Kosta Kovachev has pleaded guilty to helping disgraced New York lawyer and Ponzi scheme operator Marc Dreier, already sentenced to 20 years, defraud hedge funds by selling millions of dollars of fictitious debt, according to media reports.

Prosecutors said Mr Kovachev impersonated employees of New York City developer Solow Realty & Development as part of a scheme to sell more than $228 million of fake promissory notes to three hedge funds.

The case, along with the recent massive fraud story of Bernard Madoff, highlights how the credit crunch has seen a number of financial crimes come to light and demonstrates the importance of due diligence checks by investors.