|The National Post reported last month that the Ontario Securities Commission (OSC) was intending to take disciplinary action against Mr. Peterson, a former director of YBM, and three other Canadian-based directors -- Owen Mitchell, Kenneth Davies and Michael Schmidt -- for "conduct contrary to the public interest" when they failed to disclose information linking YBM to the Russian mob. |
Russian Mafia - Politicians - Mogilevich and Birshtein
(1) Background Note:
The man behind the TSE-300 listed company, YBM, is the Russian Mafia mobster Semyon Mogilevich, described as the "Most Dangerous Mobster in the World". YBM was delisted from the Toronto Stock Exchange for fraud, after reaching a market capitalization of CDN$900 million. Former Liberal Premier of Ontario was on the Board of Directors of YBM. Mogilevich was also involved in the US$15 billion money laundering investigation at the Bank of New York. Mogilevich is linked to many other Russian Mafia mobsters and is banned from several countries. Mogilevich and his mobster colleagues were present at a Russian Mafia summit meeting in Tel Aviv, Israel on Oct 10 - 19, 1995 which was hosted by Boris Birshtein.
Birshtein (via Seabeco) made significant financial contributions to Leonid Kuchma's 1994 presidential campaign, after Olexander Volkov joined the Kuchma team in 1994. Volkov was a "business partner" with Birshtein and became one of the mafia oligarchs in Ukraine. Volkov is under investigation in Belgium and Switzerland for money-laundering, and millions of dollars in bank accounts in the UK, Germany, Monaco, Luxembourg, Switzerland, and the US have been frozen. Media reports claim that through Volkov, industries in Ukraine have "been carved up among sometimes unsavoury insiders connected to the Kuchma administration."
Birshtein had emigrated from the Soviet Union in the late 1970s to Israel and subsequently moved to Switzerland where he built his business. He has ties to political leaders not only in Ukraine, but also in Russia, Moldova, Canada and Kyrgyzstan. Izvestia asserted that Birshtein "is known as a (double) agent of the KGB and Mossad." Birshtein's Seabeco partner, Dmitri Yakubovski left Canada for Russia after a shoot out in the posh Bridle Path area of Toronto. In Russia, Yakubovski (Iakubovski) was arrested and convicted for the 1994 heist of up to $700 million of rare manuscripts from the Russian National Library that were destined for Israel.
In the late 1980s, Boris Birshtein (chairman of Seabeco) worked on Canada-USSR trade deals with well known companies such as Molson Canada, Gillette Canada, and even Vladislav Tretiak.
The Toronto Star reported that Boris Birshtein "knows everybody", including Brian Mulroney, Hal Jackman, Gerry Weiner, Michael Wilson, Barbara McDougall, and Monte Kwinter.
Tuesday, November 02, 1999
(2) Securities charges filed against former Ontario premier
Peterson, others accused of failing to disclose YBM's links to Russian mob
Theresa Tedesco, Chief Business Correspondent National Post
Canada's leading securities commission has filed administrative charges against a group of 10 directors -- including David Peterson, a former premier of Ontario -- lawyers and two brokerage firms, for allegedly violating the Ontario Securities Act as a result of their involvement in YBM Magnex International, the failed U.S.-based magnet maker with links to Russian organized crime.
The National Post reported last month that the Ontario Securities Commission (OSC) was intending to take disciplinary action against Mr. Peterson, a former director of YBM, and three other Canadian-based directors -- Owen Mitchell, Kenneth Davies and Michael Schmidt -- for "conduct contrary to the public interest" when they failed to disclose information linking YBM to the Russian mob.
Yesterday, the OSC levelled six allegations in a notice of hearing against the men.
Five other YBM directors and officers who do not reside in Ontario -- Harry Antes, chairman of the board, Jacob Bogatin, chief executive officer, Igor Fisherman, chief operating officer, Daniel Gatti, chief financial officer, and Frank Greenwald -- were also named by the provincial regulator.
The disciplinary action stems from a prospectus filed by YBM in November, 1997, that enabled the industrial magnet company to raise $52.8-million from public investors seven months before its Pennsylvania headquarters was raided by the FBI. Staff at the securities watchdog, which for the past two years had been investigating the conduct of the company's board of directors and its advisors that led to the prospectus, alleged that YBM and its advisors failed to disclose that U.S. law enforcement agencies were investigating YBM at the time it sold 3.2 million shares on the Toronto Stock Exchange.
According to confidential company documents, YBM's board of directors knew about an FBI investigation in August, 1996. The company hired New-York based Fairfax Group, which advised senior management in March, 1997, of "various connections between the company, its affiliates, and/or its management and shareholders, on the one hand, and individuals and entities with reported ties to organized crime, on the other."
However, that information was not disclosed to the OSC or to public shareholders when YBM filed its preliminary prospectus to raise money two months later in May, 1997. Securities laws in Ontario require companies to disclose all material information that could affect the share price. The prospectus was approved by the OSC's corporate finance department in November, 1997, but now officials in the watchdog's enforcement branch claim the filing "failed to contain full, true, and plain disclosure of all material facts."
In a statement, Mr. Peterson denied the OSC's accusations, saying he will "vigorously defend his reputation."
Also facing potential disciplinary action are Lawrence Wilder, a securities lawyer at Toronto law firm Cassels Brock & Blackwell, who is accused of "misleading or untrue" statements to the OSC in his role as YBM's Canadian counsel.
First Marathon Securities and Griffiths McBurney, the two Toronto-based brokerage firms who signed the November, 1997, prospectus and helped sell YBM shares, are also alleged to have misled investors.
YBM went into receivership in December, 1998, five months after its headquarters was raided by the U.S. Attorney's Office in Pennsylvania, leaving millions of investors stranded holding about $635-million in worthless shares.
Earlier this year, the company pleaded guilty in U.S. court to conspiracy to commit mail and securities fraud and a class-action suit has been filed in the U.S. against the company, its directors and auditors.
The first hearing before an OSC tribunal of commissioners is scheduled for Nov. 29. The penalties range from a ban on trading, suspension and reprimand and in some cases their licences to sell securities in Ontario's capital markets could be revoked.
Staff at the regulator have also taken the unprecedented step of seeking an endorsement of the OSC's findings from the Ontario Superior Court of Justice -- and have asked the court for additional sanctions. Although they would not re-argue the case if that were to happen, OSC staff want the court to impose tougher penalties, ranging from paying fines as a form of reparation to prohibiting any of the accused from serving as an officer or director of a publicly traded company. There are no jail penalties.
"This is a very unusual approach the commission has adopted," explained a Bay Street lawyer who asked not to be named. "It's highly unusual because they are asking for the trial to take place in the OSC hearing room and the sentencing to unfold in the courtroom."
The response to the OSC's allegations was swift. Mr. Wilder issued a statement "vigorously" denying the allegations made against him. He served notice that he intends to file an application with the Ontario Superior Court of Justice to "prohibit the commission from proceeding against him."
Mr. Wilder has already served notice that he intends to take the matter before the Law Society of Upper Canada, which is the licensing body for lawyers in Ontario.
Mr. Peterson, who is an associate of Mr. Wilder's at Cassels Brock & Blackwell, said he "deplores the OSC's action. It is motivated by staff's awareness of its own culpability."
The controversial prospectus was approved by the OSC after months of consultation with YBM officials, Mr. Wilder and the brokerage firms. However, the commission learned of potential links to money laundering and Russian organized crime at YBM during a meeting with RCMP and other securities enforcement groups on May 13, 1997.
In an internal OSC memo first revealed by the National Post last month, a staff member wrote about how "there is a suspicion that the company is a front for Russian mafia money laundering." The document, dated May, 1997, noted that a TSE official advised the OSC should not approve YBM's prospectus because it would be "worse than Bre-X."
The OSC did not confront YBM officials with the information but launched a detailed review of the prospectus filing, which was ultimately approved six months later in November, 1997.
"OSC staff look forward to producing evidence before the commission to substantiate all of the allegations made," said OSC spokesman Frank Switzer.
The Village Voice
May 20 - 26, 1998
(3) The Most Dangerous Mobster in the World
By Robert I. Friedman
According to the FBI and Israeli Intelligence, Semion Mogilevich Rules Over an Arms-Trafficking, Money-Laundering, Drug-Running, and Art-Smuggling 'Red Mafia'
In two posh villas outside the small town of Ricany, near Prague, one of the most dreaded mob families in the world savagely murders its terrified victims. The mob's young enforcers, trained by veterans of the Afghanistan war, are infamous for their extreme brutality. Their quarry, usually businessmen who have balked at extortion demands, are repeatedly stabbed and tortured, then mutilated before they are butchered. The carnage is so hideous that it has scared the daylights out of competing crime groups in the area.
The torture chambers are run by what international police officials call the Red Mafia, a notorious Russian mob family that in only six years has become a nefarious global crime cartel. Based in Budapest, it has key centers in New York, Pennsylvania, Southern California, and as far away as New Zealand.
The enigmatic leader of the Red Mafia is a 52-year-old Ukrainian-born Jew named Semion Mogilevich. He is a shadowy figure known as the ''Brainy Don''--he holds an economics degree from the University of Lvov--and until now, he has never been exposed by the media. But the Voice has obtained hundreds of pages of classified FBI and Israeli intelligence documents from August 1996, and these documents--as well as recent interviews with a key criminal associate and with dozens of law enforcement sources here and abroad--describe him as someone who has become a grave threat to the stability of Israel and Eastern Europe.
''He's the most powerful mobster in the world,'' crows Monya Elson, who is listed in classified documents as one of Mogilevich's closest associates and partners in prostitution and money laundering rings. The Brighton Beachbased Elson, who once led a pack of thugs and killers known as Monya's Brigada, is currently in the Metropolitan Correctional Center in lower Manhattan awaiting trial for three murders and numerous extortions.
In July 1993,after Elson was grievously wounded by rival mobsters in a bloody shoot-out outside his Brooklyn apartment building, Mogilevich spirited him out of the country. Mogilevich then set up his Russian Jewish refugee friend in an alleged massive money-laundering scheme in Fano, Italy, where he was eventually arrested and extradited back to America. Elson, an integral part of the Red Mafia, had been one of the most feared mobsters in Brighton Beach, ground zero for Russian organized crime in America, which has exploded here following perestroika.
