During the time when David Blech's biotech investment empire wascrumbling, some of his brokers not only received rubber paychecks,but they also were left without even "the most basic tools" of thetrade, including telephones.Those are among the allegations contained in complaints filed withthe National Association of Securities Dealers' (NASD) arbitrationdivision by former brokers of D. Blech & Co.'s Boca Raton, Fla.offices.One of the brokers, Alan Siemens, said he was guaranteed $50,000 amonth for two years, but his "paycheck for the two weeks endingSept. 9, was dishonored retroactively" after Blech's firm was takenover by Josephthal Lyon & Ross, another New York investmentcompany. Josephthal Lyon & Ross purchased the accounts and salesforce of D. Blech & Co. on Sept. 23.Siemens, who began working in Blech's Boca Raton office inFebruary, said that in addition to not getting paid, he no longer hadaccess to "the most basic tools of any stockbroker, including anadequate phone system, a Quotron, a computer and trustworthymanagement."Siemens is one of eight former brokers in the Boca Raton office whofiled complaints with NASD accusing Blech of fraud, breach ofcontract and abuses of public securities markets. The brokers arerepresented by Lloyd Schwed, a West Palm Beach, Fla., lawyer. Thefirst was filed in July and the most recent in late September.A spokesman for NASD refused to comment Friday on theallegations.Neither Blech nor his attorney, Richard Haftel in New York, couldbe reached for comment. In an answer filed with NASD to onecomplaint, Blech denied all allegations.The complaints stated that in late 1993 Blech decided to expand hisNew York investment firm to Boca Raton, Atlanta, Boston and SanFrancisco.The former brokers in the Boca Raton office said they were luredaway from successful careers with other Wall Street firms byguaranteed contracts ranging from $1.2 million to $228,000. Theyalso alleged they were told that D. Blech & Co. would offer allproducts available in major brokerage firms and they were assuredthey "would not be required to sell Blech's biotech stocks."Instead, according to the former brokers' complaints, once they wereon board with Blech he revealed "his hidden agenda," which theydescribed as a plan "to prop-up the prices of Blech's biotech stocks."In their complaints, the former Blech brokers said: "The guidingprinciple in all major brokerage firms is to act in the best interests ofthe client. At D. Blech & Co., there was a different guiding principle;superficially support prices of Mr. Blech's stocks."`Sleazy Boiler Room Operation'They described Blech's firm as "a sleazy boiler room operation" andsaid, "Without exception, newly hired brokers were ordered by Mr.Blech and his senior management to persuade their clients to buy Mr.Blech's new issues, but there was a prohibition against advising theclients to sell those stocks if they increased in price."On some occasion," the complaints continued, "the firm refused toaccept any solicited or unsolicited sales order of Mr. Blech's biotechstocks."The reason: Mr. Blech was profiting from the rise of his biotechstocks and did not want the prices to go down. He needed tosuperficially support and manipulate the prices, and to guaranteetheir success."The complaints stated that in April "the Blech biotech stocksdropped in value. Mr. Blech, in a telephone conference call with allbrokers at the firm, advised the brokers that notwithstanding theircontracts, they should `go home and figure out what you can liveon.'"Former broker Kenneth Grauer said in his complaint that when he"finally acceded to the demands and intense pressure" to sell Blech'sbiotech stocks, he "placed a ticket for a client to purchase a biotechstock called Cambridge." (The company's complete name was notnoted in the complaint.)Grauer said, "The stock price dropped dramatically and his client lostover $8,000 in a few days." To make up for the Cambridge loss,Blech gave Grauer "5,000 shares of Hemasure to transfer to hisclient's account." But, Grauer said, "The Hemasure stock did not riseand [he] lost a valuable client."Blech's response denying the allegations against him was made in ananswer filed with NASD to Grauer's complaint. Grauer left D. Blech& Co. on May 31. In a counterclaim, Blech alleged Grauer failed toperform his duties and quit.No hearings have been scheduled by the NASD's panel ofarbitrators.The brokers are seeking millions of dollars in compensatory andpunitive damages as well as a request that NASD refer theallegations to its enforcement division and the Securities andExchange Commission (SEC).Guaranteed Minimum DrawsSchwed described Blech's alleged practices as highly unusual. Hesaid no other Wall Street investment firms offer brokers "guaranteedminimum draws," adding that such contracts were the only wayBlech could get Schwed's clients to leave their other firms.Schwed said he expects the first hearings in the case to be scheduledin the first or second quarter of 1995. Monetary claims of Grauer andSiemens alone total nearly $5 million.The former brokers' complaints are the latest in what is becoming amounting legal crisis for Blech, who founded his investment firm in1990 and was touted as the financial "white knight" of biotechnologystartup companies.Following his collapse in September, about 12 Blech-associatedstocks nose-dived and have yet to recover. Blech also has been suedin federal court by Gruntal & Co., a New York brokerage firm. Andthe Wall Street Journal has reported the SEC is investigating Blech'spractices. However the SEC has not confirmed the probe.n
-- Charles Craig
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