SEC Charges New York Man With Manipulating Biopharmaceutical Stocks and Conducting Unregistered Sales of Securities
The Securities and Exchange Commission today charged a Manhattan resident with carrying out a complex market manipulation scheme in biopharmaceutical stocks after he was kicked out of the brokerage industry for fraud.
The SEC alleges that David Blech established more than 50 brokerage accounts in the names of family members, friends, and even a private religious institution. He used those accounts to buy and sell significant amounts of stock in two biopharmaceutical companies in order to create the artificial appearance of activity in their securities so he could maintain their market price and use it to his own financial advantage. Blech, who was previously convicted of securities fraud, also solicited investments for biopharmaceutical companies – including the two companies whose stock he manipulated – despite being barred by the SEC from acting as a broker-dealer.
The SEC further alleges that Blech and his wife Margaret Chassman, who also is charged in the case, flouted federal securities laws when they repeatedly made unregistered sales of securities and failed to disclose their transactions in the various brokerage accounts.
“Blech tried to rig the market in favor of his own investments and create a mirage of activity in the stocks of biopharmaceutical companies for which he was soliciting investors,” said George S. Canellos, Director of the SEC’s New York Regional Office. “But he seriously misjudged the SEC’s determination to ensure that the securities markets function fairly.”
Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the Market Abuse Unit, added, “Blech hoped to avoid scrutiny by devising a complex scheme using accounts ostensibly belonging to family members and friends to place highly manipulative trades through different broker-dealers. This enforcement action demonstrates the SEC’s ability to dissect such trades and lay bare their true economic substance.”
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Blech.
According to the SEC’s complaint filed in federal court in Manhattan, Blech engaged in his scheme at various points in 2007 and 2008, specifically manipulating the stocks of Pluristem Therapeutics Inc. and Intellect Neurosciences Inc. Blech first opened dozens of nominee accounts at several broker-dealers in the names of his wife, uncle, and sister-in law as well as a longtime friend and a company he controlled, and religious institution Central Yeshiva Beth Joseph that is managed by Blech’s cousin. Blech then used the accounts to engage in deceptive activities and carry out matched trades in Pluristem’s and Intellect’s stocks. Blech’s activity in these thinly-traded securities artificially inflated the stock price of both companies and created the false impression of a liquid market for each company. Blech then used the artificially inflated stock price to sell off his holdings of Pluristem and Intellect through the nominee accounts, and as collateral for a line of credit he established in his wife’s name.
According to the SEC’s complaint, Blech has committed prior violations of the securities laws. He pled guilty in 1998 to two counts of securities fraud and was sentenced to five years of probation. In 2000, he settled a related SEC enforcement action by accepting a permanent bar from associating with any broker-dealer.
The SEC’s complaint charges Blech with violating Section 17(a)(1) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c), and for acting as an unregistered broker-dealer in violation of Section 15(b)(6)(B) of the Exchange Act The complaint also charges Blech and Chassman with violating Sections 5(a) and 5(c) of the Securities Act and for failing to make filings required by Sections 13(d) and 16(a) of the Exchange Act.
The SEC’s complaint seeks a final judgment ordering Blech and Chassman to disgorge their ill-gotten gains plus prejudgment interest, pay financial penalties, and be permanently enjoined from future violations of the provisions of the federal securities laws they violated. The complaint seeks orders requiring Blech to comply with a prior SEC order barring him from association with a broker or dealer, and prohibiting him from various other stock activities.
The SEC’s investigation was conducted by Charles D. Riely and Amelia A. Cottrell – members of the SEC’s Market Abuse Unit in New York – and Shannon A. Keyes and Kathy Murdocco of the SEC’s New York Regional Office. The office’s broker-dealer examination team of Richard Heaphy, Michael McAuliffe, Simone Celio Jr., and Doreen Piccirillo provided assistance with the investigation.
The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.
The SEC’s investigation is continuing.