''If I tell on Mogilevich, Interpol will give me $20 million,'' boasted Elson. ''I lived with him. I'm his partner, don't forget. We are very, very close friends. I don't mean close, I mean very, very close. He's my best friend.'' Nevertheless, after extensive interviews over the course of the last six months, Elson ultimately confirmed some of the details about Mogilevich contained in the classified FBI and Israeli documents.
Allegations of Mogilevich's devilish array of criminal activities are extensively detailed in the reports: The FBI and Israeli intelligence assert that he traffics in nuclear materials, drugs, prostitutes, precious gems, and stolen art. His contract hit squads operate in the U.S. and Europe. He controls everything that goes in and out of Moscow's Sheremetyevo International Airport, a ''smugglers' paradise,'' says Elson. Mogilevich bought a bankrupt airline in a former Central Asian Soviet republic for millions of dollars in cash so he could haul heroin out of the Golden Triangle. Most worrisome to U.S. authorities is Mogilevich's apparently legal purchase of virtually the entire Hungarian armaments industry, jeopardizing regional security, NATO, and the war against terrorism.
In one typical criminal deal, Mogilevich and two Moscow-based gangsters sold $20 million worth of pilfered Warsaw Pact weapons from East Germany, including ground-to-air missiles and 12 armored troop carriers, according to the classified Israeli and FBI documents. The buyer was Iran, says a top-level U.S. Customs official who requested anonymity.
In another deal, an FBI informant told the bureau that one of Mogilevich's chief lieutenants in Los Angeles met two Russians from New York City with Genovese crime family ties to broker a scheme to dump American toxic waste in Russia. Mogilevich's man from L.A. said the Red Mafia would dispose of the toxic waste in the Chernobyl region, ''probably through payoffs to the decontamination authorities there,'' says a classified FBI report.
Mogilevich is particularly intrigued by art fraud. In early 1993, he reached an agreement with the leaders of the powerful Solntsevskaya crime family in Moscow to invest huge sums of money in a joint venture: acquiring a jewelry business in Moscow and Budapest. The business, according to classified FBI documents, was to serve as a front for the acquisition of jewelry, antiques, and art, which the Solntsevskaya mob had stolen from churches and museums in Russia, including the Hermitage in St. Petersburg. The gangsters also robbed the homes of art collectors and even broke into synagogues in Germany and Eastern Europe to steal rare religious books and Torahs.
Mogilevich's operation, again in collusion with the Solntsevskaya mob, also purchased a large jewelry factory in Budapest. Russian antiques, such as Faberge eggs, are sent to Budapest for ''restoration.'' Mogilevich's men ship the genuine Faberge eggs to an unwitting Sotheby's auction house in London for sale, then send fake Faberge eggs as well as other ''restored'' objects back to Moscow.
Mogilevich's early years are murky. Soviet authorities first learned of his criminal activities in the 1970s, when he was a member of the Liubertskaya crime group that operated in the Moscow suburb of the same name. He was involved in petty thefts and counterfeiting.
But Mogilevich made his first millions fleecing fellow Jews. In the mid 1980s, when tens of thousands of Jewish refugees were hurriedly immigrating to Israel and America, Mogilevich made deals to buy their assets--rubles, furniture, and art--cheaply, promising to exchange the goods for fair market value and send refugees the proceeds in ''hard'' currency. Instead, he sold their valuables and pocketed the considerable profits.
In the 1980s, he established a petroleum import-export company, Arbat International, and registered it in Alderney, one of the Channel Islands, which is known to be a tax haven. One of his partners--with a quarter share of the company--was Vyacheslav Ivankov, the legendary Russian criminal who in March 1992 became Godfather of the Russian mob in America. Ivankov was convicted in 1996 of extorting two Russian-born Wall Street stockbrokers. He now resides in Raybrook, a Federal prison in upstate New York.
In early 1990, Mogilevich fled Moscow, as did many other dons, to avoid the gangland wars that were then roiling the capital. Mogilevich and his top henchmen settled in Israel, where they received Israeli citizenship. He ''succeeded in building a bridgehead in Israel'' and ''developing significant and influential [political] ties,'' says an Israeli intelligence report.
Mogilevich is married to a Hungarian national, Katalin Papp. That marriage allowed him to legally emigrate to Budapest, Hungary, in 1991, where he began to build the foundations of his global criminal empire. He bought a string of nightclubs in Prague, Riga, and Kiev--called the ''Black and White Clubs''--that has become one of the world's foremost centers of prostitution. Monya Elson is a partner in the clubs, according to his own admission and classified FBI documents. The Black and White Club in Budapest became the hub of Mogilevich's operations. He quickly built a highly structured criminal organization, in the mode of a traditional American mafia family. Indeed, many of the organization's 250 members are his relatives.
To the consternation of international law enforcement officials, Mogilevich began to legally purchase much of Hungary's arms industry. The legitimate companies he bought include:
Magnex 2000: a giant magnet manufacturer.
Digep General Machine Works: an artillery shell, mortar, and fire equipment manufacturer, which was financed by a $3.8 million loan from the London branch of Banque Francaise De L'orean.
Army Co-op: a mortar and anti-aircraft gun factory.
Army Co-op was established in 1991 by two Hungarian nationals, both in the local arms industry, who were looking for a partner. Mogilevich has bought 95 per cent of Army Co-op through another Channel Island holding company, Arigon, Ltd., and also deals extensively with the Ukraine, selling oil products to the Ukrainian railway administration.
These transactions enabled the Mogilevich organization to become a direct owner of the Hungarian armaments industry. In 1994, he purchased a license enabling him to buy and sell weapons. Now a legitimate armaments manufacturer, one of his companies participated in at least one arms exhibition in the U.S., where it displayed mortars modified by Israel.
Like mob bosses everywhere, Mogilevich couldn't sustain his empire without the help of corrupt police and politicians. There is one documented example of a criminal associate of Mogilevich mingling with American politicians. In March 1994, Vahtang Ubiriya, one of Mogilevich's top lieutenants, was photographed by the FBI at a tony Republican Party fundraiser in Dallas, says an FBI report. Ubiriya, a high-ranking official in the Ukrainian railway administration, has a prior conviction for bribery in the Ukraine.
In Europe and Russia, the ''corruption of police and public officials has been part of the Semion Mogilevich Organization's modus operandi,'' says a classified FBI document. ''The corruptive influence of the Mogilevich organization apparently extends to the Russian security system. During 1995, two colonels from Department of the Russian Presidential Security Service . . . traveled to Hungary under commercial cover to meet with Mogilevich . . . seeking information for use in the Russian political campaign.'' An Israeli associate of Mogilevich met with the two colonels and provided intelligence. Mogilevich also paid off a Russian judge to secure Vyacheslav Ivankov's early release from a Siberian prison, where he was doing hard time for robbery and torture, according to U.S. court records and classified FBI documents.
On April 28, the German national television network ZDF reported that the BND (the German intelligence agency) had entered into a secret contract with Mogilevich to provide information on the Russian mob. The charges were made by several sources, including Pierre Delilez, a highly regarded Belgium police investigator who specializes in Russian Organized Crime. Because of this deal with the BND, police in Belgium, Germany, and Austria have complained that it is now impossible to investigate the ''Brainy Don.'' If the television report is accurate, one possible motive for BND's deal, says a U.S. law enforcement expert on the Russian mob, is that the Germans recently ''pulled their people out of Moscow because they didn't like the level of cooperation they were getting from the Russian authorities on the Russian mob.'' Gangsters, said this source, often talk to intelligence agencies about their rivals.
Mogilevich's main activity in the U.S. appears to be money laundering, says a classified FBI report. He has set up companies in Los Angeles--FNJ Trade Management--and Newton, Pennsylvania--YBM Magnex International--as well as dozens of shell companies, which have received more than $30 million from Arigon, Ltd., the center of Mogilevich's financial operations.
Last Friday, U.S. Attorney Robert Courtney, head of the organized-crime strike force, led a a joint FBI, IRS, INS, and Customs raid of YBM's offices in Newton. Cartons of documents were seized, with Canadian and U.S. police citing the company's alleged ties to Russian organized crime. YBM is publicly traded on the Toronto Stock Exchange, and two days before Friday's raid, trading in its stock was suspended by Canadian authorities.
The president and CEO of YBM is Jacob Bogatin, a professor of physical metallurgy. In May 1996, he contacted the FBI in Philadelphia to find out why the INS had denied visas to YBM employees arriving from Hungary and the Ukraine. When he was rebuffed, he had intermediaries step forward and pester the FBI. The State Department has banned Mogilevich himself from obtaining a U.S. visa because he's on the department's watch list of international organized-crime figures. Nevertheless, he has surreptitiously entered America under aliases and on visitor visas issued in Tel Aviv to visit Elson and Ivankov.
Bogatin admitted during a telephone interview that Mogilevich owns his company. When asked if he knew that numerous law enforcement agencies here and abroad considered Mogilevich to be a leader of one of the most ruthless organized-crime families in recent times, Bogatin replied, ''We have an investors relations guy. You want to talk with him about this stuff.'' He added that he had read allegations in the Eastern European press that his boss was a Mafia don, but didn't believe them. YBM vehemently denies that it is connected to Russian organized crime or has engaged in any criminal activities.
Bogatin is no stranger to the mob, however. His brother, David, a top Russian crime figure who once served in North Vietnam for the Soviets in an anti-aircraft unit, is now serving an eight-year term in a New York State prison for a multimillion-dollar gasoline tax fraud scheme. Just prior to trial, he had jumped bail, fleeing to Poland. There he set up the first commercial banks, which moved vast sums of money controlled by Russian wiseguys. (This after handing over his mortgages for five pricey Trump Tower apartments to a Genovese associate. The mortgages were liquidated and the funds were moved through a mafia-controlled bank in Chelsea.) Eventually he was caught and returned to the U.S. In the meantime, he lived like royalty in a five-star Viennese hotel, surrounded by a praetorian guard of 125 Polish parachutists, some of them bedecked in shiny gold uniforms.
