MANHATTAN (CN) – Former broker Kosta Kovachev is facing new charges of conspiring with attorney Marc Dreier to defraud hedge funds by selling them false promissory notes. Kovachev, 57, pleaded not guilty Wednesday to federal charges conspiracy, securities fraud and wire fraud, in a scheme allegedly involving as much as $700 million.
Kovachev originally was charged in December with one count of conspiracy to commit wire fraud. He faces up to 20 years in prison if convicted.
Prosecutors say Dreier paid Kovachev $215,000 for impersonating executives of real-estate development companies that Dreier claimed were selling the notes. The complaint states that Kovachev posed as the CEO and controller of a development company and answered questions about the fictitious financial statements.
Two hedge funds paid more than $113 million for notes after speaking with Kovachev, prosecutors said.
Dreier, founder and onetime managing partner of the law firm Dreier LLP, allegedly sold about $700 million in fake promissory notes and misappropriated client funds from his law firm. Prosecutors say he ran the scam from 2004 to 2008.
Kovachev appeared in court Wednesday and waived his right to be prosecuted by formal indictment. His next court appearance is scheduled for May 18.
Dreier is facing criminal and civil charges. The Securities and Exchange Commission filed a civil complaint in December and his assets have been frozen. Dreier LLP has filed for bankruptcy protection.