Bad News for One Tenafly Jewish Family

Sliding into prison...

Father, 2 sons, friend plead guilty, face prison for insider trading
Friday, February 9, 2007

By KEVIN G. DeMARRAIS
STAFF WRITER

Four onetime Tenafly residents, including the former vice president of a pharmaceutical company and two of his sons, each face up to five years in prison after pleading guilty in federal court Thursday to insider trading that netted them more than $3.7 million over four years.

The pleas, in what the Securities and Exchange Commission called "a brazen scheme of insider trading" of the company's stock, came in U.S. District Court in Brooklyn.

The family patriarch, 62-year-old Zvi Rosenthal, stood red-eyed and barely able to speak as he pleaded guilty to a conspiracy count before U.S. District Judge John Gleeson.

He was preceded by his son Amir and followed by his son Ayal in admitting the conspiracy. A fourth defendant, Amir's childhood friend, David Heyman, also pleaded guilty during the 90-minute hearing. Zvi still lives in Tenafly, while the other three now live in New York City.

The four, along with a third son, Oren; Amir's father-in-law, Bahram Delshad, 56, of Englewood Cliffs; and Amir's supervisor at a large Manhattan law firm, Young Kim, 34, of Union City, also were charged in a related civil complaint filed Thursday in Manhattan by the SEC.

"This is a very sad chapter for a good family," said Paul Shechtman, attorney for Amir Rosenthal. "A lot of hard-earned human capital was lost today."

This is Zvi Rosenthal's second guilty plea to fraud. In 1998, while serving as production manager of Isratex Inc., a Brooklyn clothing company, Rosenthal defrauded the Pentagon of millions of dollars by using defective cloth in coveralls and combat uniforms. The company, which had $30 million in federal contracts, allegedly rigged inspections at its plant in Puerto Rico.

He pleaded guilty to giving false information and was sentenced to three years' probation and fined $20,000.

Zvi Rosenthal -- a vice president at Israel-based Taro Pharmaceutical Industries Ltd. from 1994 until January 2006 -- was the center of the fraud unveiled on Thursday, offering his sons 13 tips on announcements from his company, beginning in 2001, the SEC said.

In the first case, he tipped off Amir that the Food and Drug Administration was about to approve the company's new generic drug, allowing the son to make a quick $100,000 through stock options, authorities said.

The biggest hit came in 2004, when Zvi informed Amir that Taro's quarterly sales would be worse than expected.

The two, plus Heyman, made $1.5 million by trading on the advance information, the government said.

Heyman, who worked at Ernst & Young, and Ayal Rosenthal, an accountant at PricewaterhouseCoopers, also shared with the others confidential information about pending mergers they learned through their jobs. In one case, Rosenthal received word that an expected merger had been put off, allowing his brother Amir to liquidate his stock in the company involved. "I am deeply sorry," Heyman, 29, said after admitting his role in the case.

The guilty pleas involved allegedly illicit gains of $2 million, but the SEC said in its suit that the defendants netted more than $3.7 million in profits and losses avoided.

A defense attorney said the actual amount of money made was less than $2.5 million.

The SEC said that Amir Rosenthal created a hedge fund, Aragon Partners, in 2003 to pool money from the family to trade in Taro securities. In later stages of the scheme, Ayal Rosenthal and Heyman passed on information that they picked up at work while Amir traded on it, the SEC said.

"This case is particularly troubling, not just because this appears to have been a 'family business' built on insider trading, but also because the defendants include accountants and lawyers at prominent firms," said Mark K. Schonfeld, director of the SEC's Northeast regional office.

Amir's attorney, Gerald Lefcourt, said the insider-trading charges were an aberration. "He's a very, very decent upstanding person," Lefcourt said after his client entered a plea.

"I'm sure he wants to put this all behind him and get on with his life."

Sentencing is scheduled for May 18. Because of his previous conviction, Zvi Rosenthal faces up to five years in prison and a fine of $250,000. Amir, 29, faces up to 41 months in prison; Heyman up to 27 months, and Ayal, 26, up to six months.

The government's case is being prosecuted by Assistant U.S. Attorneys Paul Weinstein and Sean Casey.