Mogilevich has not refrained from associating with known killers in America, prime among them Elson and Ivankov. A confidential informant told the FBI that Vladimir Berkovich, an L.A. resident, is a chief lieutenant in Mogilevich's organization and has arranged contract killings here, supplying the weapons and spiriting the killers out of the country. The visas, says the report, were obtained through the Palm Terrace restaurant, a watering hole for Russian gangsters, which Berkovich owns. Berkovich told the Voice that he is aware of the government's charges, and that they are ''total bullshit.'' Although he has no criminal record in the U.S., Berkovich's son, Oleg, was convicted in Los Angeles of solicitation to commit murder on October 11, 1989. He was sentenced to four years. Oleg's business card identified his employer as Magnex, Ltd., a company owned by Mogilevich in Budapest. Oleg was recently arrested in Hungary on unspecified charges but was released.
Oleg's uncle, the colorful Lazar Berkovich, whose last known address was New York City, arrived in the Big Apple after having survived a shootout with Italian gangsters, says his brother Vladimir. The FBI report claims that Lazar was head of Russian criminal activities in Italy prior to his coming to America to recuperate from his wounds, though Vladimir Bercovich denies that Lazar was ever connected to the Russian mob.
Israeli and U.S. law enforcement sources agree that the Red Mafia, though in existence for a mere six years, has become one of the most formidable Russian organized-crime families in the world. Strongest in the Ukraine, Hungary, the Czech Republic, and the U.S., Mogilevich has increased his strength by forging ties with other powerful Russian mob groups as well as with the Italian Camorra. His reported ties to the German BND and expolice officers in Hungary keep him informed of police efforts to penetrate his organization. ''He also ingratiates himself with the police by providing information on other [Russian crime] groups' activities, thus appearing to be a cooperative good citizen,'' says a classfied FBI report. This, along with his strong leadership qualities, his acute financial skills, his talented and highly educated associates, and his use of cutting-edge technology, has so far made the ''Brainy Don'' impervious to prosecution.
Charles Clover Financial Times 30Oct99 Organized crime meets in Tel Aviv
Mr Birshtein hosted a summit meeting of Russian organised crime figures at his office in Tel Aviv from October 10-19, 1995.
Saturday October 30 1999
World News / Europe
(4) UKRAINE: Questions over Kuchma's adviser cast shadows
The Ukrainian president's administration is facing serious allegations ahead of polls this weekend, writes Charles Clover
Few people in Kiev will speak openly about Olexander Volkov, a top adviser to President Leonid Kuchma and manager of his campaign for re-election at polls to be held on Sunday. One well known journalist will not even say his name out loud, preferring to write it on a scrap of paper. He is a powerful man.
Mr Volkov, however, has become an issue in the campaign. The president's opponents claim that Mr Kuchma's 5-year-old administration has been shot through with corruption and they place Mr Volkov at the heart of it.
In fact, they claim that with the help of Mr Volkov, Ukraine's industry has been carved up among sometimes unsavoury insiders connected to the Kuchma administration. If Mr Kuchma wins a second term, these concerns are likely to escalate.
Mr Volkov's influence in the Kuchma camp is great. After joining Mr Kuchma's successful 1994 presidential election campaign, he served as an official adviser to the new president from 1995-96. In September 1998, he was appointed vice-chair of the Co-ordinating Committee for Domestic Policy, headed by Mr Kuchma, which currently functions as Mr Kuchma's election committee.
But concerns about Mr Volkov's business connections have persisted, including from abroad. Two years ago, in response to a legal assistance request from Switzerland, a Belgian judge froze $3m in Mr Volkov's bank accounts in Belgium. The prosecutor's office launched an investigation.
What they found was that $15m had transited Mr Volkov's Belgian accounts from 1993-97, and that he also had bank accounts in the UK, Germany, Monaco, Luxembourg, Switzerland, and the US.
Mr Volkov declined to be interviewed for this article.
No charges have been filed against Mr Volkov, but the Belgians have asked to come to Ukraine and conduct interviews to determine the source of some of the money transiting Mr Volkov's accounts. Since July, they have been waiting for visas but so far in vain.
"Until now, we have had no co-operation at all from the Ukrainian side," said an official from the Belgian prosecutor's office. "To be honest, I would say this is due to deliberate obstruction from a very high level."
The Belgian investigation has revealed Mr Volkov's commercial ties to figures who western law-enforcement agencies say are associated with a Russian organised crime syndicate, the Solntsevskaya mafia, whose influence in Ukraine has grown dramatically since 1994.
Belgian prosecutors confirm that at least $5m of the transfers to Mr Volkov, starting in September 1994 and ending in January 1996, came from companies owned by Boris Birshtein or by associates of Mr Birshtein. It is Mr Volkov's connection with Mr Birshtein that primarily interests Mr Kuchma's political rivals — and also international law enforcement authorities. A Russian emigre financier and businessman, Mr Birshtein is currently being investigated by Antwerp police for suspected money-laundering.
Mr Birshtein is known to have contributed funds to Mr Kuchma's 1994 election campaign, and has developed business interests in the Ukraine. He could not be reached for comment for this article.
The Belgian probe found that of the $5m transferred to Mr Volkov's Belgian bank account, Mr Birshtein's company Seabeco transferred $2m, while Mr Birshtein's associates transferred $3m.
Mr Volkov first came to the attention of European law enforcement organisations as part of a Swiss investigation into Mr Birshtein's business partner, Sergei Mikhailov. Mr Birshtein and Mr Mikhailov jointly control at least one company, MAB International, registered in Belgium, according to Swiss police.
In a fax to the Geneva prosecutor on December 6, 1996, the Russian interior ministry identified Mr Mikhailov as the "leader of the Solntsevskaya criminal syndicate". Mr Mikhailov was arrested in Geneva in October 1996. He was charged and tried for alleged money-laundering and for being a member of an organised crime organisation but was acquitted in December 1998 for lack of evidence.
During the Swiss investigation of Mr Mikhailov, prosecutors found a wire transfer from a trading company named Fearnley — owned by an associate of Mr Mikhailov — to Mr Volkov's account in a Belgian bank in September 1994. It was this transfer that led to the opening of the Belgian file on Mr Volkov.
Jurgen Roth, a German writer and researcher, claims in his latest book on Russian organised crime, The Grey Eminence, published last month, that as early as November 1994, Mr Birshtein was given a leading role in organising the distribution of energy supplies in Ukraine.
Mr Roth cites a report by the US Federal Bureau of Investigation dated August 1996, and obtained by the FT, which says Mr Birshtein hosted "a summit meeting of Russian OC [organised crime] figures" at his office in Tel Aviv from October 10-19, 1995. The FBI confirmed the authenticity of the report.
Participants in the meeting included Mr Mikhailov and Semion Mogilevich, who is currently one of the suspects of the money-laundering investigation involving Bank of New York that became public last August.
According to the FBI report: "The subject of the meeting was the sharing of interests in Ukraine."
According to Volodymyr Malinkovitch, who was one of Mr Kuchma's key advisers for his successful 1994 presidential bid, campaign finance came from Birshtein's company Seabeco, after Mr Volkov joined the campaign in February 1994.
These transfers are cited as evidence by Mr Kuchma's political opponents that Mr Volkov has acted as Mr Birshtein's representative in dealings with Mr Kuchma earlier in his presidency.
Mr Malinkovitch was unwilling to talk about the reasons for which Mr Birshtein might have contributed to the 1994 Kuchma campaign. "I don't want to go into the details, because I am afraid if I did, the western countries would categorically refuse to give us credits," he said.
Insiders in the Ukrainian security services say any contacts there may have been between Mr Kuchma and Mr Birshtein would have ended after January 1997, when Mr Birshtein's visa to Ukraine was revoked.
But even if the links between the Ukrainian government and Mr Birshtein have now been severed, the questions it has raised about Mr Kuchma's first term in office are casting shadows over the second, which most observers believe he has an even chance of winning this weekend.
(5) Watchdogs swoop down on YBM
Ex-premier targeted in securities case against firm with alleged mob links
KAREN HOWLETT and JOHN PARTRIDGE
The Globe and Mail; With a report from Richard Blackwell.
Tuesday, November 2, 1999
Toronto -- A long-running scandal surrounding YBM Magnex and its alleged links to the Russian mob broke wide open yesterday as securities watchdogs swooped down on virtually everyone involved with the company, including former Ontario premier David Peterson.
The Ontario Securities Commission's enforcement arm accused Mr. Peterson, two Bay Street investment firms, former company directors and others of withholding material information from the public during YBM Magnex International Inc.'s brief reign as a stock-market darling two years ago.
The regulator made the allegations against all directors who sat on the board of the now-defunct company, as well its underwriters, First Marathon Securities Ltd. (now part of National Bank of Canada) and Griffiths McBurney & Partners.
In an unprecedented move, the commission said it plans to seek a court order that will allow it to fine the individuals it holds responsible and strip them of their right to act as directors or officers of public companies.
"It's absolute nonsense," Mr. Peterson said in an interview yesterday. "Full disclosure was made in all cases. I did everything appropriate in the circumstances."
Losing the right to sit on boards would be a major blow for Mr. Peterson, a partner at blue-chip Toronto law firm Cassels Brock & Blackwell. He has collected a number of lucrative corporate directorships since leaving politics after the defeat of his Liberal government in 1990. He is chairman of bookstore chain Chapters Inc. and a director of companies including Rogers Communications Inc., Cambridge Shopping Centres Ltd. and Industrial-Alliance Life Insurance Co.
YBM has been at the centre of a sweeping probe by the Federal Bureau of Investigation and other U.S. law-enforcement agencies for more than a year, amid suspicions that the Pennsylvania-based magnet maker is a front for the Russian mob. No charges have been laid, but the company, which is now in receivership, has pleaded guilty in the United States to one count of committing securities fraud. The OSC also has jurisdiction because YBM's shares were listed on the Toronto Stock Exchange until May 13, 1998, the day the FBI raided the company's Pennsylvania head office.
But the commission itself is also entangled in the YBM mess amid questions centring around how much it knew about the company's reputed mob connections and why it did not block a $53-million equity financing in the fall of 1997.
The Globe and Mail reported in February that the OSC's enforcement arm was told by the RCMP back in April, 1997 -- 13 months before the FBI raid -- that Semion Mogilevitch, one of Eastern Europe's biggest criminals and the target of law-enforcement agents in several countries, was a YBM shareholder.
