RE: Rafi Khan->- Street Wire BCSC-aided SEC sees Vancouver as key Kott centre
*USSEC
Shares issued 0 close $
Friday Dec 15 2000 Street Wire
by Brent Mudry
The United States Securities and Exchange Commission's lengthy probe into
the affairs of notorious boiler room operator Irving Kott and Reynolds
Kendrick Stratton, a controversial brokerage which featured Mr. Kott as a
secret owner and federal turncoat Rafi Khan as a star broker, has sharpened
the focus on Vancouver as a key cornerstone of Mr. Kott's globe-spanning
empire.
The SEC credits the British Columbia Securities Commission with playing a
key support role in helping untangle Mr. Kott's web of companies.
In recently filed court documents, the BCSC notes that during the course of
the SEC investigation, the U.S. regulator has obtained evidence indicating
that Mr. Kott may have secretly acquired control of Reynolds Kendrick
Stratton in 1993 as part of a broader scheme to manipulate the share prices
of various companies.
The BCSC notes that Mr. Kott allegedly acquired control of RKS by
structuring a private placement of newly issued shares of the brokerage's
parent company, RKS Financial Group Inc. "Kott structured the private
placement so that a group of his associates would acquire and hold shares of
RKSF on his behalf," states a petition, filed Tuesday in the Supreme Court
of British Columbia by special outside BCSC counsel Mark Skwarok of Skwarok
& Breivik.
According to regulators, Mr. Kott negotiated the private placement with
senior officers of RKS Financial, and organized an investor group who
purportedly agreed to provide a total of $2-million (U.S.) for 1.6 million
shares of RKS Financial.
"Several of the investor group members were close associates of Kott, and
they purchased their allotment of RKSF shares on Kott's behalf and with
funds provided to them by Kott. Kott later took possession of a large amount
of the RKSF shares that had been issued to his associates," states the BCSC.
Regulators note that Mr. Kott used proceeds derived from sales of large
blocks of shares of Synery Renewable Resources Inc. The boiler room legend
used an account in the name of PYA Investments Ltd., a company based in the
secretive offshore enclave of the Cayman Islands, to trade the Synergy
shares through a brokerage account at Merit Investments in Toronto.
According to the SEC and the BCSC, Vancouver was a key focal point for Mr.
Kott, and prominent Vancouver securities lawyer David Anfield of Sobolewski
Anfield, one of the best-known securities law firms in the city, played key
roles. There are no allegations any wrongdoing against Mr. Anfield or his
law firm.
The regulators claim that in early 1993, Mr. Kott met Clive Smith, a
European stock promoter, who owned 70 million Synergy shares through various
family trusts. "In early 1993, the respondent (Mr. Anfield) agreed to take
possession of more than 22 million of Smith's Synergy shares, and he placed
them in a safe in his Vancouver law office," states the BCSC.
In March of 1993, Mr. Kott allegedly agreed to loan approximately $4-million
(U.S.) to Mr. Smith, and the European promoter agreed to provide the boiler
room king with Synergy shares as collateral for the loan.
That same month, Mr. Smith appointed Kelvin Myles to act as trustee for the
various family trusts through which he held the shares of Synergy.
The SEC and BCSC note that in March and April of 1993, Mr. Myles advised Mr.
Anfield, the Vancouver lawyer, to deliver Mr. Smith's Synergy shares in
accordance with instructions that the lawyer would receive from Yvonne
Tremblay, a close associate of Mr. Kott.
In April of that year, Ms. Tremblay subsquently instructed Mr. Anfield to
hand over approximately 17.2 million of Mr. Smith's Synergy's shares to Mr.
Kott's son, Ian Kott, according to regulators.
"On or about April 30, 1993, Ian Kott attended at the respondent's
(Anfield's) Vancouver law office and took possession of approximately 17.2
million Synergy shares," states the BCSC.
Two months later, in June of 1993, Ms. Tremblay and Ian Kott attended at Mr.
Anfield's Vancouver law office and took possession of Mr. Smith's remaining
5.5 million Synergy shares, according to regulators.
The SEC and BCSC claim that at Irving Kott's direction, a large amount of
Mr. Smith's Synergy shares were deposited into the Merit account in Toronto.
The SEC is particularly interested in having Mr. Anfield fill in a number of
the blanks on the Kott-related Synergy share transactions, and the Vancouver
lawyer has chatted with regulators in formal interviews spanning eight days
between April 11 and July 13 of this years. Mr. Anfield has claimed
solicitor-client privilege over 19 relevant documents.
Vancouver is also proving to be a productive hunting ground for the SEC in
its quest to unravel the affairs of a much more famous Kott-linked company,
Hariston Corp.
