Unorthodox investments
by Stacy Mosher
Posted 10:36 AM EST, Dec-19-2000
In an investment climate fraught with peril even for experienced investors, it's hardly surprising that many ordinary investors seek the guidance of experts. But what if the expert turns out to be less than trustworthy? And what if the investments turn out not much better than if you'd thrown darts at the newspaper stock tables?
These are some of the questions now facing some members of New York's Jewish community, in particular the culturally insular community concentrated in Brooklyn's Borough Park. The Borough Park Jews, most belonging to ultra-orthodox groups such as the Hasidim, prefer to deal with their own. But this very insularity often provides a perfect environment for so-called affinity fraud, in which vulnerable people are exploited by members of their own group.
The question now is whether this happened at the hands of two businessmen in New York's Jewish community, David Bodner and Murray Huberfeld, who have guided--by example, if not directly--investments for a number of Jewish non-profit organizations.
Among these groups is the Jerusalem Fund, whose head, Rabbi Irwin Katsof, once described the duo as "among the top philanthropists in the Jewish world."
But this endorsement runs counter to the mounting suspicions of federal regulators, who have expressed reservations about Bodner and Huberfeld's integrity. Of course, a history of sharp practice may merely indicate the kind of market expertise useful in navigating high-risk investment that can lead to higher profits.
Yet, available information shows that the Orthodox non-profits that invested in companies along with Bodner and Huberfeld often lost money on their securities investments.
Of perhaps greater concern are Bodner and Huberfeld's business connections with David Schick, a lawyer and businessman who in November 1997 pleaded guilty to a massive real estate Ponzi scheme that defrauded a large number of mostly Orthodox individuals and organizations in the United States, Europe and Israel to the tune of $80 million. Schick was the first legal agent for Broad Capital Associates Inc., an investment company owned by Bodner and Huberfeld.
The Jerusalem Fund and other Orthodox non-profits began making their investments in the Bodner/Huberfeld companies during the mid- and late-1990s, an era in which a number of Orthodox organizations were found to have been the victims of, or participants in, investment schemes involving money laundering, fraud and other crimes.
The Schick association raises the question: Were dud investments the result of honest mistakes or part of another sophisticated rip-off?
Neither Bodner or Huberfeld would return repeated phone calls on these matters.
Securities and Exchange Commission filings indicate that at least eight Jewish non-profit organizations have invested in at least 17 different companies in tandem with Bodner and Huberfeld. The investments are sometimes in the names of Bodner and Huberfeld, sometimes in the names of their wives and sometimes in the names of companies described in SEC filings as being controlled by their wives. Another frequent co-investor with the charities is Seth Joseph Antine, a principal of Broad Capital. Bodner and Antine also are officers of one of the non-profits, an Israeli medical charity, Ezer M'Zion Inc.
Typically, four to six of the non-profit organizations have invested in each of the companies with these investors in common, along with the Broad Capital principals. (For the sake of clarity, these companies will hereafter be referred to as the Investment Group.)
Investments usually are made as part of private placements or convertible debentures, and frequently occur at key stages in a company's development, such as just before a merger.
Bodner and Huberfeld have been particularly active investors in companies involved in reverse mergers, in which a dormant public company buys up an active private company, taking on the private company's name and operations. Typically, the shareholders of the private company become majority shareholders in the newly revived public company and benefit from the almost inevitable ramp-up in share price the public company enjoys around the time of the merger. When shareholders sell off their shares to take profit, the price in the reverse-merged company usually drops precipitously.
Late last year, Bodner and Huberfeld became involved in three reverse mergers involving dormant public companies in the U.S. combining with private Israeli technology firms. The Jerusalem Fund was noted in press reports as an enthusiastic investor in all three firms, and records show that other Orthodox non-profits were also among the investors.
But one of the mergers has already fallen by the wayside because of regulators' concerns. Last week technology holding company Sensar Corp., cancelled its planned merger with Net2Wireless Corp. after failing to placate Nasdaq's concerns regarding prior regulatory proceedings against the Israeli company's two largest shareholders.