But seven months later, the commission cleared the way for YBM to raise $53-million in equity from the public.
Alan Lenczner, Mr. Peterson's lawyer, said in a statement yesterday that his client "discharged his responsibilities reasonably and in very good faith at all times. Regrettably, the OSC did not."
The commission's official response was that it's "not appropriate" to get into a public debate about whether the regulator was complicit in keeping YBM functioning by approving a prospectus for the equity financing that is now at the centre of its own case.
However, one senior OSC official noted that yesterday's allegations say that there was an enormous amount of damaging information that the company's directors and officers kept from both the public and the regulators.
Specifically, the commission's enforcement arm accuses YBM of not disclosing in its prospectus for the 1997 equity financing that the board had engaged investigators Fairfax Group Ltd. earlier that year to look into allegations that the company had ties to Russian organized-crime figures.
As well, YBM is accused of failing to disclose in April, 1998, that Deloitte & Touche, its auditors at the time, had suspended its work on the 1997 financial statements amid concerns about certain entities and individuals involved with the company.
The targets of the allegations are nine former directors and officers of YBM as well as Lawrence Wilder, also a partner at Cassels Brock and the company's former outside lawyer, and the two underwriters. The former directors and officers are Harry Antes, Jacob Bogatin, Frank Greenwald and Daniel Gatti in the United States, Igor Fisherman of Hungary, Kenneth Davies and Michael Schmidt of British Columbia, Mr. Peterson and Owen Mitchell, a vice-president and director of First Marathon.
"I don't believe I have done anything wrong," said Mr. Schmidt, a Burnaby, B.C., realtor. "I have done everything the way I was supposed to."
Mr. Schmidt, who does not yet have a lawyer, also defended the other directors. "Nobody on the board stuck their head in the sand and said: 'There's something wrong here; we'll turn our back to it.' "
Mr. Wilder is accused of lying to commission staff in a letter in July, 1997, concerning the prospectus. His lawyer, Linda Fuerst, said in a statement that her client "categorically denies" that he misled OSC staff on any aspect of YBM's affairs.
The statement says it was never disclosed to Mr. Wilder during the review of the prospectus that OSC staff had been warned by the RCMP in 1997 of suspicions that YBM was "a front for Russian money laundering."
Mr. Wilder and Cassels Brock plan to ask the courts to bar the OSC from proceeding against him. Ms. Fuerst said in the statement that the OSC's proceedings against her client are unprecedented because he was never an officer or director of YBM.
Cassels Brock said in a statement that both Mr. Peterson and Mr. Wilder will continue to serve their clients "throughout this process."
Likewise, Griffiths McBurney said it intends to contest the OSC's allegations against it. The firm said it is confident that when all the facts are considered, it "will be found to have acted in a professional manner consistent with the standards of the Canadian underwriting community."
Shareholders were kept in the dark right up until the FBI raid on May 13, 1998. The commission halted trading in the shares that day and outlined some of the auditors' concerns. YBM's share price reached an all-time high of $19.90 in March of that year, giving the company, which began life in 1994 as a junior company listed in Alberta, a market capitalization of just under $1-billion. The shares last traded at $14.10 each.
(6) Russian mafia godfathers Mikhailov, Mogilevich linked to Magnex, Arigon, Arbat et al
Date: 14 May 98 19:46:49 GMT
From: "Adrian du Plessis"
Organization: Investigative Research
Earlier this year I began looking into YBM Magnex International, a most curious company listed on the Toronto Stock Exchange which had a market capitalization at that time of close to CDN $900 million. The company claims to be selling huge amounts of magnets in Russia, the Ukraine and Eastern Europe.
Information readily obtainable from various European sources (including corporate registries, court files, press reports, and police intelligence reports), combined with data easily available in Canada, (from the Alberta Securities Commission, university libraries etc.), establishes that several core entities (e.g. Magnex Rt in Hungary, Arbat International in Russia, and Arigon Co. Ltd. registered in the Channel Islands) that were central at the formation of YBM Magnex were vehicles associated with godfathers of the Russian mafia.
The two most notorious Russian mafioso to be associated with these entities are Sergei Mikhailov (sometimes anglicized as Mihailov, and nicknamed "Mikhas") and Semion Mogilevich (sometimes spelled Mogilyevich). Mikhailov is the acknowledged leader of one of Russia's largest and most dangerous criminal organizations, known as the Sons of Solntsevo (Solntsevskaya). Mogilevich, while closely associated with Mikhailov's group, heads his own criminal organization.
Sergei Mikhailov has been in custody in Geneva, Switzerland since October 15 1996 held on charges of money laundering and being a member of a criminal organization. Semion Mogilevich still runs free. Their associates are now widespread.
I had been preparing a series of articles, entitled "YBM Magnex: Securities industry due diligence in a post-Bre-X market", that highlights how Canadian mutual fund managers and brokerage analysts fail to properly concern themselves with the interests of public investors and the integrity of the marketplace.
Welcome events of the past few days, including the cease trading of YBM Magnex stock by the Ontario Securities Commission, news of an investigation by the FBI, and disclosure of the refusal of auditor Deloitte & Touche to accept the company's financial statements as they stand, has altered the necessity and timing of publication of my series.
I feel less urgency to proceed now knowing that the public is better protected. Consequently, my series on the failure of Canadian stock brokers and analysts, mutual fund managers and other industry players to investigate the origins of entities that they actively promote will continue after this Victoria Day holiday weekend in Canada.
Best wishes for a healthy and happy future. - 14/05/94 -
For more on this story, and other stock market news and analysis, visit the Investigative Research & Analysis web-site at imagen.net
YBM Magnex: Securities industry due diligence in a post-Bre-X market (Part I in a series)
The first thing that alarmed me about YBM Magnex was a cluster of Canadian brokerage analysts' reports touting the company's stock.
While visiting offices in the Vancouver Stock Exchange tower I'd initially come across four reports - two published by Nesbitt Burns, and one put out by each of First Marathon Securities and Griffiths McBurney & Partners. All contained positive buy recommendations. The analysts - Peter Sklar at Nesbitt, Mike Middleton at Griffiths McBurney and Kaan Oran at First Marathon - uniformly projected significantly higher share prices for YBM Magnex based upon their stated analysis of the company and its prospects.
In this case, (as is standard), not one of the brokerage firms, at the same time it promotes an issuer's stock, stands behind the claims of their in-house analysts. Each YBM Magnex report included detailed disclaimers, noting such pertinent points as: "Neither First Marathon Securities Limited nor any of its affiliates accepts any liability whatsoever for any loss arising from the use of this report or its contents"; Nesbitt Burns "takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents"; and "The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not guaranteed, nor in providing it does Griffiths McBurney & Partners assume any responsibility or liability whatsoever."
What public value is there in a broker's "buy" recommendation for which the brokerage firm will not accept "any responsibility or liability whatsoever"? Such reports are routinely fed to financial news agencies which dutifully regurgitate the analysts' views and hype. In general practice, the press, even more dutifully, removes the legal disclaimers in its recycling motions.
Further complementing this form of stock market circle jerk, YBM Magnex distributed the Nesbitt Burns, First Marathon, and Griffiths McBurney analysts' buy recommendations to the media with an official disclaimer of its own prominently stamped onto the front page of each report: "Please be advised that we have not independently reviewed or verified the assumptions upon which this analyst's report is based and accordingly assume no responsibility for the accuracy thereof."
Having spent more than six months during 1997 researching the Bre-X Minerals swindle, I was acutely aware of the terrible job done by Canadian brokerage house analysts in their coverage of that company. It's an accepted truth of the junior stock markets that the track record and history of the principals and asset(s) of a venture represent material information upon which investment decisions can be based. Knowing something about the people behind a stock deal, and how the public company has travelled from Point A to B to C and so on in its life, can be helpful - even critical.
In the case of Bre-X, during that stock's promotion, many analysts failed to inform their clients, (and, by extension, through their comments to the press, the broader public), that Bre-X's David Walsh had a history of exaggerating and misrepresenting the affairs of his public companies. These analysts failed to note the history of regulatory violations and stock scandals associated with several other, lower-profile, Bre-X group principals. As well, these analysts failed to adequately detail the history of the Busang property and the backgrounds of those parties involved with the group in such places as Indonesia and Australia.
Without such background information being provided, the public lacks an appropriate context in which to place and consider a company's current claims. Whether the company is a scam or fraud, like Bre-X Minerals, or a legitimate speculation, such as Dia Met Minerals (soon to begin production at its Ekati diamond mine in the Northwest Territories), the history of the people and entities involved represents fundamental knowledge.
After reading and rereading the 15 pages of YBM Magnex "analysis" churned out by three of Canada's senior brokerage firms I was left with many unanswered questions. For example, the reports told me nothing useful about the company's principals or founders, "whatsoever". Not a single member of management, not one principal, not one founder of any of the company's operating entities was named or described in the reports. These buy recommendations also contained little or no information that would tell a reader how the company began and had progressed to its present status - reportedly a highly successful venture with geometrically increasing sales and profit figures, the shares of which were going up and up in price on the Toronto Stock Exchange (TSE).
Wonderful companies - and dreadful ones, for that matter - all start somewhere. Somebody has a product or a vision and works to develop it. That's usually an interesting story. That it didn't interest the Bay Street brokerage analysts to make the origins of YBM Magnex publicly known prompted me to begin my own, independent, due diligence.
My objective? To start to fill in some of the holes apparent in the Magnex coverage put out by the brokerage analysts. And to be prepared, unlike them, to accept responsibility for the results.
End of Part I - 12/05/98 -
YBM Magnex - Securities Industry Due Diligence… Part 2: The myths of Arigon…
Brokerage houses and financial advisors can, individually and collectively, generate for themselves hundreds of thousands, even many millions, of dollars in commissions, agents and underwriters fees and other benefits associated with share and financing transactions in a single public company.
A worthwhile, and independent, due diligence review of a company such as YBM Magnex can be conducted for as little as a few hundred dollars. After a few hours work, involving some very obvious and standard background checks, a market analyst worth their salt should be able to determine if there are aspects of a company's affairs that may require further, more intensive, review. Curiosity, however, appears to be a characteristic that may be singularly lacking in some mutual fund managers, fund advisors and brokers as they direct other peoples' money into some curious places.
