DISTRICT ATTORNEY - NEW YORK COUNTY

News Release
July 27, 2000

Contact: Barbara Thompson
212.335.9400

Manhattan District Attorney Robert M. Morgenthau announced today the stock fraud indictment of securities firm D.H. BLAIR & CO., INC., and fifteen of its officers and employees for enterprise corruption. Included among those indicted are KENTON WOOD, the Chairman of the firm; ALAN STAHLER and KALMAN RENOV, the firm's Vice Chairmen; VITO CAPOTORTO, the head trader of the firm; ALFRED PALAGONIA, the top-producing broker for the firm; and ten other Blair brokers. In addition, three other former D.H. Blair brokers have pleaded guilty to felony charges arising from this investigation.

The sixteen defendants have all been indicted for Enterprise Corruption, Scheme to Defraud in the First Degree, and securities fraud in violation of the New York State General Business Law. The Grand Jury alleged additional pattern acts, including perjury and violation of New York's antitrust law. Various defendants were also indicted for Grand Larceny in the Third Degree and Falsifying Business Records in the First Degree. The Enterprise Corruption charge, which is punishable by up to twenty-five years' imprisonment, alleges that managers and stockbrokers at D.H. Blair ran the business as a criminal enterprise.

The 173-count indictment charges that the defendants participated in the "D.H. Blair Criminal Enterprise" from 1989 through 1998, and that the members of the scheme defrauded numerous people - including their own customers, other investors, other brokerage firms, and securities regulators - in order to realize massive illicit profits. Members of the D.H. Blair Criminal Enterprise conspired to commit, and did commit, a variety of crimes to advance their common criminal purpose. They manipulated stock prices -- including securities being offered in initial public offerings ("IPOs") -- for the benefit of the firm, certain favored customers, stockbrokers, and other people associated with D.H. Blair. They engaged in a wide range of illegal and high-pressure sales practices to generate excessive commissions and to facilitate the manipulation of stock prices. In addition, they illegally colluded with other securities firms to manipulate stock prices. They fraudulently increased commissions by selling securities to customers at far more than prevailing market prices. They increased the size of the firm's customer base by trafficking in client information stolen from other firms and by opening accounts for customers whom they knew were not suitable for the kind of high-risk securities marketed by D.H. Blair.

More than 50,000 customers invested with D.H. Blair & Co., Inc. during the period of the existence of the D.H. Blair Criminal Enterprise. Many suffered severe economic losses as a result of the criminal conduct of the enterprise. For example, a 56 year-old disabled man from Colorado lost approximately $150,000 from a disability settlement upon which he relied to pay for medicine and other living expenses; he was given false price predictions and so-called "inside" information which did not pan out. Another investor, a 63 year-old disabled racetrack worker living on a fixed income in Manhattan, lost $35,000 of a $38,000 IRA due to unauthorized purchases in her account and refusals to sell. A tugboat pilot from Brooklyn lost the $45,000 she had saved to buy a house; while she was at sea, unauthorized trades were made in her account and when she complained she was falsely assured that she would be the recipient of windfall future profits. Another Blair customer, a 70 year-old Florida resident who had retired as a trumpet player for the New York Philharmonic, lost approximately $250,000 from his IRA and trust accounts due to false price guarantees and high pressure tactics designed to prevent him from selling.

D.H. Blair made large profits by fraudulently distributing and manipulating the securities of companies that had been brought public by its associated investment banking firm. In 1996, for example, the brokerage firm made gross profits of over $85 million from such over-the-counter securities trading. The indictment charges that among the IPOs that the D.H. Blair Criminal Enterprise fraudulently sold and manipulated were Amerigon, Inc., Telepad Corp., Premier Laser Systems, Inc., Interactive Flight Technologies, Inc., Sepregen Corp., Food Court Entertainment Network, Inc., Titan Pharmaceuticals, Inc., Digital Video Systems, Inc., Conversion Technologies International, Inc., and Advanced Aerodynamics and Structures, Inc.

In order to commit these crimes and evade detection, members of the D.H. Blair Criminal Enterprise falsified business records, suppressed customer complaints, hid illegal practices, gave false and evasive testimony, and otherwise misled regulators charged with enforcing the laws and rules governing the securities industry, including the United States Securities and Exchange Commission ("SEC") and the National Association of Securities Dealers ("NASD").

