Ex-broker pleads not guilty to aiding indicted NY lawyer

By Grant McCool

NEW YORK (Reuters) - A former broker pleaded not guilty on Wednesday to charges of conspiring with prominent New York lawyer Marc Dreier to defraud hedge funds by selling them false promissory notes in a swindle involving as much as $700 million (482.6 billion pounds).

Prosecutors said in December that the former broker, Kosta Kovachev, posed as chief executive officer and controller of a New York real estate development company as part of the alleged scheme by Dreier to sell notes worth hundreds of millions of dollars, purportedly issued by the developer.

Kovachev, 57, pleaded not guilty to charges of conspiracy to commit securities fraud, wire fraud and securities fraud before U.S. Magistrate Judge Andrew Peck in Manhattan federal court. If convicted, he faces up to 20 years in prison.

Kovachev, formerly a registered broker with the National Association of Securities Dealers, was arrested in December and released on bail in January into house arrest, except for court appearances.

Dreier, who once ran a 250-member law firm Dreier LLP, is under house arrest on charges of running an investment fraud and money laundering from 2006 to his arrest on December 7 last year.

Prosecutors are seeking about $700 million in forfeiture from Dreier. The indictment of Dreier indicated that fraud victims were owed about $400 million.

In court on Wednesday, Kovachev's lawyer Paul Madden and U.S. prosecutor Jonathan Streeter told the judge that they were in discussions of a possible disposition of the case. The government has 30 days to either file additional charges against Kovachev, obtain a grand jury indictment or a guilty plea, which is typical at this stage of such cases.

"We are not committed to any course of action," Madden said in court.