By Randall Osborne
David Blech, the biotechnology financier whose investment exploits got him indicted last year for securities fraud, succeeded in his second try at pleading guilty to a pair of federal charges against him.
He pleaded guilty last May, but U.S. District Court Judge Kevin Thomas Duffy refused to immediately accept the plea, after learning Blech was taking medication for manic-depressive episodes. Duffy said he wanted to know more about Blech's mental state.
Blech was charged a year ago with scheming to defraud Bear Sterns & Co., which provided clearing services for securities transactions made by Blech's crumbling brokerage firm, D. Blech & Co., of New York.
Information filed by federal prosecutors said Blech in 1994 made sham transactions to "create the appearance that D. Blech & Co. had engaged in bona fide sales of securities that helped reduce its outstanding margin credit to Bear Stearns."
He also allegedly defrauded his own customers by executing unauthorized purchases.
Blech's brokerage firm, once a well-known underwriter for smaller biotech firms, folded in 1994.
More recently, according to prosecutors, Blech made major stock purchases in three companies — Gene-Medicine Inc., of The Woodlands, Texas; Escalon Medical Corp., of Wayne, Pa.; and Homecom Communications Inc., of Atlanta — without having enough assets to pay for them. The purchases allegedly occurred in November 1997.
Brokers lost about $3 million as a result of Blech's failure to back them up, the prosecutors said.
On Tuesday, Duffy accepted Blech's plea and set sentencing for Sept. 15. On each count, Blech faces up to 10 years in prison, and the greater of a $1 million fine or twice the gain or loss resulting from the crime.
He also could be ordered to pay restitution, said Marvin Smilon, spokesmain for the U.S. Attorney's office, in New York.
As part of his bail, Blech was ordered to have no dealings in securities, shut down any offices in which he had managerial control, and submit to prosecutors "a detailed list of all assets under his control, or in which he or any member of his family has any financial interest."
Smilon said prosecutors had no further comment on the case. Blech's attorney, Andrew Levander, did not return phone calls, and Blech could not be reached.
The notorious Blech case included civil court actions as well and complaints by former employees filed with the National Association of Securities Dealers (NASD).
Lloyd Schwed, an attorney in Florida for some of the Blech brokers, ended up facing criminal charges himself, after he promised the unnamed target of an ongoing probe by the Securities and Exchange Commission (SEC) that he would withhold damaging tapes from the SEC in exchange for $1.45 million. (See BioWorld Today, March 3, 1997, p. 1.)
Instead of paying off Schwed, the probe's target revealed Schwed's shakedown attempt. In 1995, Schwed told BioWorld Today, the SEC was looking into Blech's dealings and requested information from the NASD hearings involving Schwed's clients. (See BioWorld Today, Special News Bulletin, Nov. 3, 1995, and BioWorld Today, Aug. 13, 1996, p. 1.) *