Three Card Monte Comes To Wall Street

May 3, 2013

You know, sometimes liquidity ain't all it's cracked up to be; and, sometimes, a rise in trading volume isn't necessarily a case of what you see is what you get.  For those of you who are all too accepting, be wary of the folks who set up Three Card Monte games on Wall Street.  For all the blur of hands and the back and forth of cards, the game is still rigged and many of the seemingly disinterested folks gathered around the dealer are actually confederates and look-outs.

According to federal prosecutors and a criminal Information, between January 2007 and May 2007, David Blech, 57, New York, NY had acquired significant holdings of  Pluristem Therapeutics, Inc. ("Pluristem"), which was traded on the OTC Bulletin Board ("OTCBB"). Blech held his Pluristem position in brokerage accounts under the names of other individuals and entities; however, Blech actually controlled these accounts, thus rendering them nominee accounts. 

In May 2007, Blech began selling a portion of his Pluristem holdings via a scheme designed to conceal his activity and hopefully avoid a diminution in the share price. In furtherance of that effort, Blech used the nominee accounts to mask his sales by having those accounts sell and buy Pluristem shares (often on the same day). Between approximately May 15, 2007 and September 14, 2007, the nominee accounts sold some 150 million shares of Pluristem, while buying some 100 million shares - the 50,000 net shares of sales constituted the position that Blech had hoped to dump on the market without disclosing his identity or intent. Using the nominee accounts' smokescreen of trading activity, Blech fostered the appearance of liquidity and activity in Pluristem, which helped to disguise his personal sales. 

In February and March 2008, Blech went back to the same bag of tricks with his sales of the OTCBB traded shares of Intellect Neurosciences, Inc. ("Intellect"), a position that he had acquired between 2005 and February 2008. In February and March 2008, Blech sold some 2 million shares of Intellect through the nominee accounts while having those same accounts buy about 1.6 million shares - again, the 400,000 shares net difference constituted the position that Blech had hoped to disguise through artificially raised levels of activity and liquidity. 

Following his May 2012 guilty plea to two counts of securities fraud, on May 2, 2013, Blech was sentenced in Manhattan federal court to four years in prison, three years of supervised release; and ordered to pay a $1,338,000 forfeiture and a $200 special assessment fee.

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