To start my YBM Magnex-related research, after breakfast one morning I logged onto the on-line services of Canada Stockwatch, an electronic data base and news service that covers all public companies listed on Canada's stock exchanges. (All the data I pulled from the Stockwatch site can be obtained by paying a monthly fee of only $4.95 - $19.95 + GST - the higher rate enables faster/greater volume data printouts. The Stockwatch service alone, or combined with a search of newspaper databases that have similarly reasonable fee structures, can provide a view of a public company and its principals from the perspective of not only the company itself, but also such external observers as securities regulators, auditors, journalists, litigants etc.)
I learned that this public company, then known as Pratecs Technologies Inc., (a Junior Capital venture or "blind pool"), had commenced trading on the Alberta Stock Exchange (ASE) on August 3 1994.
Even before it had begun public trading on the ASE, Pratecs had announced its plans to acquire Canadian distribution rights for YBM Magnex Inc. products and, further, to acquire all the shares of YBM Magnex. Both of these represented non-arms length transactions as the president of Pratecs, Robert Ventresca, and a director, Jacob Bogatin, were also principals and/or shareholders of the private entity, YBM Magnex. The Canadian distribution rights for magnetic materials produced by YBM Magnex were to be purchased for 4,000,000 Pratecs shares valued at $0.20 each. The acquisition of 100% of YBM Magnex was to be effected through the issuance of 110,000,000 Pratecs shares to the vendors (this large number included the four million shares issued for the distribution rights).
Jacob Bogatin had no track record with Canadian public companies. Robert Ventresca, Pratecs president, had earlier been a participant in publicly traded Technigen Corp. In 1990 Ventresca had taken down a securities position (a convertible debenture with warrants attached) in Technigen which had delisted from the Vancouver Stock Exchange (VSE) in 1989 after the company's president was called to a hearing before the British Columbia Securities Commission (BCSC). Between April 1987 and August 1989, Technigen had been widely revealed in Canada as an outrageous stock market fraud. (This stock market and tax grants scandal was so elevated as to be raised repeatedly in the Legislature of two provinces, B.C. and Saskatchewan.) The company's management had repeatedly made false claims about the status of its operations and sales of its product - a computerized golf driving range. In November 1989, as a result of various misrepresentations, the BCSC banned Technigen's president, Larry Nesis, from the B.C. securities market for three years. After being thoroughly exposed as a scam in Canada, Technigen's trading and misrepresentations carried on, primarily through the U.S. over-the-counter market. (Just last month, the U.S. Securities and Exchange Commission issued a complaint against Technigen that outlined a scheme of stock manipulation and corporate misrepresentations that the SEC alleges was carried out between January 1992 and May 1993.) Pratecs/YBM Magnex principal Robert Ventresca was based in Fountainville, Pennsylvania and, from consideration of the public record, it was just as possible that he had been in the role of an innocent investor, perhaps even a victim, rather than a perpetrator or facilitator, of the Technigen swindle.
The same could not be said of Ventresca's fellow Pratecs director, Michael Schmidt. Schmidt, then identified as a friend of Technigen's president, Larry Nesis, had been an original "seed stock" shareholder in Technigen. For years, straddling both the Canadian and American promotional eras of the company, Schmidt had been in charge of "Investor Relations" for Technigen. Schmidt helped distribute and defend the company's misrepresentative literature. A Financial Post article of February 24 1989 - entitled "Technigen is a disgrace to the VSE" - captured Schmidt failing in an attempt to mislead Diane Francis about the distribution of promotional materials to an U.S. investor. Michael Schmidt's last Canadian media appearance came in July 1989 when he could be found explaining to Globe and Mail reporters why Technigen's purported employees were not visible on a tour of the plant. It was lunch hour, he said.
It was not even my lunch hour yet, and my review of YBM Pratecs - its history and principals - was already creating a disquieting feeling in my stomach.
By the time I reached just the seventh and eighth entries in the Canada Stockwatch database of the company's own press releases my original level of concern was significantly heightened. I wondered what independent investigations may have been conducted by the brokerage analysts at Nesbitt Burns, First Marathon and Griffiths McBurney in connection with this most unusual of announcements.
On June 22 1995 trading in Pratecs shares was halted on the ASE and the company issued a vague public statement about unspecified "information… regarding a subsidiary company associated with its proposed major transaction." The following month, in an obliquely worded announcement, Pratecs (soon to be renamed YBM) disclosed that the lengthy trade halt was the result of "allegations made in London, England against two individual shareholders of YBM Magnex." According to this Pratecs/YBM press release: "The allegations were aimed at two companies in the UK and the attorneys of these two companies. The companies are in no way related to YBM or its subsidiary, Arigon. However, because the companies are owned by an employee and a former director of Arigon, and the companies' monetary affairs were handled by the same solicitors that Arigon used in the past, it had put Arigon also under scrutiny."
An announcement like this is a yellow flag that calls for follow-up review. I decided to skip lunch and keep digging. Mutual fund gurus and brokerage house analysts were enthusiastically touting Pratecs/YBM stock to their clients. What depth of due diligence had they carried out into solving those mysteries surrounding YBM subsidiary, Arigon?
End of Part 2 - 13/05/98 -
VSE brass magnetized by ASE shell success
Not too many years ago the shell business on Howe Street enjoyed a negative reputation. It wasn't just the media, most infamously Forbes magazine which crowned the Vancouver Stock Exchange "Scam Capital of the World" in 1989, but even local market supporters such as ex-Superintendent of Brokers Rupert Bullock were highly critical of the "flood of paper" swamping the VSE.
From the mid-1980s to the early 1990s, numerous observers pointed out that by allowing a preponderance of shells, companies with no significant assets or business operations, to remain on its board, the VSE was open to continuing abuses. To raise standards and restore some of its lustre as the world's "venture capital capital" the VSE proposed a crack down on the trade in shells - promotional vehicles that have no real value apart from their listing status on a public exchange - and to focus on listing genuine junior companies with assets.
But the VSE has lost much of its Canadian market share since the golden days of Hemlo and other mining successes. Long before Michael Johnson became president and brought his talk of "zero tolerance" to the exchange, the VSE's importance, relative to the country's other exchanges, had dwindled. In the early 1980s, the VSE captured 40 to 50 percent of Canada's overall share trading volume and between six and 11 percent of total value. By 1995 these numbers had shrunk to less than half, as the VSE accounted for 20 to 25 percent of overall volumes and only three to four percent of aggregate value. Even in the boom times of recent years, while markets worldwide have hit successive record highs, the VSE index has only managed to reach a level 35 percent below its previous peak of more than 2000 points. Today the index sits at only 621 points.
Johnson has said that his exchange is not in competition with other markets such as the similarly speculative Alberta Stock Exchange, and that each has their own special niche. Still, the tremendous loss of business suffered by the VSE as new companies choose the ASE, TSE, Nasdaq and other forums over it, has not been welcomed by VSE brass and member brokers.
In an effort to win back some of the business that now flows steadily elsewhere, especially over the Rocky Mountains to the ASE, the VSE now proposes to return to the shell game in a big, and better, way. Although some Vancouver Exchange officials have been told not to speak about it, a major initiative has been underway for some time to adopt Alberta's Junior Capital Pool program locally.
The Alberta experiment with JCPs, or "blind pools", began auspiciously in 1986 with Audit Resources. Audit was a shell company that shared brokers and promoters with VSE-listed Hi Peg Resources. Both companies were fraudulent vehicles that met sorry ends, bringing down with them an Alberta brokerage firm, First Commonwealth Securities, and a good old boy from Arkansas, Floyd Leland Ogle, who did jail-time for his part in manipulating Audit shares on the ASE.
But since the days of Audit the JCP program has brought the Alberta exchange and its members more dollars than dishonour. With a trend of Canada's western markets toward viewing with pride their roles as "stepping stone" exchanges - leaving stars such as Bre-X Minerals to graduate to the TSE and Bay Street once they've found their legs as juniors - the Junior Capital Pool concept is especially appealing.
By giving entrepreneurs a chance to launch blind pools in BC, the VSE hopes to attract many new companies that would not satisfy its present listing standards. A JCP is a legally incorporated entity that has no significant assets or business and no agreement in place to acquire any such assets or business. Such a structure, in the view of VSE brass today, provides entrepreneurs with unique opportunities to enter the marketplace. This is the same characteristic that used to worry market officials and observers.
But the lure of Junior Capital Pool monies is a powerful magnet. Eyeing the success of their counterparts at the ASE, the VSE takes the position that shell quality can be maintained by ensuring that management has a successful history of involvement with public companies. In essence, the VSE believes, the successful track records of JCP directors will be the only assets upon their listing of these good-for-business shells. A look at how this formula has succeeded with Alberta JCPs is a mighty powerful argument in their favour for some.
One of the latest stock market winners to swim out of the ASE's shell-cluttered pool is YBM Magnex International, originally incorporated as Pratecs Technologies. On July 18, 1994 Pratecs became a Junior Capital Pool corporation under the regulations of the Alberta Securities Commission. On July 27, just nine days later, Pratecs entered into a letter of intent to merge with YBM Magnex and its subsidiaries. Under Alberta rules a JCP has up to 18 months to complete its "Major Transaction" and gain assets but the quick-out-of-blocks team at Pratecs/YBM were on course before their shares began public trading on the ASE on August 3, 1994.
YBM's history exemplifies the benefits of having directors on board with a background in junior public companies. While most of the original Pratecs directors were initiates to the world of penny stock promotions, the company started out with two directors that boasted a public company track record and remain with YBM today as the magnet/bicycle/diesel oil and more venture climbs to the $1 billion market cap level on the TSE.
