The following is a news I mentioned for your information.
Former Biotech Whiz David Blech, Scars And All, Resurfaces
Dow Jones News Service ~ February 20, 1997 ~ 12:50 pm EST
By Jesse Eisinger
NEW YORK (Dow Jones)--David Blech, whose name can cause toxic actions
among biotechnology investors, seems to be making a comeback.
The 1994 failure of the tarnished wizard's investment bank, D. Blech & Co., represents one of the defining casualties of the biotech bear market of the early 1990s. Sued, dogged by creditors and probed by regulators, Blech's star had collapsed.
Now, Blech is settling debts and investing in companies new, surprising Wall Streeters and raising questions about his investments.
''What a fearsome thought,'' said one biotech analyst who declined to be identified, when told of Blech's return.
Blech has rechristened his former registered broker dealer, D. Blech & Co., a ''financial advisory firm.'' He is the president, sole director and sole shareholder. He declined to speak on the record for this story.
Over the last two months Blech has made a series of investment moves in biotechs. A group of investors including Blech now owns about 1.04 million shares, or 8%, of Genemedicine Inc. (GMED), a gene therapy company based in The Woodlands, Texas, according to the most recent Securities and Exchange Commission filings.
While the money used to buy the Genemedicine stake is Blech's own, a separate purchase in another company was executed by a family trust that Blech ostensibly doesn't control. Nevertheless, Blech is exerting control over the company - even though he doesn't own the shares.
That investment, in troubled Xechem International Inc., (ZKEM) is raising questions, relating both to the trust's activities and the subsequent delisting of Xechem shares from Nasdaq's SmallCap Market.
Beginning in November, the Edward Blech Trust, named for David's son, started pouring money into Xechem International, buying a large interest cheaply. The investment eventually will total $5.5 million, of which about $2.2 million has been made, according to Leonard Mudry, vice president of finance for the New Brunswick, N.J., biotech firm. Upon completing the investment, Blech will control 75% of the company, said Mudry.
In delisting Xechem, Nasdaq was concerned about the dilutive effect of a recent vote by Xechem shareholders - largely Blech and President Ramesh Pandey - to raise the number of outstanding shares to 250 million from 18 million. Xechem is appealing the delisting.
''We were on the verge of closing our doors. From our perspective, David Blech has been good to Xechem,'' Mudry said. ''I know people don't like to hear that.''
Mudry's right. Since the collapse of his investment bank, Blech has been dunned by creditors and sued by former employees. He has made about $10 million worth of settlements with Wall Street firms that had accused him of stock manipulation, according to sources close to Blech. He has paid around $1 million to settle with former employees. Most of the cases have been settled, though one major class action suit is pending.
''This guy isn't O.J., but he's gotten away with a lot,'' said a former D. Blech & Co. broker, Donald Spongberg, who claims that Blech promised him commissions and warrants on D. Blech initial public offerings. He figures his warrants on Incyte Pharmaceuticals Inc. (INCY) alone could be worth $50,000 today.
Spongberg said: ''I fully intend to go after him at every level I can.''
(MORE) DOW JONES NEWS 02-20-97
12:49 PM
Blech Resurfaces -2-: Xechem Investment Raises Questions
Regulators apparently continue to be interested in Blech. In addition to the attention from Nasdaq over Xechem, the Securities and Exchange Commission and the U.S. Attorney's office are said to be investigating his activities. Xechem officials were aware of the two ongoing investigations through their own due diligence, Mudry said. Neither the SEC nor the U.S. Attorney's office would comment.
Though his reputation is damaged, Blech's legal record is clean. In his SEC filings, Blech is said to never have been convicted in any criminal or civil proceeding or subject to a judgment that led to him being barred from the securities industry.
It isn't clear whether the investigations include Blech's latest activities. But, the Xechem investment raises questions about the independence of the trustee of the Edward Blech Trust. Trustees often have power over the disposition of assets in trusts. While some states let them delegate that responsibility, trustees must continue to monitor the disposition of assets, experts said.
Rabbi Mordechai Jofen is the trustee of the Edward Blech Trust, according to a filing with the SEC. Blech does not control the disposition of the trust's assets directly. Jofen could not be reached for comment.
Arthur Tacopino, who currently works with Blech, said that the Xechem investment was made by the trustee of the Edward Blech Trust and that the ''trustee consulted Blech.''
''David has not invested any of his money in Xechem,'' Tacopino said.
