A Florida attorney for former D. Blech & Co. employees wascharged with obstructing a Securities and Exchange Commission(SEC) investigation by demanding $1.45 million from the target ofthe agency's probe in exchange for withholding subpoenaed tapes.

Lloyd Schwed, of West Palm Beach, Fla., was arrested in New Yorklast week in an FBI sting, which was set up after the subject of theSEC investigation informed the agency of the alleged shakedown.Schwed, free on bail, faces a maximum penalty of five years in jailand a $250,000 fine if convicted of the obstruction charge.

The government's informant was not named. He was identified as a"cooperating witness" who is the target of an SEC investigation thatbegan in October 1994.

The complaint against Schwed filed in U.S. District Court in NewYork identified him as a lawyer who "represents numerous formeremployees of the cooperating witness and his company" in arbitrationproceedings before the National Association of Securities Dealers(NASD).

Schwed is the attorney for 10 former employees of biotechnologyfinancier David Blech and his former New York investment firm, D.Blech & Co. The brokers, who worked in the company's Florida andAtlanta offices, filed complaints with the NASD in Washingtonseeking damages against Blech following the collapse of his companyin September 1994.

Reached Monday Blech would not acknowledge he was thegovernment informant. He referred calls to his lawyer, AndrewLevander, of New York. Levander could not be reached.

The federal prosecutors alleged Schwed, in order to get payment forabout $900,000 in NASD judgments won by four of his clients,offered in May 1996 to withhold tapes of the cooperating witnesssubpoenaed by the SEC in its probe.

According to the prosecutors, the tapes, which belonged to one ofSchwed's clients, recorded statements the government informant hadmade to his employees. Schwed allegedly described the tapes aspotentially "very damaging."

After three months of discussions, which were recorded by the FBI,the cooperating witness agreed to pay $1.25 million the week of Aug.5, 1996, in exchange for destruction of two tapes among eightcovered by the SEC subpoena. The $200,000 balance was to be paidin 30 days. The total $1.45 million payment was to cover the fourNASD judgments already received by Schwed's clients plus twopending cases.

Schwed, the federal prosecutors said, anticipated receiving"approximately one-third of the judgments" for his legal fees.

Last Wednesday the court complaint stated, Schwed met with thecooperating witness in his New York apartment and received acertified check for $1.25 million. Schwed then put six tapes in anenvelope to the SEC with a letter implying all the tapes wereproduced. The other two were to be destroyed after the envelope wasmailed.

Schwed was arrested at the post office by the FBI.

Schwed's office at Hertz, Schram & Saretsky in West Palm Beach,Fla., referred questions to the firm's Detroit headquarters. CallsMonday to the Detroit office were not returned.

During an NASD arbitration hearing in September 1995 for one ofhis clients, Schwed tried to introduce a tape of Blech speaking toemployees in a conference call broadcast to all Blech's offices. Thearbitration panel chairman refused to accept the tape as evidence.

In November 1995, after receiving the first two judgments for nearly$400,000 in the NASD arbitration proceedings, Schwed said the SEChad contacted him seeking information about Blech. (See BioWorldToday, Special News Bulletin, Nov. 3, 1995.)

Blech, once dubbed the nation's biggest seller of biotechnologystocks, was forced to shut down D. Blech & Co., Sept. 22, 1994, afterit suffered a liquidity crisis. He subsequently was the subject of atleast 21 NASD and court complaints.

Schwed's 10 clients were seeking a total of $22 million in damagesbased on allegations of fraud, breach of contract and abuses of publicsecurities markets. n

-- Charles Craig

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