prone to flee, would have done so in the immediate aftermath of Mr. Dreier's arrest. Mr. Kovachev lost his broker's license in 2006 when he was implicated in a $28 million Ponzi scheme in which he and 11 others defrauded some 600 investors through the sale of unregistered securities structured as hotel timeshare rental interests. He was not criminally charged in the matter and denied any wrongdoing in a settlement with the Securities and Exchange Commission in which he paid $358,148 in disgorgement and penalties. The New York Times reported in July 2004 that Mr. Dreier said Mr. Kovachev, then head of a dissolved Florida company called Evergence Capital Partners, was a client of his law firm. In a dispute between Solow Realty and developer Peter Kalikow, Mr. Solow and Mr. Dreier hired Evergence to place newspaper ads listing ex-creditors of Mr. Kalikow, the Times reported.

Dreier Suspended

Mr. Dreier was arrested on Dec. 2 in Toronto on an impersonation charge and on Dec. 7 in Manhattan on securities and wire fraud charges for what prosecutors now say is a $380 million fraud. He has remained in custody without bail as his 250-member firm, Dreier LLP, has imploded and gone into bankruptcy. What is left of the firm's assets and client escrow funds is in the custody of receiver Mark Pomerantz of Paul, Weiss, Rifkind, Wharton & Garrison, appointed by Judge Miriam Goldman Cedarbaum in a civil suit against Mr. Dreier by the Securities and Exchange Commission.

According to defense attorney Gerald Shargel, Mr. Dreier is cooperating with Mr. Pomerantz in identifying and locating assets, an effort Mr. Shargel said he hopes will reassure a judge that Mr. Dreier has not stashed assets abroad and can be trusted to be released pending trial or a plea. According to an unsigned opinion yesterday by the First Department panel that suspended Mr. Dreier, he had asserted his Fifth Amendment privilege against self-incrimination, declining to contest the suspension due to the ongoing federal criminal case. The panel noted that Mr. Dreier had been accused of defrauding multiple investors, making a profit of at least $100 million at their expense. "The sheer magnitude of the alleged conversion in this case, and the fact that some of the acts in furtherance thereof allegedly took place while respondent was in a Canadian prison are cause for public concern," the panel observed. In addition to Mr. Streeter, the government was represented by assistant U.S. attorneys Raymond J. Lohier and Anne E. Arreola. Mark.Hamblett@incisivemedia.com

3 comments:

Anonymous said...

In NY you work and exist for your lawyer.

Anonymous said...

Don't worry, there'll be more arrests, and some more on top of that too

a fly on the wall said...

Marc Dreier is in a jail in Canada and he is on the phone directing that funds from the firm's escorw account be transfered to his account and he gets it done - hello what planet are we on? Marc has been and is a player in certain circles and he know for a fact that he can get away with all kinds of Sh*t! Dreier was a go to firm that the old law firms used to do their dirty work, they HAD THE HOOKS, but not any more baby! If Marc Dreier is leaned on who knows what tales he will tell from school. I know he doesn't want to spent any time in the joint.

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