Mr. Morgenthau explained that some of the evidence leading to today's indictment was developed by NASD Regulation which worked closely with the District Attorney's Office during the investigation; the SEC also provided valuable assistance to the investigation.

Mary L. Shapiro, President of NASD Regulation said, "Today's action by District Attorney Morgenthau again demonstrates his commitment to help rid the securities markets of manipulative and fraudulent schemes. NASD Regulation previously brought actions against D.H. Blair and individuals named in this indictment which resulted in approximately $2.4 million in restitution to investors. We will continue to work closely with the District Attorney's Office and other law enforcement agencies to insure investor confidence and the integrity of our markets."

D.H. Blair, which ceased doing business as a broker-dealer in 1998, was located at 44 Wall Street in Manhattan.

The individual defendants include executives at the highest levels of D.H. Blair. As Chairman of D.H. Blair and a member of the firm's Senior Management Committee, KENTON WOOD engaged in and supervised the frauds perpetrated by the criminal enterprise. WOOD, along with CAPOTORTO and PALAGONIA, also participated in collusive and fraudulent trading practices with A.R. Baron & Co., Inc., a securities brokerage firm started by former Blair employees; 13 Baron employees have been convicted of securities fraud in a previous case brought by the District Attorney's Office.

ALAN STAHLER and KALMAN RENOV were Vice Chairmen of the firm, members of the Senior Management Committee, and registered representatives. Both STAHLER and RENOV engaged in and supervised the frauds perpetrated by the criminal enterprise.

VITO CAPOTORTO was the head trader for D.H. Blair as well as a member of the Senior Management Committee. As such, in collusion with other members of the criminal enterprise, CAPOTORTO manipulated the prices of securities and knowingly handled fraudulent purchase and sales orders. WOOD, STAHLER, RENOV, and CAPOTORTO were also part owners of the D.H. Blair brokerage firm.

ALFRED PALAGONIA was the highest-earning salesman among the D.H. Blair registered representatives, personally generating as much as $13 million in gross commissions in one year. PALAGONIA was not licensed to act as a supervisor, but in fact he supervised members of the D.H. Blair sales force and directed their illegal activities.

ROBIN BREITNER, ALEX DEWAR, JOHN DIBELLA, STEVEN FRANTZ, RICHARD GAYDOS, RAYMOND HERNANDEZ, RICHARD MOLINSKY, DARREN ORLANDO, ANDREW SCHANDLER, and RICHARD SMITH, as registered representatives at D.H. Blair, fraudulently sold securities to the public, assisted in the manipulation of those securities, concealed material information they were legally required to disclose to their customers, and engaged in other frauds.

Former D.H. Blair brokers VINCENT POLISENO, PATRICK FALCO, and JAMES POVINELLI have each pleaded guilty to attempted enterprise corruption and securities fraud as part of the continuing investigation by the New York County District Attorney's Office into corrupt activities in the securities industry. The investigation into the affairs of D.H. Blair began in the fall of 1997. The investigation is ongoing.

Frauds Bureau Deputy Bureau Chief Steve Krantz, and Assistant District Attorneys Thomas J. Curran, Raja Chatterjee, and Patricia M. Sullivan of the District Attorney's Frauds Bureau handled the investigation of this case under the supervision of Daniel J. Castleman, Chief of the Investigation Division, and Owen Heimer, Chief of the Frauds Bureau. Investigators Christopher Donohue and George McMillin assisted in the investigation under the supervision of Assistant Supervising Investigator Angel Flores, Deputy Chief Investigator Thomas Jackson, Assistant Chief Investigator Terence Mulderrig, and Chief Investigator Joseph Pennisi.

Mr. Morgenthau thanked NASD Regulation, Inc. for its assistance, and especially Associate Vice President Evan Rosser, Supervisor of Examiners Neil Alexander, Bruce Bettigole and NASDR's Criminal Prosecution Assistance Group. Mr. Morgenthau also recognized the assistance of the Securities and Exchange Commission, thanking Division of Enforcement staff members including Associate Director William R. Baker III, Assistant Director Lawrence A. West, Branch Chief Gerald W. Hodgkins, and Senior Counsel Louis A. Randazzo.

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