This story, in slightly different form, originally appeared inthe New York Law Journal.

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NEW YORK CITY-A broker--who allegedly helped disgraced attorneyMarc Dreier market millions of dollars in bogus promissory notes tohedge funds--was arrested Monday night. According to a criminalcomplaint unsealed Tuesday in the Southern District, Kosta Kovachevposed as the comptroller of the real estate developer Solow Realtywhen Dreier attempted to sell a New York City hedge fund $115million in notes that purportedly were issued by Solow.

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Kovachev, 57, was charged with a single count of conspiracy tocommit wire fraud in violation of 18 U.S.C. §371. He was orderedheld at his initial appearance before Magistrate Judge Frank Maaslate Tuesday.

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Meanwhile yesterday, a panel of the Appellate Division, FirstDepartment, suspended Dreier from the practice of law, effectiveimmediately, "on the basis of uncontroverted evidence of seriousprofessional misconduct." There may be more charges to come in theDreier case, as the criminal complaint states that Kovachev joinedthe conspiracy with Dreier and "others known and unknown."

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In 2006 and 2007, Dreier allegedly sold to a New York City hedgefund promissory notes with a face value of $115 million purportedlyissued by Solow Realty. But in 2008, when the notes were not repaidin time, a hedge fund employee sought reassurance from Dreier andasked to meet with representatives of the developer at Solow'soffices.

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Dreier agreed and arranged a meeting at Solow for Oct. 15, 2008,without the knowledge of the real estate firm. At that meeting, thecriminal complaint alleges, Kovachev pretended to be Solow'scomptroller and answered questions about the company'sfinances.

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Later that month, Kovachev, this time as himself, contacted thefounder of another hedge fund for whom he had worked as a broker.Kovachev allegedly told the founder about the Solow notes and puthim in touch with Dreier, who then sold the fund a $25-million notefor the bargain price of $13 million.

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Finally, when an employee of a third hedge fund wanted to speakwith Solow's chief executive officer in connection with thepurchase of $100 million in notes, Kovachev got on the phone andimpersonated the executive. Federal officials said Solow wasuninvolved in any of the transactions.

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Dreier had access to the offices of Solow Realty because he haddone extensive legal work for the company. "The company neverauthorized Mr. Dreier to negotiate any financing or issue anypromissory notes on its behalf," a spokesman for Solow Realty saysin a statement.

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The spokesman adds, "As soon as the company learned thatfraudulent and forged instruments purporting to be obligations ofSolow Realty were circulating, the company reported the facts tothe US Attorney's office and we have been cooperating fully withthe investigation."

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In the criminal complaint against Kovachev--signed on Dec. 18 bySouthern District Magistrate Judge Theodore Katz, criminalinvestigator Jordan Goodman of the Southern District US Attorney'sOffice--said he interviewed Solow's chief executive, who assuredhim, "The developer did not issue any of the notes described aboveand has no note program."

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It was that same executive who told Goodman that the signaturesappearing on the notes were forgeries. Financial statementsprovided by Dreier to the hedge fund, Goodman said in thecomplaint, "were entirely fabricated." Kovachev, the investigatorsaid, had an electronic pass that gave him access to Dreier LLP andalso had access to computers and offices at the law firm.

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Kovachev lost his broker's license in 2006 when he wasimplicated in a $28-million Ponzi scheme in which he and 11 othersdefrauded some 600 investors through the sale of unregisteredsecurities structured as hotel timeshare rental interests. He wasnot criminally charged in the matter and denied any wrongdoing in asettlement with the Securities and Exchange Commission in which hepaid $358,148 in disgorgement and penalties.

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The New York Times reported in July 2004 that Dreier saidKovachev, then head of a dissolved Florida company called EvergenceCapital Partners, was a client of his law firm. In a disputebetween Solow Realty and developer Peter Kalikow, Solow and Dreierhired Evergence to place newspaper ads listing ex-creditors ofKalikow, the Times reported.

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Dreier was arrested on Dec. 2 in Toronto on an impersonationcharge and on Dec. 7 in Manhattan on securities and wire fraudcharges for what prosecutors now say is a $380-million fraud.

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He has remained in custody without bail as his 250-member firm,Dreier LLP, has imploded and gone into bankruptcy. What is left ofthe firm's assets and client escrow funds is in the custody ofreceiver Mark Pomerantz of Paul, Weiss, Rifkind, Wharton &Garrison, appointed by Judge Miriam Goldman Cedarbaum in a civilsuit against Mr. Dreier by the Securities and ExchangeCommission.

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According to defense attorney Gerald Shargel, Dreier iscooperating with Pomerantz in identifying and locating assets, aneffort Shargel says he hopes will reassure a judge that Dreier hasnot stashed assets abroad and can be trusted to be released pendingtrial or a plea.

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Mark Hamblett can be reached at[email protected].

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