Central Islip, N.Y.

The U.S. Attorney for the Eastern District of New York Nov. 6 indicted Irwin Selinger, the former president and chief executive officer of Graham-Field Health Products, for fraudulently propping up the company's stock during a 1997 merger.

The indictment alleges that in 1997, Selinger and Marc Chapman, a distributor of medical products operating under the name Bon Jon Medical Supplies, created a phony contract wherein Bon Jon purportedly gave Graham-Field $450,000 cash and $700,000 in credit.

At the same time, Graham-Field was acquiring Delaware-based Fuqua Enterprises, in which Graham-Field agreed to exchange 2.1 shares of its stock for each share of Fuqua's stock. The agreement provided that if Graham-Field's stock price fell below target, Graham-Field would have to issue additional stock. Alternately, if Graham-Field's stock price exceeded target, Graham-Field could issue fewer shares.

After Graham-Field publicized the phony contract, the company's stock price rose from $13.57 to $16.69 per share, far exceeding the minimum target price required under the merger agreement, the Attorney General alleged.

Two weeks before the indictment, Selinger returned to Graham-Field as a consultant, reportedly to help the company emerge from bankruptcy.

If the U.S. government finds Selinger and Chapman guilty on all counts, each defendant could receive a maximum sentence of 20 years imprisonment and a fine of $5 million, or both.

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