Posted by Dan Slater - December 23, 2008
Another shoe has dropped in the case of fallen lawyer Marc Dreier, who’s alleged to have perpetrated a massive fraud against a group of hedge funds. In a criminal complaint, prosecutors are attempting to tie a former broker, Kosta Kovachev, to the fraud. Kovachev was charged with one count of conspiracy to commit wire fraud. The complaint alleges, among other things, that Kovachev pretended to be the controller of a realty company to effect a meeting with a hedge fund. (We’ve confirmed that the company was New York-based Solow Realty, though the name is not in the complaint.) Dreier purported to sell promissory notes on behalf of the realty company, but the notes were fictitious, according to the complaint. Federal officials have said that Solow was uninvolved.
Peter Kalikow, March 31, 2005. (AP/Richard Drew)
Dreier and Kovachev have crossed paths before. This 2004 NYT article, which details a legal skirmish between New York real estate competitors Sheldon Solow (owner of Solow Realty) and Peter Kalikow, tells the following story. Kalikow sued Solow, believing he was responsible for newspaper ads listing more than 400 creditors from Kalikow’s personal bankruptcy proceeding in 1991. The ads suggested that Kalikow had misled the bankruptcy court about the extent of his assets. But the bankruptcy had been settled years before, and there were no outstanding creditors.
Real estate mogul Sheldon Solow, Dec. 5, 2007. (AP/Evan Agostini)
A bankruptcy judge agreed that Kalikow had proved that Solow was the man behind the notices. The judge, according to the Times, said that even a man from Mars would conclude that the ads represented “an affront to the court” and a “somewhat sleazy course of conduct.” He ordered Solow to pay Kalikow’s expenses, and, according to the Times, “practically invited him to pursue claims against Mr. Solow’s law firm before ‘professional or legal tribunals that govern professional conduct.’ ”
At that time, Solow’s law firm was Dreier LLP, according to the Times. And here’s where Dreier and Kovachev come in: At the bottom of the ads was the name of a company, Evergence Capital Advisors, and a telephone number, the Times reported. An investigation revealed that Evergence was a dissolved Florida company that had been headed by Kosta Kovachev, but the phone number led to Dreier LLP. The ad reportedly generated 58 phone calls to Dreier’s firm, according to the Times. During a subsequent deposition, Dreier acknowledged that Kovachev was his client and that he had a second client involved in the case, Sheldon Solow, according to the Times. A lawyer for Kalikow, Stanley S. Arkin, criticized what he called Solow’s “irrational animus for [Kalikow],” but he reserved his sharpest jab for Dreier. “He was facilitating an angry and vicious assault on his client’s perceived enemy,” Arkin told the Times. A Solow spokesman declined to comment. Mr. Kovachev, who is expected to appear in court today, could not be reached for comment this morning.
Madoff Litigation Mounts: Largest Feeder Funds (and SEC) Get Sued
Posted by Dan Slater - December 23, 2008
If you put your ear to the ground you can almost hear it. Almost. The trickle of Madoff-related lawsuits is turning into a stream. Among the latest defendants: the two largest institutional investors in the Madoff fund — Tremont Group Holdings Inc., a hedge-fund owned by Massachusetts Mutual Life Insurance Co.; and Fairfield Greenwich Group, Walter Noel’s hedge-fund.
Investors Arthur E. Lange and Arthur C. Lange sued Tremont, its parent and its units for investing with Madoff and ignoring numerous “red flags,” according to Bloomberg. The Langes, in a complaint filed today in federal court in Manhattan, seek class-action status on behalf of other investors whom they say lost $3.1 billion. Here’s the Bloomberg report. And here’s another suit, filed by Hagens Berman’s David Nalven, on behalf of Richard Peshkin. Tremont “did not act as a reasonably prudent investor would have,” the complaint says, citing the fund’s decision to put “all of the class’s eggs in one basket.”
Bloomberg’s call to Tremont was not immediately returned. Massachusetts Mutual spokesman Jim Lacey didn’t have an immediate comment. Noel’s Greenwich Sentry fund and Fairfield Sentry fund invested $7.5 billion million with Madoff, jeopardizing investors’ interests while collecting “millions of dollars in fees,” the complaint, filed Dec. 19 in New York State Supreme Court, reportedly says. “FG defendants failed to perform even a minimum level of due diligence regarding the activities of Madoff,” the complaint says. Here’s the Bloomberg report. Noel and other defendants didn’t immediately return Bloomberg’s calls seeking comment. Fairfield Greenwich spokesman Thomas Mulligan declined to comment to Bloomberg.
Meanwhile, 61 year-old Phyllis Molchatsky, a New York woman who lost nearly $2 million investing with Madoff, is aiming her ire at the SEC. Molchatsky, reports the WSJ, sued the SEC for $1.7 million, alleging the agency was negligent in failing to detect the alleged fraud . The SEC’s “statutory purpose is to protect the public interest. We feel they fell down on the job in this instance,” said Howard Elisofon, a former SEC enforcement attorney and the lawyer representing Molchatsky. The SEC declined to comment. An administrative claim for relief, notes the Journal, is the first step in filing a lawsuit against the government. If the SEC doesn’t negotiate or respond to the claim within six months, the investor can file a lawsuit in federal court. “It’s an uphill battle to succeed with this,” Gregory Sisk, a law prof at the University of St. Thomas School of Law, told the WSJ. He said courts are reluctant to find that government agencies should act as insurance against any losses.