The New York Times by WILLIAM K. RASHBAUM and CHARLES V. BAGLI - January 3, 2009
He has no real address. He has no real job. His cellphone comes back to the Harvard Club and the address on his driver’s license is a defunct post office box in Florida. Yet last year he traveled to Qatar and Dubai and before that he visited Canada several times. He went to Switzerland in 2005 and Thailand in 2002. Born in Belgrade and educated at Columbia University and Harvard Business School, the Kosta S. Kovachev who stood before a magistrate judge in United States District Court in Manhattan last week appeared to be a man of contradictions. Prosecutors have suggested that Mr. Kovachev, a former stockbroker, served as something of an aide-de-camp to Marc S. Dreier, the New York lawyer whose Ponzi scheme collapsed last month, stunning the legal community and blowing multimillion-dollar holes in several prominent New York hedge funds.
Mr. Kovachev, 57, according to a criminal complaint and a description of him offered by an assistant United States attorney at his bail hearing last week, helped Mr. Dreier, 58, sell more than $200 million in phony promissory notes. The notes, which purported to represent debt issued by a Manhattan real estate developer, were sold at a steep discount. But they were not issued by the developers, and were in fact worthless. The complaint naming Mr. Kovachev, unsealed 16 days after Mr. Dreier was arrested on securities fraud charges, accuses him of helping the lawyer carry out a series of elaborate schemes; prosecutors have said Mr. Dreier’s crimes have led to losses of more than $380 million. The complaint says that Mr. Kovachev impersonated the developer’s controller in a meeting with a hedge fund manager who bought $115 million of the notes, that he contacted another hedge fund’s founder to tell him that Mr. Dreier had notes for sale, and that he impersonated the real estate firm’s chief executive on a conference call with an employee of a third hedge fund, which later bought $100 million worth of the notes.
In one instance, according to the complaint, the two men were recorded on security video inside the offices of the developer, Sheldon Solow, for whom Mr. Dreier had done legal work in the past. There, they appropriated a glass-walled conference room so, according to a criminal complaint, Mr. Kovachev could impersonate the developer’s chief financial officer. He did so to allay the concerns of a man to whom Mr. Dreier had already sold phony notes, but who was concerned after the notes were not repaid on time. Prosecutors have disclosed few details about the full extent of the relationship between Mr. Kovachev and the high-living Mr. Dreier, who headed a 250-lawyer firm and had homes in New York City, Long Island and Santa Monica, Calif., along with a $16 million yacht and half a dozen cars. But the men have known each other for nearly a decade, according to a deposition Mr. Dreier gave in an earlier, unrelated civil lawsuit, and people who know both men said they had been involved in business before.
Indeed, the complaint against Mr. Kovachev says that he had access to Mr. Dreier’s law firm, Dreier L.L.P. He had an electronic pass to let himself into the firm’s offices at 499 Park Avenue, he had access to its computers and he used various offices there. He appears to have regularly worked with Mr. Dreier, although the prosecutor who spoke at the bail hearing, Jonathan R. Streeter, indicated that Mr. Kovachev was not an employee of the firm. Mr. Kovachev’s lawyer, Andrew S. Rendeiro, acknowledged at the bail hearing last week that accusations leveled against his client were “substantial,” but said, “I certainly dispute some of the criminal allegations.” Mr. Rendeiro contended that the crimes alleged were committed almost entirely by Mr. Dreier. “It seems that the allegations fall into the lap of Mr. Dreier to 99.9 percent” degree, and an “extremely minor percentage to my client,” he said, and “whoever else is allegedly involved in this large-scale fraud.” (The prosecutor at the hearing indicated that there were others involved as well, noting that the investigation has shown that “Mr. Dreier has paid other people up to $100,000 to engage in one impersonation on a phone call.”)
During the hearing, Mr. Rendeiro told the magistrate judge, Frank Maas, that his client had traveled to the Middle East as part of an effort to seek capital and develop business, which he said has been Mr. Kovachev’s work for the past 20 to 30 years. In arguing for bail, Mr. Rendeiro seemed to suggest that his client, who he said had a grown son in the Navy from his first marriage and five other children from a second marriage, both of which ended in divorce, had fallen on hard times, and noted that he had an outstanding debt tied to child support. “So, your honor, under the circumstances, he’s not a man with financial ability right now,” he said. “He’s a man who may in the past, many, many years ago, had financial ability, but now he’s a man who doesn’t and is trying his best to make ends meet with a large number of obligations.” But Mr. Rendeiro offered nothing more at the hearing by way of explanation for Mr. Kovachev’s unusual circumstances — his lack of regular employment, permanent address or an explanation for why his cellphone bills were sent to the Harvard Club. Reached on Monday, he declined to comment further, saying only, “We deny the allegations.”
The son of two doctors who emigrated from Serbia in 1964 and had successful practices in New York City, Mr. Kovachev began his Wall Street career in 1987 when, according to regulatory filings, he joined Morgan Stanley. He left there after five years for a succession of smaller firms, each one less well known than the last, before voluntarily giving up his broker’s license in 2002. The next year, he was named in a civil case brought by the Securities and Exchange Commission that accused him and nine others of selling timeshares as part of a Ponzi scheme that defrauded at least 600 investors in 30 states out of more than $28 million. In 2006, Mr. Kovachev consented to a final judgment in the case, without admitting or denying wrongdoing, which ordered him to pay $358,146 in penalties and interest. His lawyer then was Mr. Dreier. In Mr. Kovachev’s current case, he is charged with a single count of conspiracy to commit wire fraud and, if convicted, faces a maximum sentence of five years in prison. Judge Maas ordered Mr. Kovachev held on $300,000 bail. Benjamin Weiser contributed reporting.