Biotechnology financier David Blech settled a civil lawsuit accusinghim of market manipulation related to the 1994 collapse of his NewYork brokerage firm by agreeing to pay CS First Boston Corp. nearly$540,000.
In the settlement, filed with the U.S. District Court in New York July10, 1996, Blech will pay $539,239 to CS First Boston, of New York,in return for dismissal of the securities firm's claims against him andan associate, Nicholas Madonia, of Madonia, Pilles & Co., ofGarfield, N.J. Court papers identified Madonia as administrator ofseveral trusts set up by Blech.
Blech's New York investment firm, D. Blech & Co., suffered aliquidity crisis and was forced to suspend operations in September1994 after its assets fell below the Securities and ExchangeCommission's minimum capital requirements. Following the collapsemany Blech-associated stocks plummeted.
CS First Boston, in its court complaint, said D. Blech & Co. wasunderwriter and lead market maker for more than fifty biotechnologycompanies. The firm, which also held large ownership positions insome stocks, developed financial problems prior to the collapse, inpart, because of a general decline in value of biotechnologysecurities.
CS First Boston alleged Blech devised a "parking" scheme to bolsterhis finances by working with Los Angeles money manager, StanleyBerk, to manipulate the market in Blech-associated stocks.
Berk placed orders for the securities with broker-dealers, includingCS First Boston, which purchased the stocks from D. Blech & Co.Blech's firm allegedly was to buy the stocks back from Berk at aguaranteed profit.
The plan, CS First Boston alleged, was designed to reduce D. Blech& Co.'s inventory of biotechnology stocks, boost the value of hisremaining holdings and strengthen the investment firm's cashposition.
However when D. Blech & Co. failed, it did not buy back the stocksfrom Berk and he could not cover the orders placed. Berk since hassettled with several broker-dealers, including CS First Boston, whichreceived $350,547.
In its complaint against Blech, CS First Boston said it was drawn intothe scheme when Berk placed orders for Ecogen Inc., of Langhorne,Pa. CS First Boston bought 650,000 shares of Ecogen for Berk atprices ranging between $5.68 and $6.06. Berk paid for only 100,000shares. CS First Boston said it lost more than $1 million as a result ofthe scheme.
Following D. Blech & Co.'s collapse, the firm and Blech were thetarget of at least 21 complaints filed with courts and the NationalAssociation of Securities Dealers. (For details about othersettlements, see BioWorld Today, Special News Bulletin, Nov. 3,1995.) n
-- Charles Craig
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