YBM director Michael Schmidt is described in the company's literature and on its web-site as an "independent businessman." An original director of Pratecs, Schmidt, a resident of Burnaby, BC, honed his public company skills through handling investor relations for a Saskatchewan-rooted VSE promotion, Technigen Corp. Technigen was a VSE high-flier that reached $16 a share in 1987 based upon the company's false claims to have sold more than $100 million in computerized golf-driving ranges to a Swiss entity, Corporacion Relacio S.A. It turned out that the Swiss company was really the front for a Panamanian-registered shell whose only known representative was an ex-convict stock swindler from Maple, Ontario, named David Charles Stuart. Schmidt appeared at Technigen's 1997 AGM at a Vancouver hotel most upset with press reports questioning the company's legitimacy. At that time he presented himself as an independent shareholder. Technigen's president, Larry Nesis, was subsequently banned from the BC market by securities regulators over his golf machine lies. Mike Schmidt became Technigen's investor relations representative after the stock promotion was exposed publicly as a fraud. By the time he joined Pratecs board years later, Technigen stock was trading OTC in the US for pennies a share.
YBM's other director with a track record upon the JCP being listed is Kenneth Davies, a citizen of the world identified by the company as "Principal Montello Resources Ltd." In 1993 Kenneth Davies and his wife, Ann, were the original shareholders of something called the International Diamond Syndicate which failed to sparkle in efforts to locate or develop diamond prospects in the Northwest Territories through arrangements with various VSE listings. Also in the early 1990s, Davies, along with his daughter Jeannine, was aboard VSE-listed Golden Rainbow Resources which failed in ugly fashion to become a producer and marketer of "quality hair care and beauty aid products." During this time, the entrepreneurial Kenneth Davies billed himself as the representative of Pacific Coast Fish Oil, Processing and Sales Inc. of Blaine, Washington and a specialist in "Real Estate Acquisition, Financing & Development."
YBM Magnex specializes in sales of products to unidentified end-users in Eastern Europe (and, in particular, Russia and the Ukraine). Perhaps the experience most relevant to Kenneth Davies' YBM post, and certainly the only one mentioned by YBM on its web-site, is his years acting as a consultant to controversial Montello Resources. Davies was involved with ASE-listed Montello in the early 1990s when the company was hyping plans to acquire an interest in an airplane manufacturing entity in Europe identified as Promovia SA. Financing for Promovia, described as a maker of trainer jets and other aircraft, was to be helped along by Salim Rana, an associate of Kenneth Davies who was also involved with Golden Rainbow's botched hair care enterprise. (At last public report, Rana was under R.C.M.P investigation in connection with an alleged theft and fraud involving GHK Resources Ltd. - see Canada Stockwatch dated April 12 1996). The Promovia affair (with a daisy-chain of links stretching from Tortola, BVI to Dublin, Ireland and beyond, including Swiss nominees Incagest and Univalor S.A.) proved to be extraordinarily messy and required lengthy public explanations by the company when it became grounded. By 1993 Montello stock was trading down to $0.02. The company was suspended by the ASE and trading was not allowed to resume for a full year. The dubious aircraft interests were sold to a former Montello principal "for nominal consideration" and the company took up mineral prospecting. Since returning to public trading in 1994, Montello has kept a lower profile and stock price and Kenneth Davies has added YBM to his resume.
Whatever quality directors a JCP can initially attract, a successful shell like Pratecs/YBM can entice even more high profile figures to its board once the promotion is up and running. In the tradition of past juniors such as Harvard International, the french fry finagle that had Canada's ex-Prime Minister John Turner on board when it fried investors, the magnet merchants have attracted ex-Ontario Premier David Peterson to their stable. In April of 1996, Peterson was granted options on 50,000 YBM shares exercisable at a price of $3.23 each. At todays closing price for YBM, David Peterson is enjoying a paper profit of more than $800,000.
When such rich rewards can be possible from a JCP, it is small wonder that VSE members would be anxious to get with the program. Whether Vancouver-spawned JCPs will more closely resemble Audits or YBMs only time will tell. - 16/03/98 -
Unusual corporate affairs leave YBM Magnex analysts and investors happy
YBM Magnex is the sort of success story that makes legends of shell creators on the Vancouver and Alberta stock exchanges. YBM's journey from Junior Capital Pool to today's $20 share price level has been a fascinating trip.
For over a year, the company and a supporting cast of Canadian brokerage analysts have been commenting upon YBM's rapid penetration of the North American permanent magnet market. A recent audit, however, has shown this penetration to be non-existent. Apparently, neither, this awkward fact, nor other curious elements of the successful promotion, has tempered anyone's enthusiasm. On Monday March 9 the company's shares closed at an all-time high of $19.90 on the Toronto Stock Exchange - giving YBM a market capitalization of close to $900 million.
In August 1996, YBM's vice president of business development, James Held, told Dow Jones News Service that U.S. revenue totalled U.S. $5 million for the first six months of the year alone. This was up sharply from U.S. $2.9 million for all of 1995. Held added that YBM was working on "several significant contracts" in the U.S. and Mexico and was close to securing a U.S. $2 million deal in Canada although he declined to provide specifics. Held pointed out that YBM does not provide earnings forecasts but the spokesman said he had no trouble with the numbers being churned out by brokerage industry analysts. Kaan Oran of First Marathon Securities gushed to Dow Jones: "The company has beat my estimates for the last three quarters."
Then, in October 1996, James Held reported that "YBM's strong results are due to a number of factors, including the continued penetration of the North American permanent magnet market which contributed approximately 15% of total sales through nine months, compared to 5% for the year 1995." YBM's 1996 annual report, (dated March 4 1997), again highlighted this significant growth in the North American market. The company's Philadelphia accountants, Parente, Randolph, Orlando, Carey and Associates, certified statements showing that YBM's N.A. sales had more than doubled between 1994 and 1995, from U.S. $1.4 million to U.S. $2.9 million, and then jumped to U.S. $13.6 million by year end 1996. According to these figures, since 1994, (when YBM began public life through an Alberta Junior Capital Pool RTO), and 1996, operating profit for North America had increased from just U.S. $7,000 to over U.S. $3 million. The only other region to experience such exponential growth in sales was the Middle East, where YBM reported 1996 sales of U.S. $3.3 million and operating profit of U.S. $1.2 million. Unfortunately, many of the figures were bogus.
Last fall, in order to satisfy Canadian securities regulators and clear the path for a large YBM prospectus financing, Deloitte & Touche LLP was called in for an audit. The company and its analyst promoters have been quick to point out that the review by Deloitte & Touche resulted in no adjustments to overall sales numbers, which is true. The rest of the truth, so far, is the explanation for "certain adjustments" that resulted from the audit.
Perhaps most significant among the unusual notes to the Deloitte & Touche audit has been the "reclassification" of the company's vaunted North American sales. Instead of U.S. $13.6 million sales in this market as originally reported by the company, YBM actually sold just $1.8 million in 1996 - a drop from the 1995 numbers. Similarly, N.A. operating profit has devolved - shrinking from a reported U.S. $3 million down to $600,000. Contrasting with previously published reports, the company's growing Middle Eastern sales and operating profit has been identified as U.S. $0.
Where did the sales go?
According to YBM management, this bizarre circumstance is the result of "certain geographic sales information previously reported based upon the location of the company's distributors" being restated "to reflect the "ultimate end user." When YBM executive James Held was touting major developments in North American sales deals to the press, apparently, he should actually have been talking about more sales in two of the world's most inhospitable business climates: the notoriously murky arenas of Russia and the Ukraine where the company concentrates the bulk of its activities.
Instead of showing an accelerating trend toward sales in U.S., Canada and Mexico, YBM's audited results show how the company remains dependent upon unstable and inflationary regions. For year end 1996 net sales were reported as being U.S. $90.3 million. YBM previously stated that European markets accounted for 81%, North America was at 14%, and the Middle East accounted for 4% of this total. In truth, North America accounted for just 2%, and Europe represented 98%. The Middle East figure was zero. Of the European amount claimed, 79% of sales were centred in the wild-west financial environment that exists in Russia and the Ukraine today.
How the company managed to mistake U.S. $15 million in Russian and Ukrainian sales is anything but clear. Nor is it evident what may be driving a tremendously multiplying demand for the company's magnets in Eastern Europe. Regardless, YBM management and Canada's financial analysts covering the high-flying stock, are confident that the North American thrust will be successful in future.
Likewise, some of the other jarring notes from the Deloitte & Touche report are billed as signs of past problems. The audit uncovered a "weakness in inventory controls" that YBM says can be avoided in future by "the implementation of a corporate wide information system" to "assist management in centralizing accounting controls." Triggering this recognition was a "non-cash adjustment to inventory and cost of sales of U.S. $5.2 million." The magnet company explains this circumstance came about after it provided US$5.2 million in diesel oil inventory to an unidentified distributor. "The contract called for payments to be made to the Company as such time as the diesel was consumed by end users and profits were realized." Company management blames its credit-good-to-the-last-drop of oil on the decentralized nature of its international operations and on its rapid growth.
As at December 31, 1996, YBM "had $3,000,000 of uninsured deposits in a Russian financial institution." But if this or any other financial notes should give pause to the casual reader of corporate statements, there's a stack of enthusiastic brokerage research reports that tell investors why YBM stock is about to break the $1 billion market cap level.
In a February 3 1998 buy recommendation, First Marathon Securities analyst Kaan Oran described how YBM had come "out of the forensic study by Deloitte and Touche with flying colours." That's a perspective likely shared by others. Vice president and director of First Marathon, Robert Owen Mitchell, also sits on the board of YBM Magnex.
As the company continues to report ever-increasing sales and earnings, the YBM bandwagon has become increasingly crowded of late. Early boosters included Rob McConnachie of Canaccord Capital (now with Scotia Capital Markets), Peter Sklar of Nesbitt Burns and Mike Middleton of Griffiths McBurney Partners. But in today's over-heated mutual fund driven market, there's always room for one more voice telling people what stock to buy. - 10/03/98 ============================================
May 16, 1998
(7) Documents link YBM to Russian mafia
Company is under investigation by various U.S. agencies and the Ontario Securities Commission.
David Baines, Sun Business Reporter, with files from Adrian du Plessis Vancouver Sun
While it was going public on the Alberta Stock Exchange in 1995, YBM Magnex International Inc. was linked to alleged money-laundering operations with the Russian mafia. But after a six-week trading halt, ASE officials cleared the company to resume. The stock price soared and the company moved to the Toronto Stock Exchange where it became a favorite of some of Canada's top analysts, underwriters and mutual fund managers.
