Unorthodox investments II
by Stacy Mosher
Posted 12:55 PM EST, Dec-19-2000
Like religion, playing the markets demands a kind of faith. Faith in the dogma of investment practice, in the possibility of redemption, even in the infallibility of the markets.
And faith in wise men, too. That's why the securities business, whose precepts can be as cryptic as the most opaque theology, is as replete with false prophets as the spiritual realm.
As Part One in our series outlined last week (see "Unorthodox Investments, Dec. 15), two such men - David Bodner and Murray Huberfeld - had the faith of many adherents in New York's Jewish community, especially among non-profit organizations investing money for their Orthodox and Hasidic congregants
But an examination of Bodner's and Huberfeld's careers raises question not only about their record as financial advisers, but also their claim to the trust of investors they represented.
Many of the investments that the Jewish non-profit organizations made along with the duo were distinctly speculative, compared with conservative practices of most non-profit organizations. Naturally, higher risk can also bring higher profits. So how did the organizations actually make out on their securities investments?
Many non-profit organizations are required to file Form 990 with the Internal Revenue Service, which disclose how much they gained or lost on their investments.
Information provided by The Jerusalem Fund for the years 1997-99 shows an overall gain of 2.5% on securities investments in companies recommended by Bodner and Huberfeld, referred to as Investment Group companies. That includes a loss of 51%, or $575,496, in 1998, and a profit of 46% in 1999. (Apart from equity losses in 1998, the Fund also saw a decrease in market value of property assets of nearly $2 million - half the purchase price, at a time when New York real estate was soaring.)
Information provided by non-profit Ohr Somayach for the years 1996-99 show an overall gain of 2%. That includes a loss of $127,009, or 1.86%, in 1998. The group's filings provide little detail on its securities trading apart from investment in funds. However, the 1997 filing shows that shares in an Investment Group company, International Nursing Services, purchased for $20,000 in 1996, had depreciated to a market value of $3,441.
Information provided by Ezer M'Zion, the Israeli medical charity, for 1996-99 shows an overall return of 27.5%. But that includes a loss of $213,504, or 15% in 1999. Returns steadily decreased from 67.65% in 1996 to 36% in 1997, and 7.2% in 1998.Most of Ezer M'Zion's investments have been in Investment Group companies.
The Jerusalem Fund and Ohr Somayach would have made more money in the past few years by keeping their funds in an ordinary savings account. While Ezer M'Zion has come out ahead over a four-year period, it had to deal with a substantial loss in 1999 when other investors were benefiting from the bull market.
Since yeshivas and other purely religious organizations are not obliged to file Form 990s, the results of their investments are not open to public inspection.
Moshe Toiv, who was CEO of Ezer M'Zion in 1998 and 1999, said he knew nothing about the organization's investments or who handled them. Attempts to contact people responsible for several of the other non-profits were unsuccessful.
SEC filings suggest that the Orthodox non-profits have been less active in Bodner/Huberfeld companies in 2000.
While it appears that the non-profits have received only a mixed benefit from their investments, what is less clear is how Bodner and Huberfeld may have benefited by involving the organizations in their investments.
The Jerusalem Fund of Aish HaTorah was established to curtail assimilation into secular U.S. society through promotion of Jewish self-worth. The organization's current president, Rabbi Irwin Katsof, is known as the "Rabbi to the stars" because of his high-profile networking among the rich and famous.
Aish HaTorah has been particularly active in promoting business relationships between the U.S. and Israel. It sponsored the largest high-tech conference in Israel's history in October 1999 as a means to "encourage Jewish pride." According to the Jerusalem Post, the conference generated $40 million dollars in investments.
The Jerusalem Fund co-sponsors one or more Israel missions each year honoring business figures and politicians for their contributions. The missions include banquets with the Israeli prime minister and other top officials.
Murray Huberfeld was chairman of the 1998 mission, the honorees of which included Jeffrey Citron, the CEO of Datek Online (founded by Aaron Elbogen, an old acquaintance of Huberfeld and Bodner), and Glenn S. Meyers, CEO of Rare Medium Inc., one of the companies in the Investment Group.
The chairman of another Investment Group company, Fusion Networks Holdings Inc., Hernando Bahamon, was one of the recipients of this year's Einstein Technology Award.
The publicity and the contacts are undoubtedly valuable to the honorees. But while the Fund receives some contributions and revenues in connection with the missions, it always suffers losses: $339,862 on the Jerusalem Mission for 1998 and a net loss of $93,728 on two Israel Missions in 1999. In effect, the Fund subsidized business networking opportunities for American and Israeli businessmen.
