D.H. Blair Brokerage Indicted
NEW YORK (AP) _ A stock brokerage and 15 of its officers and employees have been indicted on charges of enterprise corruption for using numerous schemes to defraud investors of tens of millions of dollars.
Manhattan District Attorney Robert Morgenthau said Thursday that D.H. Blair & Co., a target of several probes over the past 30 years, stole client lists from other firms, manipulated stock prices, and cheated customers.
Morgenthau said the Blair employees manipulated the stock prices of at least 10 initial public offerings to keep them artificially high.
The brokers are accused of lying or omitting facts about the stocks, making unreasonable price and profit predictions, and revealing _ or suggesting they had _ valuable insider information, when trying to sell the stocks to customers.
Some of Blair’s customers came from client lists that had been stolen from Solomon Smith Barney, Morgenthau said.
Of the 15 defendants arraigned Thursday, State Supreme Court Justice Bernard Fried released 13 on bonds ranging from $250,000 to $1 million. He jailed the other two until Friday so their fingerprints could be checked.
Blair’s lawyers, Andrew Lawler and Theodore Wells, issued a statement:
``D.H. Blair & Co. and its executives are innocent of these charges, absolutely deny that they engaged in any criminal activity whatsoever, and anticipate their ultimate vindication.″
``The indictment is based on novel theories of securities law which we believe cannot be the basis for criminal charges,″ the statement said.
The 173-count indictment calls Blair a ``criminal enterprise″ that bilked its customers for almost 10 years, from 1989 through 1998, when the firm went out of the brokerage business.
One customer was a 70-year-old Florida resident who was a retired New York Philharmonic trumpet player. He lost about $250,000 after he was given false price guarantees and subjected to high-pressure sales tactics.
A Brooklyn tugboat pilot lost $45,000 she had saved to buy a house. While she was at sea, Morgenthau said, brokers made unauthorized trades in her account.
In August 1997, the regulatory division of the National Association of Securities Dealers imposed a $2 million fine on Blair for allegedly fraudulent activity _ one of the biggest penalties ever resulting from the group’s market enforcement activities. Blair also agreed to repay nearly $2.4 million to customers who were allegedly overcharged through excessive markups for small-company stocks.
The firm neither admitted nor denied any wrongdoing.
Markups are differentials over the prevailing market price for securities. Regulators consider markups of more than 10 percent to be fraudulent.
The NASD also fined Blair’s CEO, Kenton E. Wood, $225,000 and suspended him from the market for 60 days. The firm’s head trader, Vito Capotorto, was fined $300,000 and suspended for 90 days.
Separately, the New York Stock Exchange fined Blair $250,000 and censured the firm in February 1997 for allegedly failing to prevent misconduct by its brokers.
D.H. Blair agreed to repay customers a second time in October 1998, this time in a deal with state securities regulators, setting up a $2.25 million fund to compensate investors who lost money because of its allegedly abusive sales practices. They were said to include misleading customers, failing to fully disclose trading risks and recommending investments unsuitable for a customer’s financial situation.
Blair still has an investment banking arm, D.H. Blair Investment Banking, owned by J. Morton Davis. The investment banking firm underwrote the initial public offerings in three highly speculative stocks from which Marianne Gingrich, former wife of the ex-House speaker, made between $5,203 and $11,000 in three months in 1996. Davis is an acquaintance of Mrs. Gingrich and was a big contributor to Newt Gingrich’s political action committees, Money magazine has reported.
The two Blair firms, formerly under the same ownership, were split in 1992. At the time of the sanctions by regulators, brokerage D.H. Blair & Co. was partly owned by Davis’s children.
Money magazine also reported that at the time of Marianne Gingrich’s profitable trades, Davis was lobbying lawmakers for a tax break for investors who put money into the type of small companies underwritten by his firm.
Assistant District Attorney Daniel Castleman, chief of Morgenthau’s investigations bureau, said the Blair investigation grew out of a probe of the defunct brokerage, A.R. Baron. Baron was begun by former Blair brokers.
Three Blair employees who are not named in the indictment pleaded guilty in April and apparently are cooperating with the prosecution.
Several of the 15 Blair defendants are also charged with grand larceny and falsifying business records. All are charged with enterprise corruption, the top count which is punishable by up to 25 years in prison.