The love affair came to a crashing halt Wednesday when about 60 agents from the Federal Bureau of Investigation, U.S. customs and immigration service and the Internal Revenue Service raided the company's headquarters in Newton, Pa. The Ontario Securities Commission -- citing the raid and evidence of criminal activity uncovered by the company's auditors -- issued a cease trade order, freezing nearly $650 million worth of YBM stock certificates.
The purpose of the U.S. investigation has not been officially revealed, but the Philadelphia Inquirer quoted an unnamed law enforcement officer as saying it relates to allegations of money-laundering, securities fraud, and customs and immigration violations.
According to documents obtained by The Vancouver Sun, the founders of YBM and its subsidiary companies are alleged to be high-ranking members of Russia's most notorious mafia gangs. Their current links, if any, to the company are not known. YBM vice-president James Held said Friday he is "not knowledgeable enough" on YBM's original shareholders to comment. He said he would make inquiries and call back, but did not respond by press time.
According to disclosure documents filed with the Alberta Securities Commission, YBM went public in 1995 by acquiring an ASE-listed shell company called Pratecs Technologies Inc. The transaction was structured in two stages. First, Pratecs would acquire Canadian rights to distribute products of YBM Magnex Inc. of Pennsylvania. Then it would acquire all of YBM's outstanding shares.
According to disclosure documents, YBM owned Arigon Company Ltd. of the Channel Islands which, in turn, owned Magnex RT of Budapest and Arbat International of Russia. Magnex was the main operating company. According to unaudited statements, it had sold $20.6 million US worth of magnets in 1993 and earned $1.8 million US in net income. Of this amount, $4.3 million US, or about one-fifth of the company's sales, was said to have been generated in Canada. There was, however, no evidence that any sales had actually been made in Canada. To complete both stages of the transaction, Pratecs would issue 110 million shares at a deemed price of 20 cents to the shareholders of YBM, putting them firmly in control of the public company.
According to disclosure documents, the largest shareholder would be Jacob Bogatin, then YBM's group vice-president and now YBM's president and CEO. Bogatin purportedly holds two science doctorates from universities in Russia. Others YBM shareholders who would receive large blocks of Pratecs stock included Semeon, Titania and Mila Mogilevitch. Together they would receive 16.5 million of the 110 million shares. According to a May 1995 FBI report. Mogilevitch is a high-ranking member of the Russian mafia.
"Semion (Note: Russian names are often spelled differently when translated to English) Mogilevitch runs an extensive prostitution operation out of the Black and White Nightclubs in Prague and Budapest. Foreign law enforcement agencies have documented Mogilevitch's prostitution operation as the centerpiece of his operations in Europe," the report states.
The report notes that Eurasian criminal organizations use false documentation "to facilitate travel or residency in furtherance of criminal activities. Many of Semion Mogilevitch's lieutenants and Mogilevitch himself hold Israeli citizenship and carry Israeli passports."
More crucially for YBM shareholders, the report also linked Mogilevitch to Arigon:
"A number of individuals associated with Semion Mogilevitch in the Los Angeles area received wire transfers from Arigon Ltd. The use of individuals to receive small deposits may be a method by which Mogilevitch is disguising larger transactions from criminal proceeds. The use of residential addresses for a number of front companies in Los Angeles is another indication of money laundering."
Other YBM shareholders who received large blocks of Pratecs stock included Semion's ex-wife, Galina Grigorieva; Konstantin Karat; Anatoly and Tania Kulachenko; and Alexei and Valentina Alexandrov. No background information on these people was provided.
The transaction, which would turn the shell company into an active business, was sponsored by Yorkton Securities in Calgary. Signing on behalf of Yorkton was Michael Prew, a Yorkton vice-president and former chair of the ASE board of governors.
On June 22, 1995, before the second stage of the transaction was completed, Pratecs "voluntarily" halted trading due to information it had received on an unnamed subsidiary company. The nature of that information was not disclosed to shareholders.
Days earlier, CTK National News Wire (a Czech news agency) reported that members of two Russian gangs -- Solntsovskaya, based in Moscow, and Solomonskaya, operating in Ukraine and Israel -- had met in the U Holubu restaurant in Prague on May 31, 1995 to celebrate the birthday of a high-ranking gang member.
The wire service said the restaurant "is the seat of Arigon Cs., daughter company of Arigon Ltd." It said Czech police raided the meeting because it had received an anonymous tip that Mogilevitch, described as boss of one of the gangs, was to be murdered. Police said that two large refrigerating vans had been parked outside the restaurant, possibly for the removal of dead bodies. Two hundred people were detained during the raid, but all were eventually released without indictment.
The wire service said a team of British police specialists subsequently went to Prague: "Their stay was connected with the arrest of British lawyer Charles Churchwald in May who was suspected of laundering $80 million gained by the Russian organized crime by means of the British Arigon Ltd. company."
On June 6, 1995, the High Court of Justice in London issued orders freezing the assets of Arigon and several people who were allegedly shareholders of Arigon. They were Adrian Churchward (correct) and YBM shareholders Galina Churchward (nee Galina Grigorieva, who was reportedly Mogilevitch's former wife), Mogilevitch and Konstantin Karat. There were also allegations that two other YBM shareholders -- Anatoly Kulachenko and Alexei Alexandrov -- had criminal convictions in the Ukraine.
It was this court action that caused ASE officials to halt trading, but the allegations were eventually dropped, the freeze orders lifted and trading in the ASE company resumed without any public disclosure of disclosure of what the allegations were about or who was involved.
As part of its corporate reorganization, Pratecs consolidated its shares on a five-for-one basis, then proceeded with a stock offering of 7,075,000 shares at $2 each underwritten by First Marathon Securities and Griffiths McBurney & Partners.
Four months later, First Marathon vice-president Owen Mitchell, who certified the prospectus on behalf of his firm, became a director of YBM. That prospectus contained audited statements for 1992, 1993 and 1994. Those statements revealed that during 1993 the company hadn't sold any magnets in Canada. This contradicted the company's earlier assertion that Canadian sales had totalled $4.3 million US. There was no attempt to resolve that discrepancy.
On Nov., 3, 1995, the company announced that the acquisition of YBM Magnex and stock offering had been completed. That meant that Mogilevitch and the other YBM shareholders had received their 110 million shares (22 million post-consolidation).
On Nov. 26, 1995, Edinburgh-based Scotland on Sunday, published an article entitled, "Western businesses bought as front for Russia mafia." "In a bid to widen its share of western markets," the article stated, "the Russian mafia has moved is forward money-laundering operational bases to central Europe, flooding laundered money from criminal activities into the new democracies."
"According to Budapest police officers investigating the affairs of the Magnex electronics firm, Budapest and Prague have become the focal point of Russian mafia money-laundering operations because of easy access, the weakening of traditional institutional structures and the great protection afforded to the depositors by commercial banks," said Scotland on Sunday.
"Police also claim that Mogilyevich (correct) has several 'action men' who worked mafia operations in Central and western Europe. One of them was named as Igor Anatolyevich Tkacsenko, who has been linked to a series of serious crimes in region, but as the witnesses observe the rule of 'omerta' (code of silence), he cannot be brought to book."
The article continued: "According to both Budapest and Moscow police, one of the key figures behind the money-laundering is Sergei Mikhailov (who is) head of Moscow's dominant crime syndicate, the Solntsevo gang."
In November 1996, a well-regarded Russian magazine, Ogonyok, published the names of Russian "godfathers," known to be living in Budapest, who have been accused of money laundering and other crimes by the Russian authorities.
One was Mikhailov, who was said to have helped establish Arigon, Magnex and Arbat. Mikhailov was arrested in Geneva on Oct. 15, 1996, and charged with money-laundering, visa violations, illegal real estate dealings and being a member of a criminal organization. He has been in custody ever since.
After YBM went public, it reported rapidly increasing sales. Last year, the OSC raised questions about the company's 1996 audited financial statements and asked for a re-audit to confirm its reported sales and the identity and ultimate location of its customers. That re-audit, conducted by Deloitte & Touche in Pennsylvania, confirmed the total sales figures but found that instead of selling $13.6 million US worth of magnets in North America, as previously reported, it had sold only $1.8 million US. The re-audit also discovered that YBM had given $5.2-million US worth of diesel oil to an unnamed party. Payment was not to be made until the oil had been consumed by end users. Why the company made such an arrangement, or why it was dealing in diesel oil was never explained.
These adjustments did not deter analysts such Nesbitt Burn's Peter Sklar or First Marathon's Kaan Oran, who continued to recommend the stock. In March, the company issued unaudited statements showing that 1997 sales had jumped 53 per cent to $138 million US and net income nearly doubled to $25.6 million.
The stock soared to a high of $19.90, raising the company's total stock market value to $900 million. Then, on May 8, the company announced it would seek a 45-day extension in filing its 1997 audited statements. The stock crumbled to $14.35 by Wednesday.
Then, 23 minutes after the FBI raid began, the company asked the TSE to halt trading. Later that day, the OSC issued a cease-trade order revealing that Deloitte had uncovered evidence of criminal activity within the firm and had suspended its audit.
The Toronto Star
(8) Boris knows everyone . . . Head of firm embroiled in Russian controversy moves with high, mighty
BY JACK LAKEY AND CAL MILLAR TORONTO STAR
Boris Birshtein moves with powerful people, and always travels first class.
He's met with Brian Mulroney, stayed at the luxury Moscow villa reserved for the likes of Henry Kissinger and Fidel Castro and served as a key adviser to the president of the independent Russian state of Kyrgyzstan. But today, Birshtein, international chairman of The Seabeco Group, is unlikely to be warmly received in Russia.
Seabeco, which was formed in Toronto in 1985, has been caught up in allegations that have shaken the Boris Yeltsin government and led to the resignations or firings of several senior cabinet ministers. Accusations in Moscow involve key Russian politicians, Swiss bank accounts, 7 million tons of oil and billions of dollars in laundered money.
There is no evidence of any wrongdoing by Seabeco, either in Canada or elsewhere. However, Seabeco has been fingered by Yeltsin forces as a key player in backroom export dealings. Russia's justice minister says Seabeco "is looming like a terrible shadow over this country."