Bodner and Huberfeld have been lionized in the Jewish community for their charitable work. But then, so was David Schick before he admitted defrauding Jewish organizations and individuals of $80 million. During the 1990s, Schick convinced his victims to invest in "mortgage flip" deals, then pillaged the funds held in escrow.
But according to news reports, investigators suspected that Schick's Ponzi scheme was only part of a series of overlapping frauds.
In particular investigators found links between the Schick scam and the looting of funds from National Heritage Life Insurance Co.
According to Judy Hunt, an assistant district attorney in Florida who handled the National Heritage Life case, Schick testified for two weeks "on a wide range of matters" relating to the insurance scandal during a nine-month trial ending in November 1999.
Several people were convicted or pled guilty to stealing $400 million from the insurer, with an 845-year sentence imposed on Brooklyn-born businessman Sholam Weiss.
Apparently because of his assistance in the investigations, Schick has still not been sentenced. The Tampa and Brooklyn U.S. District Attorney's offices declined to comment on Schick's possible cooperation in other cases.
So how is David Schick connected with Bodner and Huberfeld? Apart from being registered as Broad Capital's legal agent when the company was formed in 1989, Schick turns up as chairman of Lakewood Trading Group, which in 1995 invested in two Investment Group companies along with Bodner and Huberfeld and some Orthodox non-profit organizations.
Lakewood Trading shares its Monsey, N.Y., address with Bodner, and with the Huberfeld-Bodner Family Foundation Inc., which is one of the vehicles used by the pair and their wives for investing in companies in the Investment Group. Lakewood Trading was dissolved in June 1996, shortly after Schick's arrest on May 22.
In addition, Schick and Murray and Philip Huberfeld (Murray's father) are principals of the Gotham Food Group Enterprises Inc., which trades as Kosher Delight, the operator of a chain of glatt fast-food restaurants in New York City.
Another principal of Broad, Seth Joseph Antine, was president of the Gotham Food Group from 1991 to 1993 and is still on record as manager of Kosher Delight.
Records also show a company named 1221 Avenue J Associates Inc. with a process address in care of Broad Capital Associates at an apartment in Trump Tower. The company owns an address on Avenue J, Brooklyn, also associated with Kosher Delight. 1221 Avenue J Associates was dissolved in September 1997.
Perhaps the most compelling connection relates to a case filed in the New York Supreme Court in Kings County in 1994 against brothers David and Moishe Bodner by a Brooklyn couple, Shlomo and Chana Rizel.
According to court documents, in 1988 and 1989 Moishe Bodner persuaded the Rizels to make a number of "safe and conservative" investments in rental properties through companies he controlled.
At first the Rizels received monthly checks relating to their investments, but sometime in 1991 the checks stopped arriving. Upon inquiring, the Rizels learned that the companies were now being handled by David Bodner, and that three of the four properties in which they had invested were being liquidated in bankruptcy proceedings. The Rizels' money in the meantime disappeared among the accounts of other Bodner-controlled companies.
Eventually the court made a default judgment against Moishe Bodner, and David Bodner settled with the Rizels in October 1997, a month before Schick's guilty plea. An examination of the records of the companies involved in the Rizel investments shows that almost all had Schick as their legal agent.
Repeated attempts to contact Bodner and Huberfeld regarding Schick and the investments of the non-profits met with no response.
Allegations of investment improprieties are nothing new to New York's Jewish community. Around the time Schick was confessing, Jewish publications began to reflect an uneasiness in the community about a willingness to tolerate criminal activity--charges were made of money laundering and embezzlement--in order to finance religious institutions, particularly the vast, financially strapped network of Orthodox Jewish academies.
Today, it's unlikely that anyone is profiting from the Investment Group companies today. Most are trading on the OCTBB or the pink sheets for pennies a share, with only three trading at over $1:
Divot Golf Corp. (now OrbitTravel.com Corp.)--$0.011; Western Power & Equipment Corp.-- $0.75; Mark Solutions Inc.--$0.1875; EA Industries Inc. --$0.002; Sensar Corp.--$1.25; Multimedia K.I.D. Inc.--$0.125; Messagemedia Inc.--$0.75; Emerging Vision Inc.--below $0.50; Imagematrix Corp.-- $0.001; Sedona Corp. --under $1; Vertex Computer Cabel & Products Inc.--$0.29; Medix Resources Inc. --under $1.25; Cels-Sci Corp.--$1.25; SA Telecommunications Inc. $0.01; Pacific Chemical Inc.--$0.001; Fusion Networks Holdings Inc.--$0.35; Marketing Services Group Inc.--under $1.50.
According to a source, Broad Capital has effectively ceased operations, but Bodner and Huberfeld have already made enough to retire as wealthy men. The question remains whether a new and irresistible deal will draw them back into their unorthodox investments.
Read part one of Unorthodox investments
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