Marc Dreier Co-Conspirator Kosta Kovachev Pleads Guilty To Fraud Charges

Can any single person engage in a massive fraud all alone, without any help?  If today’s development in the Marc Dreier case is any indication, the answer is probably not. 

Kosta Kovachev, formerly a registered broker with the National Association of Securities Dealers, pleaded guilty earlier today to one count of conspiracy to commit securities and wire fraud and one count of wire fraud stemming from his participation with 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 story told by the criminal information previously filed against Kovachev, other documents filed in this case, and statements made during Kovachev’s plea proceeding is quite fascinating:
 
During 2006 and 2007, 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.