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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Wednesday, May 9, 2012

SEC Charges Barred Broker with Manipulating Biopharm Stocks

David Blech was permanently barred from the securities industry in 2000 for fraud. But according to the SEC, that did not stop him from carrying out a complex market manipulation scheme in biopharmaceutical stocks. The SEC alleges that Blech established more than 50 brokerage accounts in the names of family members, friends, and even a private religious institution and used those accounts to buy and sell significant amounts of stock in two biopharmaceutical companies in order 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 also solicited investments for biopharmaceutical companies – including the two companies whose stock he manipulated.  

According to the SEC’s complaint, 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 a religious institution that is managed by Blech’s cousin. Blech then used the accounts to engage in deceptive activities and carry 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.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Blech.

The SEC’s complaint seeks a final judgment ordering Blech and his wife to disgorge their ill-gotten gains plus prejudgment interest, pay financial penalties, and be permanently enjoined from future violations of the provisions of the federal securities laws they violated. The complaint seeks orders requiring Blech to comply with a prior SEC order barring him from association with a broker or dealer, and prohibiting him from various other stock activities.

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