A trustee's consulting a third party for advice is a complex legal issue, trust and estates lawyers said. It often can be legal. However, even if it's legal under state law or the trust agreement, the matter can still hinge on whether the trustee is acting responsibly in following the advice and whether the trustee is somehow obligated to follow it or not, experts said. People close to Blech said that the Trustee is ''very'' independent.
''If you have a third party who's not a shareholder controlling a company, wouldn't you want to know why?'' said David McCabe, a trust and estates specialist at New York law firm Willkie Farr & Gallagher.
After the collapse of D. Blech & Co., Blech gave control of sizable stakes in some small biotechs to Citibank as collateral for loans. Under a loan restructuring agreement with the bank, the shares were transferred to a limited liability company called Biotechnology Investment Group, to be managed by the Stamford, Conn., venture capital firm Collinson Howe Venture Partners. Biotechnology Investment
Group is worth $35 million to $40 million, according to sources close to the partnership.
Blech has no current association with Biotechnology Investment Group, according to Jeffrey Collinson, whose firm manages Biotechnology Investment Group. The Edward Blech Trust, Collinson Howe and the voting trustee for Citibank, Wilmington Trust Co., are the three members of Biotechnology Investment Group.
Biotechnology Investment has made distributions in excess of $10 million to its members, according to sources.
''BIG is separate from David,'' said Collinson. Biotechnology Investment Group interacts with the trustee of the Edward Blech Trust, he said.
According to SEC filings at the time, Blech ''retains no voting or dispositive power over the securities,'' in Biotechnology Investment Group, a condition that stands today, said Collinson.
There are two Blech family trusts, the Edward Blech Trust and Blech Family Trust. Additionally, Blech is the sole beneficiary of several other trusts.
=Blech Resurfaces -3: Settlement Suggests He Has Means
Earlier this month, Blech and related family trusts sold most of his stake in Interferon Sciences Inc. (IFSC), a battered New Brunswick, N.J., biotechnology concern. He still holds about 800,000 shares, according to Chief Executive Lawrence Gordon. Blech had pledged certain shares of Interferon Sciences as part of the Citibank settlement.
Blech has assets not pledged to Citibank of about $10 million, according to sources close to Blech.
A recent settlement with four Florida brokers suggests Blech has means. The brokers tried to force Blech to declare bankruptcy so they could recover $925,120 in judgments. The parties eventually settled in January, with Blech paying $740,000 to the four brokers, according to court papers.
According to the papers, Blech is ''ready, willing and able to pay all creditors'' and has ''no need or desire for bankruptcy.''
Blech also paid Credit Suisse First Boston Corp. $538,239 plus interest in July to settle a suit alleging that D. Blech manipulated the market in a stock it underwrote.
D. Blech & Co., the broker dealer, was part boutique, part bucket shop. The firm took risks by raising funds for early-stage biotech companies that other established firms wouldn't touch.
Early on, it seemed the young Blech could turn test tubes into gold. While still in his mid-20s in the early 1980s, he scored a huge success bringing a Seattle biotech called Genetic Systems public. Bristol-Meyers Squibb Co. (BMY) eventually bought the company, in which Blech had a large stake, for almost $300 million. In 1992, Blech made the Forbes 400 list of the country's wealthiest individuals,
weighing in at a total net worth of $295 million.
The biotech bear market undid Blech. Often his deals were structured so that his firm had to continue making investments in the companies in the secondary market to prop up the stocks. As biotechs inexorably slipped due to a series of failed drug trials at major biotech companies, D. Blech & Co. could no longer meet minimum-capital requirements.
Blech was forced to shutter his investment bank in September 1994. Josephthal Lyon & Ross Inc. bought Blech's customer accounts and hired some of his brokers. Citibank hit him up for repayment of loans and his stakes in small biotechs were transfered to Biotechnology Investment Group.
The collapse of D. Blech & Co. stranded dozens of tiny biotechs without their major market maker and chief benefactor. Many of the stocks plummeted and have yet to recover, though others, like Incyte Pharmaceuticals and Guilford Pharmaceuticals Inc. (GLFD), are highly successful.
In light of some of his companies' successes, Blech's reputation as an astute judge of science is undergoing a rehabilitation. Even as the debate over his scientific prowess is revisited, however, David Blech's investments continue to spur concerns.
-Michael Rapoport contributed to this story
(END) DOW JONES NEWS 02-20-97
1:41 PM |