Until the corruption scandal broke out, it seemed Birshtein, a 45-year-old Lithuanian emigre, had everything going his way. Like many of his former Forest Hill neighbors, he's used to the trappings of wealth. He roams the world in his private jet - a 28-seat, twin-engine model with the name of his multinational corporation, Seabeco, emblazoned in gold on white - cutting business deals on his state-of-the-art satellite telephone.
In Russia, he'd whisk through customs like a head of state - greeted with respect and munificence by men who have grasped power in the freewheeling chaos of the new democracy. Police cars with wailing sirens and flashing lights escorted his limousine motorcade to his magnificent villa in the Lenin Hills of Moscow, patrolled by heavily armed guards in Russian military uniforms.
In Canada, as "economic adviser" to the president of Kyrgyzstan, he had an entree to Canada's political elite, meeting with Mulroney and key members of his former cabinet, such as then-trade minister Michael Wilson and external affairs chief Barbara McDougall.
Mulroney's executive assistant Paul Smith said yesterday the former prime minister has had no contact with Birshtein since that February, 1992, meeting.
The grand style in which Birshtein did business impressed Liberal MPP Monte Kwinter, who was enlisted to help develop a market economy plan for Kyrgyzstan. "When you first see it, it's bizarre," Kwinter said. "But you accept it. That's the way it is over there. It was like he was a senior government official himself."
Birshtein, a Lithuanian native who came here in 1985, sold his posh, $ 1 million Forest Hill Rd. house last month and left Canada.
Seabeco is winding down its headquarters at 95 St. Clair Ave. W. It is now headquartered in Zurich. Seabeco officials have refused to comment on the allegations being made in Russia. Birshtein has not returned messages from The Star or responded to requests for interviews.
But Birshtein's name surfaced two weeks ago after someone fired three shots from a .45-calibre gun at the Bridle Path-area home of Dmitri Iakoubovski, a former Russian government official now living in Metro. Birshtein's name was mentioned in an unsigned threatening note tossed over the gates of Iakoubovksi's $ 5 million mansion.
Seabeco, which specializes in business ventures in Russia, has made incredible inroads since the Soviet Union began crumbling in 1989.
Birshtein was appointed by Askar Akaev, Kyrgyzstan's president, to lead the country's Committee for Reconstruction and Development in 1991. Akaev also empowered Birshtein to serve as the country's foreign trade representative and reportedly released Seabeco from any tax obligations.
It is unclear what Birshtein has received in return for helping Kyrgyzstan, but senior Kyrgyze officials have recently said Seabeco is no longer involved in any enterprises in that country.
Russian enterprises spawned by Seabeco reportedly include a joint venture with Moscow's former chief of police, steel and fertilizer partnerships, a joint venture with a huge labor union and the formation of its own Russian bank, called Seabank.
In 1990, Birshtein was named chairperson of the Canada-Poland Business Council, formed to help Canadian companies take advantage of market opportunities evolving in newly democratic Poland.
During a four-day visit to Canada in 1992, the Kyrgyzstan president and Birshtein met Mulroney, McDougall, Wilson and former citizenship minister Gerry Weiner. Birshtein brought Kwinter and economist Charles McMillan, a former aide to Mulroney, on board to develop an economic game plan for Kyrgyzstan, a country of 4.6 million people that was part of the former Soviet Union.
Kwinter, Ontario's former trade minister, said Birshtein was personally involved in all the meetings between Akaev and senior members in the Mulroney cabinet. "You talk about being at the foot of the president, well, those two were inseparable," Kwinter said of Birshtein's relationship with Akaev.
On the same trip, Birshtein also met Hal Jackman, Ontario's Lieutenant-Governor, during a tour of Queen's Park in Toronto. A letter to a Seabeco official from Pierrette Lucas, chief of protocol in the external affairs department, notes that most of the visit was arranged by Seabeco.
"My office will arrange for courtesy customs and immigration clearance . . . and will liaise with the RCMP for appropriate security," Lucas wrote.
According to Kwinter, Birshtein, his wife Nathalia and two children did not have an ostentatious lifestyle in Forest Hill although they lived very comfortably. The couple had a relaxed, charming way with guests, said Kwinter, who was once invited to Birshtein's for dinner with his wife.
Birshtein's neighbors saw things differently. They told The Star that the Canadian Security Intelligence Service (CSIS) and RCMP officers began asking about the limousines and luxury cars that began stopping outside Birshtein's home shortly after he moved in. "We called them the KGB," one neighbor said, noting that nobody at the Birshtein residence seemed very friendly or interested in fitting into the community. "You'd see limousines with drivers in them parked outside for hours at a time. There were always guys in suits shuffling in and out with briefcases."
Birshtein carries a satellite telephone with him when he travels, so he can keep in touch with business contacts worldwide and Seabeco offices in Zurich, Moscow, New York, Toronto, Brussels, Rome and Santiago. When they were in Metro, Birshtein and his wife both drove Mercedes-Benzes with matching vanity licence plates.
The Metro dentist who eventually bought Birshtein's Forest Hill home said that when he inspected it, he was surprised to find a special phone system equipped with six separate lines. "They seemed like nice enough people to me," the dentist said.
Kwinter first met Birshtein while on a trade mission to Ukraine with Ontario business people in 1988 or 1989. Birshtein made a strong first impression, Kwinter said, because he was able to get things done that other people couldn't, and solved a problem for the visiting Ontario delegation.
He and Birshtein later met informally a few times in Canada, but their relationship grew closer in 1991, after the Ontario Liberal government was defeated and he was no longer trade minister.
As head of Kyrgyzstan's economic restructuring committee, Bershtein asked Kwinter for advice in developing a new economic game plan for the country. Kwinter recommended Charles McMillan, a business professor at York University who had served as an aide to Mulroney during his first term.
Within 10 days of agreeing to help, Kwinter said he and McMillan were provided with airline tickets to Zurich. From there, they flew with Birshtein to Moscow.
In Moscow, Kwinter said he was stunned by the reception Birshtein received. "He was obviously a very important guy," Kwinter recalled. "People were there to greet him. We were escorted to his villa in a motorcade with police cars and flashing lights, armed guards."
"He always has an entourage of people around him, wherever he is, talking in Russian. You can be in the middle of a meeting and somebody will just walk in and start talking to him, like you're not there. And he was constantly on the phone. "You don't have a meeting with Birshtein, you have an audience with him."
Birshtein surrounded himself with many people with impressive titles, including Kwinter, who had been given business cards that said he was "vice- chairman" of the firm. But Birshtein was always firmly in charge, Kwinter said. "Boris Birshtein is Seabeco. If it doesn't happen with Boris, it doesn't happen."
Kwinter insists he never held any formal position with Seabeco. "He wanted it to be perceived that all the work was being done by Seabeco," Kwinter explained. "I was nothing to the Russians. He just wanted it to seem that I was on the Seabeco team." "He wasn't trying to sell our services, he was trying to sell Seabeco."
Before boarding an Aeroflot flight to Bishkek, Kyrgyzstan's capital, the group stayed in the luxury villa Birshtein had rented in Moscow. Kwinter said the walled compound was guarded by what appeared to be Russian military personnel.
In Bishkek, they met Nisardin Issanov, Kyrgyzstan's prime minister, and flew with him to a remote part of the country for an Aeroflot helicopter tour of rich gold deposits.
After spending the night in a village, the group was about to fly back to Bishkek when they were grounded by fog, Kwinter said. Instead of waiting, they decided to make the 10-hour trip by car in a convoy escorted by a police cruiser.
During the drive, a large truck appeared to lose control, veered across the road and slammed into the car carrying Birshtein and prime minister Issanov. The car flipped twice and landed on its roof in a ditch. Birshtein was badly shaken, but unhurt. The prime minister was pulled from the car "moaning and groaning and holding his head," Kwinter said. Issanov was rushed to a nearby hospital by his bodyguards.
A short time later, the prime minister was pronounced dead.
"I was surprised that the extent of his injuries could be life-threatening," Kwinter said. "I mean, this was a strong, robust man in his early 40s, and his injuries definitely did not appear to be life-threatening."
McMillan worked out an economic strategy for Kyrgyzstan that was adopted by the Kyrgyzstan parliament, Kwinter said. In a letter dated Dec. 31, 1991, McMillan advises the Kyrgyzstan president that "Prime Minister Mulroney has asked for a briefing on the documents."
Kwinter stressed that neither he nor McMillan were paid any money, but had their expenses paid for through a contract between the Kyrgyzstan government and Seabeco. "If I made some money, I'd tell you," Kwinter said. "It wouldn't have been illegal. I wasn't a cabinet minister at the time."
Kwinter and McMillan went on to help the Kyrgyzstan government form an international school of management and business in Bishkek, which they are still involved in as advisers. "One thing we can be proud of is the economic plan and the business school," Kwinter said.
Seabeco is a joint-venture partner with a large Russian fertilizer company called Agrochim, and a steelmaking company known as Tsvetmetexport. Both are owned by the Russian government. "Seabeco was part of big things over there, so I had no reason to question where these guys were getting their money from," said Kwinter. "If they were joint-venture partners in these two huge enterprises, it had to be generating a staggering amount of money."
Added McMillan: "I find the whole thing, the accusations back and forth, a complete mystery. But anyone who knows anything about Russia knows everyone is at everyone else's throat. "There's an element of bluster in everything that's said in Russia."
GRAPHIC: 2 color photos: Entrepreneur Boris Birshtein, right, with former prime minister Brian Mulroney in Ottawa during February, 1992, visit of Kyrgyzstan's president: CONNECTIONS: MPP Monte Kwinter, left, and former Brian Mulroney aide Charles McMillan pose with Aeroflot pilot before flight from Moscow to Kyrgyzstan. 4 photos: FATAL CRASH: As Charles McMillan looks on, Boris Birshtein is helped from wrecked car during tour of remote area of Kyrgyzstan. The country's prime minister died in the crash
BUSINESS SCHOOL: MPP Monte Kwinter, top, and Charles McMIllan helped develop a business school in Kyrgyzstan, housed in the former Communist party headquarters, below: PRIVATE JET: Boris Birshtein, shown on company brochure, used Seabeco's 28-passenger jet extensively. Map: territory of former Soviet Union, showing Kyrgyzstan.