[ By Howard Haykin ] BELIEVE IT OR NOT, DAVID BLECH ONCE AGAIN IS GETTING INTO THE CROSS-HAIRS OF THE SEC. The SEC recently 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.  [C-I Note: Even without the headline, many financial veterans might have guessed the SEC is referring to D. Blech.] The SEC filed a civil lawsuit against Blech and his wife.  In a parallel action, the U.S. Attorney’s Office for the Southern District of New York filed criminal charges against Blech. SEC Findings And Allegations. David Blech allegedly established more than 50 brokerage accounts in the names of family members, friends, and even a private religious institution - which he then used to buy and sell significant amounts of stock in 2 biopharmaceutical companies. He did this 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 2 companies whose stock he manipulated - despite being barred by the SEC from acting as a broker-dealer.  [C-I Note: Hard to teach an old dog new tricks.] It's further alleged that Blech and 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. 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. The accounts allegedly were then used in deceptive activities, with Blech carrying 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. Prior Record. Blech is, what we call a "repeat-offender," having committed prior violations of the securities laws.  He pled guilty in 1998 to 2 counts of securities fraud and was sentenced to 5 years of probation.  In 2000, he settled a related SEC enforcement action, accepting a permanent bar from associating with any broker-dealer.

[C-I Note: Just one question: Did the B/D firms that opened the customer accounts used in this case by David Blech know who they were dealing with?  At any point in time, did Blech identify himself?  While Blech is entitled to open brokerage accounts and transact securities transactions, firms that are familiar with past - if they care to "do the right thing" - would likely subject his accounts to some sort of heightened supervision.  We'll did a little deeper and report what, if anything, we find.]

Charges and Sanctions Sought by Current SEC Complaint. The SEC 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. Both Blech and Chassman are charged 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 seeks to disgorge D. Blech and wife of their ill-gotten gains, collect prejudgment interest and financial penalties, and permanently enjoin both from future violations of the provisions of the federal securities laws they violated. The case is: SEC v. David Blech and Margaret Chassman, Civil Action No. 12-Civ-3703 (AJN). For further details, go to:  [Litigation Release 22363, 5/10/12].