According to SEC filings, the two largest shareholders of Net2Wireless, apart from the founder, are companies controlled by the wives of Bodner and Huberfeld. Nasdaq expressed "serious concern" that these shareholders, along with certain other Net2Wireless stock and warrant holders, would be able to manipulate Sensar's share price.
Nasdaq insisted that the two shareholders would have to sell their stock, failing which, Sensar would be delisted after the merger. "I've never seen them [Nasdaq] this harsh," Sensar Chairman and CEO Howard Landa said. "I was shocked at their attitude." Shares in Salt Lake City-based Sensar, which soared to $67.44 in March, are now trading around $1.50.
In July, the Nasdaq Listing Qualifications Department sent a letter to another of the public companies, Western Power & Equipment Corp., requesting further information on its planned merger with e-Mobile Inc., including details on the involvement of, among others, the Bodners and Huberfelds, Katsof, and the Jerusalem Fund. The merger has not yet been consummated.
Earlier this year, Huberfeld and Bodner were shareholders in a company called MainStreetIPO.com, formed to circumvent use of an underwriter in an IPO by auctioning off shares directly over the Internet. The main shareholder of the company was Joseph Salvani, described in a 1998 Forbes article as a "master tout" who manipulated the market through stock promotion.
MainStreetIPO was supposed to go public this year through a reverse merger with Nasdaq-listed Dialysis Corporation of America, but in August Dialysis announced the merger was off because of MainStreet's inability to satisfy "certain regulatory issues" raised by the SEC.
Although Bodner and Huberfeld were not named in the Sensar or MainStreet notices, there is no question that they have faced regulatory problems and shareholder disgruntlement in the past.
Salvani was involved in Bodner and Huberfeld's most recent controversy, which involved an Investment Group company. In 1999 the former president of Tampa, Fla.-based Divot Golf Corp. (formerly known as Brassie Golf Corp.) filed a lawsuit accusing Salvani, Huberfeld, Bodner and former company CEO Joseph Cellura of manipulating the company's stock price in 1997 to maximize the returns on a loan made to Divot in return for convertible debt, common stock and warrants. The case was settled out of court.
In 1998, the SEC charged Broad Capital, Huberfeld and Bodner with trading violations relating to Incomnet Inc. and required disgorgement of profits and interest totaling nearly $4.7 million plus civil penalties. A group of Minnesota investors also sued Huberfeld and Bodner for helping to artificially inflate the Incomnet stock.
In 1996 the SEC charged Broad Capital and Huberfeld with unregistered trading of shares in a Canadian company, Wye Resources Inc. Broad Capital and Huberfeld were ordered to return profits and interest totaling $426,780.
And in 1990 Bodner and Huberfeld were charged along with five others on allegations that two men, including Bodner's brother, Moishe Bodner, took the NASD broker qualifying exam for David Bodner, Huberfeld and two others. The case was dismissed against all seven men.
One of the other defendants, Aaron Elbogen, has also turned up as an investor in the Investment Group companies through an organization called the Ace Foundation. Elbogen, a community activist in Borough Park, was founder of Datek Securities, where some of the defendants in the 1990 case were employed. He now heads Heartland Securities Corp., the successor to Datek Online Corp.'s trading operation.
In addition, records show that Elbogen was associated with The Israel Trading Fund, a small firm no longer in operation that shared Datek's Broad Street, New York, office and that also invested in one of the Investment Group companies in 1998.
A civil case in 1999 alleged that Datek Securities committed securities fraud by manipulating the stock price of Fortune Petroleum Corp. to the benefit of The Israel Trading Fund and six foreign investors who resold their shares through a Datek account. According to his NASD filings, Moishe Bodner was associated with a rabbinical academy in Brooklyn, Mesivta Rabbi Chaim Berlin, from 1984 to 1994. In June 1994 the Mesivta purchased 18,000 shares in an Investment Group company, EA Industries Inc.
In 1995, he was employed at a company called American Third Market Corp, one of several companies operated by Israel A. Englander, a member of the American Stock Exchange, whose company Millenco also has invested in a number of companies in the Investment Group.
The second part of this report will examine how these non-profit groups fared in investments made with this circle of businessmen.
Read part two of Unorthodox investments
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