SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16877 / January 31, 2001
Securities and Exchange Commission v. Ari Parnes, ADAR Equities, LLC, Shauel Seitler, Jacob Herman, Yezhak Dov Knoll, and Myron Raisman, 01 Civ. 0763 (LLS) (S.D.N.Y.)
COMMISSION CHARGES FORMER DATEK BROKER AND FOUR OTHERS WITH FRAUDULENT MANIPULATION SCHEME AND UNREGISTERED SALES OF IMMUNOGEN SECURITIES
SEC Also Charges Two Men in Second Fraud Involving Purchases of Bank IPO Shares
The Securities and Exchange Commission today filed a complaint in the U.S. District Court for the Southern District of New York against former Datek Securities broker Yezhak Dov Knoll, age 45, and four others - Ari Parnes, 39, his company ADAR Equities, LLC, and two ADAR employees, Shauel Seitler, 28, and Jacob Herman, 39 - for participating in a multi-million dollar fraud involving the unregistered sale of ImmunoGen, Inc. convertible debentures and common stock in 1995. Parnes, Herman and Knoll live in Brooklyn and Seitler lives in Monsey, New York. Neither Datek nor ImmunoGen, a Nasdaq-listed biopharmaceutical company based in Cambridge, Massachusetts, is charged with any wrongdoing.
The Commission's complaint makes the following allegations:
The ImmunoGen scheme had three components: First, Parnes, the principal architect of the scheme, and the other ADAR defendants arranged for ImmunoGen to issue $3.6 million of convertible debentures under Regulation S, which provides a safe harbor from the registration requirements of the Securities Act of 1933 for offers and sales of securities deemed to occur outside the United States. The debentures were nominally bought by five Panamanian companies with a post office box in Switzerland, but they were held by an attorney of Parnes's in New York and never left the United States.
Second, the ADAR defendants illegally sold short approximately 1.7 million shares of ImmunoGen in the U.S. market and used a variety of other manipulative techniques, including pre-arranged trading, "marking the close," and "piling on," to drive ImmunoGen's stock price down. These trades were executed by Datek broker Knoll, who also executed illegal short sales in several of his own family's accounts. The short sales were illegal because, among other reasons, the defendants did not deliver much of the ImmunoGen stock they sold short for many weeks, and Knoll's firm Datek failed to buy or borrow ImmunoGen stock to cover the short sales.
Third, the ADAR defendants converted the Reg. S debentures into Immunogen common stock at a 25 percent discount to the market price - which they had artificially depressed - and then used the stock to cover their short positions. By doing so they illegally distributed the securities in the United States and produced millions of dollars of illegal profits.
The ADAR defendants are further charged with participating in fourteen private placements of the securities of eleven issuers other than ImmunoGen. In each of these transactions, the ADAR defendants illegally acted as securities brokers without registering with the SEC. They received placement fees totaling $1,087,218.50.
For their roles in the ImmunoGen fraud and the other private placements, the Commission's lawsuit charges Parnes, ADAR, Seitler, and Herman with violating Sections 7(f), 10(b) and 15(a) of the Securities Exchange Act of 1934, Rule 10b-5, and Sections 5 and 17(a) of the Securities Act. Knoll is charged with violating Section 10(b) of the Exchange Act, Rule 10b-5, and Sections 5 and 17(a) of the Securities Act for his participation in the ImmunoGen fraud.
The Commission's complaint also alleges that Parnes engaged in a second fraudulent scheme involving the illegal purchase of subscription rights to the initial public offerings of two banks, BostonFed Bancorp and Roslyn Bancorp. Myron Raisman, a 66-year-old attorney in Smithtown, New York, is charged with participating with Parnes in the Roslyn Bancorp fraud. By law, Parnes and Raisman were not permitted to participate in the IPOs because they were not depositors of the banks. According to the Commission's complaint, they secretly funded several depositors' stock purchases, and caused the depositors to submit to the banks subscription documents that falsely and misleadingly represented that the depositors were the true purchasers of the stock and had not transferred their subscription rights. For this conduct both men are charged with violating Section 10(b) of the Exchange Act and Rule 10b-5.
The Commission is seeking from each defendant a permanent injunction, an accounting, disgorgement of ill-gotten gains plus prejudgment interest, and civil money penalties.