And here's LPTH's undertaker in the news: "Morty's Legacy: Are indictments on the way at D.H. Blair? Over the course of more than three decades, D.H. Blair & Co. foisted hundreds of initial public offerings of small companies on the investing public,
marking up stock prices sharply and often leaving public investors high and
dry when the stocks subsequently collapsed. Two years ago, the firm shut
itself down, not long after paying a $2 million fine to the National Association
of Securities Dealers and agreeing to pay $2.3 million in restitution to bilked
investors.
As early as this week, another shoe could drop. An indictment of several of
the most senior executives of D.H. Blair is expected, thanks to the efforts of
Manhattan District Attorney Robert Morgenthau's office, say people close to
the situation. The move, these sources add, follows the breakdown of ongoing
negotiations between the District Attorney's office and Blair executives.
Though his name is closely identified with D.H. Blair, J. Morton Davis, who
joined the firm in 1961 and bought a majority stake seven years later, has
technically had no control over the retail business since 1992. That year he
gave the retail arm of the company to his family. Davis retained control of the
investment banking division, D.H. Blair Investment Banking, which continues
to operate today. Davis is not expected to be indicted.
When D.H. Blair ceased brokerage
operations, Kenton Wood served as
chairman and chief executive, and
Kalman Renov and Alan Stahler were
vice chairmen. Renov and Stahler are
Morton Davis' sons-in-law.
If the indictment -- for stock
manipulation -- occurs and the charges
are proven in court, executives could
face jail time, say those close to the
investigation. In addition, the Manhattan
D.A. is said to be pushing for a
restitution fund that people peg anywhere
from $30 million to $110 million. Attorneys for Davis, Wood, Renov, Stahler
and D.H. Blair's retail operations declined to comment, as did the Manhattan
D.A.'s office.
"It's been a long investigation, and people familiar with the way Blair operated
think it's about time it ended with indictments and conviction," says Max
Folkenflik, of Folkenflik & McGerity, which has a number of cases involving
former Blair retail clients pending against the firm. "Many investors lost
millions of dollars while the Blair insiders got rich."
The case against D.H. Blair may have gained momentum as a number of the
firm's former brokers landed in hot water in recent years. Perhaps the most
high profile case involved Andrew Bressman, a top-producing broker at D.H.
Blair before he and a group of former Blair brokers helped launch A.R. Baron
in 1992. Baron filed for bankruptcy in 1996. The following year Bressman
pled guilty to one count of enterprise corruption and one count of grand
larceny as part of the case brought against Baron and its executives by the
Manhattan District Attorney's office. Bressman also agreed to cooperate with
the D.A., and four years later he has yet to be sentenced.
Alfred Palagonia was also a star broker at Blair until early 1998. He was one
of 19 people indicted this past March by the U.S. Attorney in Brooklyn, who
claims he and others took part in a stock fraud scheme, linked to organized
crime, involving the manipulation of stocks between 1993 and 1996. The
20-count indictment includes charges of stock fraud, money laundering and
racketeering. If proven, those involved face potential prison terms and steep
fines. Palagonia's attorney declined comment.
A number of other junior brokers at Blair have also been snared by the
Manhattan D.A.'s office of late. Vincent Poliseno in February pled guilty to
securities fraud and attempted enterprise corruption in a case that was also
brought by Morgenthau's office. Poliseno admitted that in order to keep
prices of initial public offerings at artificially high levels, he and other brokers
used a variety of fraudulent sales techniques.
Similarly, Patrick Falco, another D.H. Blair broker, pled guilty in April to
attempted enterprise corruption and securities fraud for fraudulently selling
securities. And Jeffrey Berns, also a former Blair stockbroker, was charged
by the Manhattan D.A. in May 1999 with fraud, taking bribes and falsifying
records and lying to SEC investigators.
In his 1998 book, From Hard Knocks to Hot Stocks: How I Made a
Fortune Through Smart Investing and How You Can Too, Davis retailed
his rags-to-riches story and counseled investors to take great care in selecting
a stock broker. "I am constantly amazed at how few people check the
credentials of brokers," he wrote, with no apparent irony. Perhaps he should
have heeded his own advice, as these D.H. Blair alums are presumably
providing evidence against a legion of wrongdoers -- the top folks at Blair
included -- to save their own skins.
Many trips to the woodshed
If the indictment occurs and the D.A. can prove its case, it will be just one
more in a series of run-ins with the authorities for D.H. Blair. In 1997, the
New York Stock Exchange censured the company and fined it $250,000,
alleging it didn't take proper steps to prevent widespread broker misconduct.
Then came censure from the NASD and $4.3 million in fines and restitution
for allegedly charging excessive markups to retail investors. At the same time,
the NASD fined CEO Wood and head trader Vito Capotorto a combined
$525,000. Neither admitted nor denied wrongdoing. And in 1998, Blair
settled charges of abusive sales practices with state regulators and set up a
$2.25 million restitution fund.
Yet despite the various settlements and allegations over the past five years,
Morty Davis, a prominent fundraiser for religious charities, and his family
continue to actively conduct business. D.H. Blair Investment Banking now
arranges mergers and private placements, in which family members often are
large investors.
Consider that in July 1999 D.H. Blair Investment Banking arranged a $7.59
million private placement of five million shares of Worldwide Web Networx.
As a fee, the firm received $1 million and warrants. Among the 60 investors
listed as participating in the private placement are Kalman Renov, his wife and
children, and Esther Stahler, wife of Alan, as custodian for their children. The
firm subsequently did two more private placements for the company. The
shares have gone from 3 5/8 a year ago to 8 1/8 in January to 3/8 today --
not an uncommon arc for a Blair stock.
Then there's the merger between Margo Caribe and iTract. As of June 1,
Morty Davis, D.H. Blair Holdings and D.H. Blair Investment Banking held
9.8% of the shares of Margo, a Puerto Rican plant distributor. SEC filings
report that in December 1999 the chairman and chief executive of Margo was
approached by Alan Stahler about the possibility of Margo merging with an
early-stage Internet company. A deal was subsequently put together. The
stock has run from 2 1/2 in January to 35 5/8 when the merger was
announced on February 9 to a recent 8 1/8.
So, while the Davis clan may no longer be running a retail operation, they're
definitely not sitting on their hands as the bull market for stocks rolls on and
on.
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