In its Hariston probe, SEC investigators have obtained evidence indicating
that Hariston's officers and directors may have knowingly filed false press
releases and reports in 1993 and 1994 with the SEC and the BCSC, according
to regulators.
During this period, the BCSC notes that Hariston entered into a joint
venture with Synergy, in which the two companies built a small-scale mineral
extraction plant at an abandoned copper mine in Butte, Mont. The purported
function of the Butte plant was to extract valuable minerals from the waste
water in the copper mine.
"The Butte plant was never profitable, as it never extracted sufficient
minerals to cover its operating expenses. Despite continued operating
losses, Hariston filed press releases and reports with the SEC and with the
commission (the BCSC) that represented that the Butte plant would generate
substantial profits," states the BCSC.
Fuelled by this wave of bogus press releases, Hariston shares rose from $3
(U.S.) in January of 1993 to $12 (U.S.) by March of 1994.
The BCSC and SEC note that Mr. Anfield prepared reports on behalf of
Hariston regarding the Butte plant, and filed them with the securities
regulators. "The respondent (Anfield) prepared the reports based on
information provided to him by the directors and officers of Hariston and
Synergy, including Joseph Duggan and Stephen Roth," states the BCSC.
The regulators are also eager to see several more documents over which Mr.
Anfield claims privilege, which may shed some light on whether the officers
and directors of Hariston had a reasonable basis for believing that the
Butte plant was commercially viable and that the press releases and reports
issued by the company accurately described the status and operations of the
plant.
The SEC is also eager to further document several other Synergy share
transactions related to Mr. Kott, although Mr. Anfield has claimed privilege
over key records.
The BCSC notes that during the course of the SEC's Kott investigation, the
U.S. regulator has obtained evidence indicating that Synergy may have issued
shares to R.P. Technologies Inc. in a sham transaction "designed to secretly
provide" Mr. Kott with Synergy shares for no consideration,
The regulators note that in early 1995, Hariston and Synergy dissolved their
joint venture, and Synergy took over operation of the Butte plant.
In regulatory filings with the SEC and the BCSC, Synergy stated that in May
of 1995, it had acquired a mineral extraction technology licence from R.P.
Technologies, a Cayman Islands company, for which it issued 475,000 Synergy
shares.
The BCSC claims that in reality, Synergy never received any technology
licence from R.P. Technologies in this purported asset vend-in and it never
implemented the technology at the plant in Montana.
"Kott is the beneficial owner of R.P. Technologies and Stephen Roth, the
chairman of Synergy, is a long-time associate of Kott. The 475,000 Synergy
shares issued to R.P. Technologies may have been deposited into a brokerage
account controlled by Kott," states the BCSC.
The SEC is anxious to receive and review a key document in Mr. Anfield's
possession, a letter from Mr. Roth to the Vancouver lawyer containing
information about Synergy's alleged acquisition of the mineral extraction
technology licence from R.P. Technologies, the offshore Cayman company.
In addition, the SEC is also interested in a private placement by Synergy of
1.6 million shares to YLT Investments Ltd. at 25 U.S. cents a share.
The BCSC notes the SEC has discovered evidence suggesting that YLT
Investments was controlled by Irving Kott, and he was the true purchaser of
the Synergy shares issued to YLT Investments.
The regulators note that Synergy may have filed false and misleading press
releases and reports to the SEC and the BCSC, claiming that YLT Investments
was the purchaser, without disclosing that Mr. Kott controlled YLT and he
was therefore the true purchaser of the shares.
The SEC wishes to get it hands on a number of documents in Mr. Anfield's
possession, over which the lawyer has claimed privilege. The five documents
may indicate, or may lead to other evidence indicating, whether Mr. Kott was
associated with YLT Investments, whether Mr. Kott had any involvement in the
share transaction, and whether Synergy filed false information about the
share transaction.
Mr. Skwarok, the BCSC's lawyer, hopes for a mid-January court hearing on his
application to seek production of the privilege-claimed documents, but
concedes this may be an optimistic date target.
Until then, the highly sensitive documents remain safe in the possession of
Mr. Anfield. While these documents could possibly further implicate Mr. Kott
and his associates, they could also help to exonerate the boiler room legend
if they show that Mr. Kott has absolutely nothing to do with the Synergy and
Hariston transactions.
(Readers wishing more details of the SEC's BCSC-assisted Kott probe may
refer to Street Wires dated Jan. 21, Jan. 24, Jan. 26, Jan. 27, Jan. 28,
June 1, June 2, and Dec. 14, under the Canadian symbol BCSEC and the U.S.
symbol HRSNF.
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