I will give you a little of Kanzer's pedigree. He worked with Nick Sturgis and Lindsey Rosenwald (a total crook) at paramount biosciences. Lindsey's father in law is Morty Davis of Blair fame.
Caveat emptor is a huge understatement.
Morty Davis, 69, is a Brooklyn-born Harvard Business School graduate who is worth several hundred million dollars. He got rich by raising money in the private and public markets for companies that tonier firms wouldn't touch. Since that kind of paper is hard to sell, Davis demanded and got top dollar from the outfits he served, collecting big fees and getting hunks of equity in those companies.
Davis operated on two levels: in the retail market, through such boiler room tactics as cold calling; in the institutional market, through selling stock to performance-hungry money managers like Schonberg. Some of his initial public offerings -- Enzo Biochem, Genetic Systems and TIE/Communications, for example -- were great successes over time, but many others cost investors big money.
Davis has so far avoided the fate that befell such penny stock pirates as Robert Brennan and the late Meyer Blinder, but Davis has been feeling the heat lately. In 1997 D.H. Blair agreed to pay $4.4 million in fines and restitutions as part of a settlement with NASD; in the settlement, Blair neither admitted nor denied that it overcharged customers who invested in the IPOs it underwrote. Currently Blair is reportedly being investigated for sales practice violations and more by the Securities & Exchange Commission, federal prosecutors and a task force of state securities regulators.
Amidst this pressure, last year Blair's retail arm was unloaded. Its brokers and accounts were acquired by Barington Capital Group, a New York-based penny stock firm run by a former Blair executive, James Mitarotonda.
Dreyfus manager Schonberg was certainly aware of Blair's reputation for underwriting shoddy merchandise. Yet he bought for his Dreyfus portfolios such Davis-connected stocks as Advanced Photonix, a doggy maker of electronic/optic products. For his part, Davis says he never heard of Schonberg and doesn't know why he bought the stocks.
Schonberg also had significant dealings with Janssen/Meyers Associates, L.P., a small New York-based brokerage run by Peter Janssen, 39, and Bruce Meyers, 47, two ex-D.H. Blair executives. It was Janssen/Meyers that in 1994 managed a private placement deal through which Schonberg got cheap shares of the biotech startup Chromatics Color Sciences International, later a major holding of his Dreyfus funds.
And it was Janssen/Meyers that in June 1997 took public, at $5 a share, CCA Cos., which owns the rights to a food preservation product and wants to put up a hotel/casino complex on the Siberian island of Sakhalin.
At the public offering Schonberg bought almost 10% of CCA's shares for his Dreyfus funds. Later, at higher prices, he quintupled the number of shares Dreyfus owned. After reaching $11.63 last fall, the stock sank to a recent $2.75. The Dreyfus funds rode the stock all the way down.
Another Davis associate doing business with Schonberg was Davis' son- in-law, Lindsay Rosenwald, 43, an M.D. turned financier. Rosenwald, once director of corporate finance at Blair, opened his own venture capital shop in the early 1990s.
Rosenwald specializes in biotech. Here are some of the biotech startups in which Rosenwald was a big holder and Schonberg a big buyer for his Dreyfus funds: Atlantic Pharmaceuticals, Avigen, BioCryst Pharmaceuticals, Boston Life Sciences, Pacific Pharmaceuticals and Vimrx Pharmaceuticals. None has a market cap over $100 million. None has ever earned a penny. Schonberg's former funds took losses in a couple, made a bit of money in one and were bagged big in three.
Rosenwald claims Schonberg was just another client. He says Schonberg rejected most of the deals he showed him. "Never was there anything other than the prospect of making money for the investor," Rosenwald insists.
Maybe so. But these and others were dicey stocks -- and the circle of Davis connections apparently didn't raise warning flags at Dreyfus.
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