PREET BHARARA, the United States Attorney for the Southern District of New York, announced that KOSTA KOVACHEV, formerly a registered broker with the National Association of Securities Dealers, pleaded guilty this morning to one count of conspiracy to commit securities and wire fraud and one count of wire fraud stemming from his participation with MARC DREIER in the sale of over $100 million dollars in fictitious promissory notes to various hedge funds, as part of a larger fraud perpetrated by DREIER.
MARC DREIER CO-CONSPIRATOR KOSTA KOVACHEV PLEADS GUILTY
TO FRAUD CHARGES IN MANHATTAN FEDERAL COURT
PREET BHARARA, the United States Attorney for the
Southern District of New York, announced that KOSTA KOVACHEV,
formerly a registered broker with the National Association of
Securities Dealers, pleaded guilty this morning to one count of
conspiracy to commit securities and wire fraud and one count of
wire fraud stemming from his participation with MARC DREIER in
the sale of over $100 million dollars in fictitious promissory
notes to various hedge funds, as part of a larger fraud
perpetrated by DREIER. The plea was entered in Manhattan federal
court before United States District Judge NAOMI REICE BUCHWALD.
According to the criminal Information previously filed
against KOVACHEV, other documents filed in this case, and
statements made during KOVACHEV’s plea proceeding:
During 2006 and 2007, MARC DREIER, the founder and
managing partner of the law firm Dreier LLP, sold to a New York
City hedge fund various promissory notes with a face value of
approximately $115 million. The notes were purportedly issued by
a New York City real estate development company (the
“Developer”). In September 2008, after the notes were not repaid
on time, an employee of the hedge fund asked to meet with
representatives of the Developer at the Developer’s offices.
DREIER agreed, and on October 15, 2008, when employees of the
hedge fund went to the Developer’s offices, DREIER brought them
into a conference room and introduced KOVACHEV, who pretended
that he worked in the finance department of the Developer and
falsely answered questions about the Developer’s finances.
That same month, KOVACHEV directly contacted the
founder of another hedge fund to tell him about notes that DREIER
had for sale. KOVACHEV thereafter introduced DREIER to employees
of that hedge fund, which ultimately purchased for $13.5 million
fictitious promissory notes purportedly issued by the Developer.
Also in October 2008, DREIER informed a third hedge
fund that it could buy the Developer’s notes at a discount. When
employees of the fund asked to speak with someone at the
Developer about financial statements DREIER had supplied, DREIER
arranged a conference call among himself, the hedge fund
employees, and KOVACHEV, who falsely pretended to be the
Developer’s CEO. During the call, KOVACHEV discussed the
financial statements, which were fictitious, and falsely answered
questions about the Developer’s finances. That third hedge fund
subsequently bought fictitious notes from DREIER for
approximately $100 million.
During October and November 2008, DREIER paid KOVACHEV
a total of approximately $215,000 for engaging in the
impersonations and assisting in the sale of fictitious promissory
notes.
KOVACHEV pleaded guilty today to Count One of the
Information, which charged him with conspiracy to commit
securities fraud and wire fraud, and to Count Three of the
Information, which charged him with wire fraud. He is scheduled
to be sentenced by Judge BUCHWALD on March 5, 2010, at 2:30 p.m.
Following a guilty plea, DREIER was sentenced in July
to 20 years in prison by Judge JED S. RAKOFF, and ordered to pay
$387,675,303.32 in restitution and to forfeit $746,460,000 in
proceeds of his offenses.
KOVACHEV, 58, faces a maximum sentence of 5 years in
prison on the conspiracy charge and a maximum sentence of 20
years in prison on the wire fraud charge. Each of those charges
also carries a maximum fine of $250,000 or twice the gross gain
or loss from the offense. KOVACHEV agreed as part of his plea to
forfeit the funds he received from DREIER as payment for his
fraudulent activities.
United States Attorney BHARARA stated: “Kosta Kovachev
flagrantly disregarded the law when he impersonated others to
induce purchases of fictitious notes. Unfortunately, Kovachev’s
play-acting caused millions of dollars of real losses to real
victims.”
Mr. BHARARA praised the work of the Criminal
Investigators of the United States Attorney’s Office and thanked
the United States Securities and Exchange Commission for its
assistance in the case.
Assistant United States Attorneys JONATHAN R. STREETER
and ANNA ARREOLA are in charge of the prosecution.
09-355
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