Blech, Convicted of Fraud in 1998, Pleads Guilty in New Case

David Blech, who was convicted of investment fraud in 1998 and sentenced to probation, pleaded guilty to two new charges of manipulating stock prices.

Blech, 56, pleaded guilty today before Magistrate Judge Frank Maas in federal court in Manhattan. He was released on $500,000 bond. Maas set an Aug. 31 sentencing date.

The defendant bought and sold shares in two biotechnology companies, Pluristem Therapeutics Inc. (PSTI) and Intellect Neurosciences Inc. (ILNS), in 2007 and 2008 through his own account and those of friends and family, according to court papers. Prosecutors said the buying and selling of the stocks was “a fraudulent scheme to manipulate the market” by enticing other investors to purchase the securities and raise their prices.

The U.S. Securities and Exchange Commission today separately charged Blech and his wife, Margaret Chassman, with manipulating the biotech stocks.

“When I traded in Pluristem and Intellect by buying and selling during the same period, for the purpose of stabilizing the prices of the stock in those companies, I knew what I was doing was wrong, and violated the securities laws,” Blech said in his statement to the judge today.

Blech said he made the trades because he became heavily in debt and was “desperate for money in early 2008.” He said he lost money on both stocks.

‘Heavily Medicated’

The judge said he faces a maximum penalty of 40 years in prison. Blech’s lawyer, Roland Riopelle, said after the hearing that the government will likely seek a sentence of 41 to 51 months in prison.

“We’re going to advocate for something significantly less,” Riopelle said. “He himself lost money doing this. There is an argument to be made for him.”

Riopelle said Blech suffers from manic depression and is “heavily medicated.” The lawyer said Blech has six children, some of whom have psychological problems. Some of the money used to buy the stocks came from a trust fund for an autistic child, Riopelle said.

The judge also ordered him to seek help from Gamblers Anonymous.

In 1999, Blech was sentenced to five years’ probation for defrauding nine broker-dealers and Bear Stearns & Co., his firm’s clearing broker, of $16 million. Blech’s former firm, D. Blech & Co., underwrote biotechnology stocks. When prices fell, Bear Stearns demanded that he sell stock to pay his margin balance, according to court records. To prevent deflation in the stocks’ prices, Blech transferred shares to accounts he secretly controlled at other brokerages, according to the records.

The criminal case is U.S. v. Blech, 12-00372, U.S. District Court, Southern District of New York (Manhattan). The SEC case is Securities and Exchange Commission v. Blech, 12-3703, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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