SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17354 / February 6, 2002
U.S. DISTRICT COURT ENJOINS TWO TRADERS FROM FUTURE VIOLATIONS OF THE FEDERAL SECURITIES LAWS AND COMMISSION SUSPENDS THEM FROM ASSOCIATION WITH BROKERS OR DEALERS IN CONNECTION WITH MANIPULATION OF BIOTECH SECURITIES
Securities and Exchange Commission v. David Blech, Alefheim Prodani and Richard Silverman, C.A. No. 99 Civ. 4770 (S.D.N.Y.)
The Commission announced that on January 31, 2002, the United States District Court for the Southern District of New York entered judgments against Richard Silverman, the former head trader at D. Blech & Co., and Alefheim Prodani, a trader at Baird Patrick & Co., Inc. ("Baird Patrick") in SEC v. David Blech, 99 Civ. 4770 (RWS). The judgments enjoin both Silverman and Prodani from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The judgment requires Silverman to pay a civil penalty of $20,000, and the judgment requires Prodani to pay $35,000 in disgorgement and prejudgment interest, and a $15,000 penalty.
In related administrative proceedings instituted February 6, 2002, the Commission suspended Silverman from associating with a broker or dealer for a period of six months and suspended Prodani from associating with a broker or dealer for a period of nine months.
Both Silverman and Prodani consented to the entry of the judgments and the suspensions without admitting or denying the allegations made by the Commission.
In the injunctive action, the Commission alleged the following:
From approximately June through September 1994, David Blech, the chief executive officer of D. Blech & Co., Inc., orchestrated a massive manipulative scheme designed to increase or stabilize the prices of a number of the biotechnology securities for which D. Blech & Co. was a market maker. Silverman, the head trader at D. Blech & Co., and Prodani, a trader at another broker-dealer, participated in this scheme. As part of this scheme, David Blech routinely sold biotechnology stocks from D. Blech & Co.'s inventory accounts to brokerage accounts that Blech controlled that were in the names of other individuals and entities. These controlled accounts then sold the biotechnology stocks back to the brokerage firm or to other accounts controlled by David Blech. These trades created the appearance of active trading in the biotechnology stocks. Additionally, through this trading, Blech was able to reduce D. Blech & Co.'s inventory position in the biotechnology stocks, yet still artificially withhold from the market the supply of the biotechnology stocks.
Silverman personally executed manipulative trades at David Blech's direction and supervised other traders at D. Blech & Co. who executed manipulative trades. For instance, Silverman executed unauthorized transactions in customer accounts, including wash sales and matched orders, and parked securities in various customer accounts. Prodani also executed numerous manipulative trades in firm accounts and customer accounts maintained at the broker-dealer, including wash sales and matched orders. Additionally, Prodani, who was the registered representative for various customer accounts at the broker-dealer, executed purchases and sales in those accounts at David Blech's direction without consulting the account holders.