Citibank Sued In Blech Stock-Fraud Case
Bloomberg Business News
NEW YORK - A former D. Blech & Co. employee filed a lawsuit accusing Citibank of advancing more than $7 million from his account to stock promoter David Blech without his permission.
The former employee, Louis Zauderer, accused Citibank of aiding and abetting alleged fraud by Blech and his company by failing to disclose unauthorized wire transfers from Zauderer's account to Blech in 1994.
"Somehow the officers were accepting instructions from David Blech to do transactions in the Zauderer accounts," Zauderer's lawyer, Edward Burnbaum, said. "After a period of time, they disregarded Lou Zauderer's existence."
The lawsuit, filed Friday in New York State Supreme Court in Manhattan, seeks about $15 million in compensatory damages and $25 million in punitive damages from the Citicorp unit.
Citibank didn't immediately return a call seeking comment.
Before regulators closed D. Blech down in September 1994 for lack of capital, it was the largest underwriter of biotechnology stocks in the U.S.
In the lawsuit, Zauderer charged that Citibank "knowingly aided and abetted Blech and DBC in their scheme to park securities" by allowing him to withdraw funds from Zauderer's accounts.
In a parking scheme, an investor arranges for other parties to hold securities for his use. Such arrangements allow the investor to manipulate the securities while concealing that he is behind the manipulation.
On of the accounts in question was guaranteed by Blech and was opened primarily to buy securities he had promoted or underwritten, according to the lawsuit.
Blech has been accused in various civil lawsuits of using a stock-parking scheme to skirt Securities and Exchange Commission and National Association of Securities Dealers capital requirements.
The U.S. Attorney's Office for the Southern District of New York is investigating the allegations, Investment Dealers' Digest reported in March.
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